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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH ___ 1998 REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
__________________________
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
__________________________
21ST CENTURY TELECOM GROUP, INC.
(EXACT NAME OF COMPANY AS SPECIFIED IN ITS CHARTER)
ILLINOIS 36-4076758
(STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
WORLD TRADE CENTER, 350 NORTH ORLEANS, SUITE 600
CHICAGO, ILLINOIS 60654
(312) 470-2100
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF COMPANY'S PRINCIPAL EXECUTIVE OFFICES)
GLENN W. MILLIGAN
CHIEF EXECUTIVE OFFICER AND CHAIRMAN OF THE BOARD OF DIRECTORS
21ST CENTURY TELECOM GROUP, INC.
WORLD TRADE CENTER, 350 NORTH ORLEANS, SUITE 600
CHICAGO, ILLINOIS 60654
(312) 470-2100
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
COPIES OF ALL COMMUNICATIONS, INCLUDING ALL COMMUNICATIONS SENT TO THE AGENT FOR
SERVICE, SHOULD BE SENT TO:
EDWIN M. MARTIN, JR., ESQ.
PIPER & MARBURY, L.L.P.
1200 NINETEENTH STREET, N.W.
WASHINGTON, D.C. 20036
(202) 861-6315
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
IF THE ONLY SECURITIES BEING REGISTERED ON THIS FORM ARE BEING OFFERED IN
CONNECTION WITH THE FORMATION OF A HOLDING COMPANY AND THERE IS COMPLIANCE WITH
GNERAL INSTRUCTION G, PLEASE CHECK THE FOLLOWING BOX: [_]
IF THIS FORM IS FILED TO REGISTER ADDITIONAL SECURITIES FOR AN OFFERING PURSUANT
TO RULE 462(b) UNDER THE SECURITIES ACT, PLEASE CHECK THE FOLLOWING BOX AND LIST
THE SECURITIES ACT REGISTRATION STATEMENT NUMBER OF THE EARLIER EFFECTIVE
REGISTRATION STATEMENT FOR THE SAME OFFERING: [_]
IF THIS FORM IS A POST-EFFECTIVE AMENDMENT FILED PURSUANT TO RULE 462(d) UNDER
THE SECURITIES ACT, CHECK THE FOLLOWING BOX AND LIST THE SECURITIES ACT
REGISTRATION STATEMENT NUMBER OF THE EARLIER EFFECTIVE REGISTRATION STATEMENT
FOR THE SAME OFFERING: [_]
IF DELIVERY OF THE PROSPECTUS IS EXPECTED TO BE MADE PURSUANT TO RULE 434,
PLEASE CHECK THE FOLLOWING BOX: [_]
CALCULATION OF REGISTRATION FEE
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TITLE OF EACH CLASS OF AMOUNT TO BE PROPOSED PROPOSED
SECURITIES TO BE REGISTERED REGISTERED MAXIMUM MAXIMUM AMOUNT OF
AGGREGATE AGGREGATE REGISTRATION FEE
OFFERING PRICE OFFERING PRICE(2)
PER NOTE(1)
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12 1/4 SENIOR DISCOUNT NOTES DUE 2008 $363,135,000 55% $200,000,000 $59,000
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13 3/4 SENIOR CUMULATIVE EXCHANGEABLE $ 50,000,000 100% $ 50,000,000 $14,750
PREFERRED STOCK DUE 2010
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(1) ESTIMATED SOLELY FOR PURPOSES OF CALCULATING THE REGISTRATION FEE.
(2) CALCULATED PURSUANT TO RULE 457(o).
THE COMPANY HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE COMPANY SHALL FILE A
FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED MARCH 2, 1998
Preliminary Prospectus
LOGO
21ST CENTURY TELECOM GROUP, INC.
Offer to Exchange (i) 12 1/4% Senior Discount Notes Due 2008, which have been
registered under the Securities Act of 1933, as amended, for any and all of its
outstanding 12 1/4% Senior Discount Notes Due 2008 and (ii) 13 3/4% Senior
Cumulative Exchangeable Preferred Stock Due 2010, which has been registered
under the Securities Act of 1933, as amended, for any and all of its outstanding
13 3/4% Senior Cumulative Exchangeable Preferred Stock Due 2010
The Exchange Offer will expire at 5:00 p.m., Eastern Standard Time, on
[_________, 1998] unless extended.
21st Century Telecom Group, Inc. ("21st Century" or the "Company") hereby
offers, upon the terms and subject to the conditions set forth in this
Prospectus and the accompanying letters of transmittal (each a "Letter of
Transmittal," collectively the "Letters of Transmittal" and, together with this
Prospectus, the "Exchange Offer"), (i) to exchange its 12 1/4% Senior Discount
Notes Due 2008 (the "New Notes") which have been registered under the
Securities Act of 1933, as amended (the "Securities Act"), pursuant to a
Registration Statement of which this Prospectus is a part, for an equal
principal amount of its outstanding 12 1/4% Senior Discount Notes Due 2008 (the
"Old Notes" and, together with the New Notes, the "Notes"), of which, as of the
date of this Prospectus, there was outstanding $363,135,000 principal amount at
maturity and (ii) to exchange shares of its 13 3/4% Senior Cumulative
Exchangeable Preferred Stock Due 2010 (the "New Exchangeable Preferred Stock")
which have been registered under the Securities Act, pursuant to a Registration
Statement of which this Prospectus is a part, for an equal number of shares of
its outstanding 13 3/4% Senior Cumulative Exchangeable Preferred Stock Due 2010
(the "Old Exchangeable Preferred Stock" and, together with the New Exchangeable
Preferred Stock, the "Exchangeable Preferred Stock"). Shares of the Old
Exchangeable Preferred Stock were originally sold on February 9, 1998 (the
"Issue Date") as a component of Units (the "Units") consisting of one share of
Old Exchangeable Preferred Stock and one Warrant (a "Warrant") to purchase
8.7774 shares of common stock, no par value, of the Company at an exercise price
of $.01 per share. The sale of the Old Notes and the Units is referred to
herein as the "Private Placement."
The Company will accept for exchange any and all Old Notes or shares of Old
Exchangeable Preferred Stock that are validly tendered and not withdrawn on or
prior to 5:00 p.m., Eastern Standard Time, on the date the Exchange Offer
expires (the "Expiration Date"), which will be [_________, 1998] (30 days
following the commencement of the Exchange Offer), unless the Exchange Offer is
extended. Tenders of Old Notes or shares of Old Exchangeable Preferred Stock
may be withdrawn at any time prior to 5:00 p.m., Eastern Standard Time, on the
Expiration Date. The Exchange Offer is not conditioned upon any minimum
principal amount of Old Notes or minimum number of shares of Old Exchangeable
Preferred Stock being tendered for exchange. See "The Exchange Offer."
<PAGE>
The New Notes will be obligations of the Company evidencing the same
indebtedness as the Old Notes and will be entitled to the benefits of the same
Indenture (as defined), which governs both the Old Notes and the New Notes. The
form and terms of the New Notes and the New Exchangeable Preferred Stock
(together, the "New Securities") are substantially identical to the form and
terms of the Old Notes and the Old Exchangeable Preferred Stock (together, the
"Old Securities" and collectively with the New Securities, the "Securities"),
respectively, except that the offer of the New Securities will have been
registered under the Securities Act and, therefore, the New Securities will not
bear legends restricting the transfer thereof. See "Description of the New
Notes" and "Description of New Exchangeable Preferred Stock."
The New Notes will be issued at a substantial original issue discount ("OID"),
and the holders of the New Notes will be required to include such OID in gross
income for U.S. Federal income tax purposes on a constant yield to maturity
basis, in advance of the receipt of the cash payments to which such income is
attributable. See "Certain United States Federal Income Tax Consequences." The
price to investors for the New Notes shown below represents a yield to maturity
of 12 1/4% per annum (computed on a semiannual bond equivalent basis). The New
Notes will begin to accrue interest at a rate of 12 1/4% per annum commencing
February 15, 2003, and interest will be payable thereafter on February 15 and
August 15 of each year. The New Notes will not be redeemable at the option of
the Company prior to February 15, 2003, except that until February 15, 2001, the
Company may redeem, at its option, in the aggregate up to 35% of the Accreted
Value of the Notes at the redemption price set forth herein with the net
proceeds of one or more Equity Offerings (as defined) following which there is a
Public Market (as defined) if at least $236.0 million principal amount at
maturity of the Notes remains outstanding after any such redemption. On or after
February 15, 2003, the New Notes may be redeemed at the option of the Company,
in whole or in part, at the redemption prices set forth herein. Upon a Change of
Control, each holder of the New Notes may require the Company to purchase such
New Notes at a purchase price equal to 101% of their Accreted Value thereof plus
accrued and unpaid interest, if any, to the date of purchase.
The New Notes will be senior unsecured indebtedness of the Company and will rank
pari passu in right of payment with all unsubordinated, unsecured indebtedness
of the Company and will rank senior in right of payment to all subordinated
indebtedness of the Company. As of December 31, 1997, after giving effect to the
Private Placement and the application of the proceeds therefrom, the Company
would have had outstanding $200.2 million of unsubordinated indebtedness and no
subordinated indebtedness. The New Notes will be effectively subordinated to all
current and future indebtedness of the Company's subsidiaries, including trade
payables and other accrued liabilities. See "Description of the New Notes."
Dividends on the New Exchangeable Preferred Stock will accrue from the date of
issuance and will be payable quarterly in arrears on February 15, May 15, August
15 and November 15 of each year, commencing May 15, 1998, at a rate per annum of
13 3/4% of the liquidation preference of $1,000 per share. Dividends will be
payable in cash, except that on each dividend payment date occurring on or prior
to February 15, 2003, dividends may be paid, at the Company's option, by the
issuance of additional shares of New Exchangeable Preferred Stock (including
fractional shares) having an aggregate liquidation preference equal to the
amount of such dividends. The New Exchangeable Preferred Stock will not be
redeemable prior to February 15, 2003 except that, on or prior to February 15,
2001, the Company may redeem, at its option, in whole but not in part, the
outstanding Exchangeable Preferred Stock with the net proceeds of an Equity
Offering at a redemption price of 113 3/4% of the liquidation preference
thereof, plus accumulated and unpaid dividends to the date of redemption. On or
after February 15, 2003, the New Exchangeable Preferred Stock is redeemable at
the option of the Company, at the prices set forth herein plus accumulated and
unpaid dividends, if any, to the date of redemption. The Company is required to
redeem the New Exchangeable Preferred Stock on February 15, 2010, at a
redemption price equal to 100% of the liquidation preference thereof plus
accumulated and unpaid dividends, if any, to the date of redemption.
The New Exchangeable Preferred Stock will rank senior to all other classes of
equity securities of the Company outstanding upon consummation of the Exchange
Offer. The Company may not authorize any new class of Parity Stock (as defined)
or Senior Stock (as defined) without the approval of at least a majority of the
shares of Exchangeable Preferred Stock then outstanding, voting or consenting,
as the case may be, as one class.
On any scheduled dividend payment date, the Company may, at its option,
exchange all but not less than all the shares of Exchangeable Preferred Stock
then outstanding for the Company's 13 3/4% Subordinated Exchange Debentures Due
2010 (the "Exchange Debentures"). The Exchange Debentures will bear interest
at a rate of 13 3/4% per annum, payable semiannually in arrears on February 15
and August 15 of each year, commencing with the first such date to occur after
the date of exchange. The Exchange Debentures will be subordinated to all
existing and future Senior Indebtedness (as defined) of the Company and to all
indebtedness and other liabilities (including trade payables) of the Company's
subsidiaries. See "Description of the Exchange Debentures--Ranking."
<PAGE>
The New Securities are being offered hereunder in order to satisfy certain
obligations of the Company under the Registration Rights Agreement, dated
February 2, 1998, among the Company and the other signatories thereto (the
"Registration Rights Agreement"). Based on interpretations by the staff of the
Securities and Exchange Commission (the "Commission"), as set forth in no-action
letters issued to third parties, the Company believes that the New Securities
issued pursuant to the Exchange Offer may be offered for resale, resold or
otherwise transferred by holders thereof (other than any holder that is an
"affiliate" of the Company as defined under Rule 405 of the Securities Act),
provided that such New Securities are acquired in the ordinary course of such
holders' business and such holders are not engaged in, and do not intend to
engage in, a distribution of such New Securities and have no arrangement with
any person to participate in the distribution of such New Securities. However,
the staff of the Commission has not considered the Exchange Offer in the context
of a no-action letter and there can be no assurance that the staff of the
Commission would make a similar determination with respect to the Exchange Offer
as in such other circumstances. By tendering the Old Securities in exchange for
the New Securities, each holder, other than a broker-dealer, will represent to
the Company that (i) it is not an affiliate of the Company (as defined under
Rule 405 of the Securities Act), (ii) any New Securities to be received by it
were acquired in its ordinary business and (iii) it is not engaged in, and does
not intend to engage in, a distribution of such New Securities and has no
arrangement or understanding to participate in a distribution of the New
Securities. Each broker-dealer that receives New Securities for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
Prospectus in connection with any resale of such New Securities. The Letters of
Transmittal state that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of New Securities received in exchange for Old Securities, where
such Old Securities were acquired by such broker-dealer as a result of market-
making activities or other trading activities. The Company has agreed that,
starting on the Expiration Date and ending on the close of business 180 days
after the Expiration Date, it will make this Prospectus available to any broker-
dealer for use in connection with any such resale. In addtion, until
[ , 1998] (90 days after the date of this Prospectus), all dealers
effecting transactions in the New Notes or shares of New Exchangeable Preferred
Stock may be required to deliver a prospectus. See "Plan of Distribution."
Prior to this Exchange Offer, there has been no public market for the Old
Securities or the New Securities. If such a market were to develop, the New
Notes and the New Exchangeable Preferred Stock could trade at prices that may be
higher or lower than their principal amount or liquidation preference,
respectively. The Company does not intend to apply for listing or quotation of
the New Notes or New Exchangeable Preferred Stock on any securities exchange or
stock market. Therefore, there can be no assurance as to the liquidity of any
trading market for the New Notes or New Exchangeable Preferred Stock or that an
active public market for the New Notes or New Exchangeable Preferred Stock will
develop. See "Risk Factors--Lack of Public Market."
Credit Suisse First Boston Corporation, BancAmerica Robertson Stephens and
BancBoston Securities Inc. (the "Initial Purchasers") have agreed that one or
more of them will act as market-makers for the New Securities. However, the
Initial Purchasers are not obligated to so act and they may discontinue any such
market-making at any time without notice. The Company will not receive any
proceeds from the Exchange Offer. The Company will pay all the expenses
incident to the Exchange Offer. No underwriter is being used in connection with
the Exchange Offer.
For a discussion of certain factors that should be considered by holders of Old
Securities who tender their Old Securities in the Exchange Offer, see "Risk
Factors" beginning on page __ of this Prospectus.
THE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
THIS PROSPECTUS INCLUDES "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF
SECTION 27A OF THE SECURITIES ACT AND SECTION 21E OF THE SECURITIES EXCHANGE ACT
OF 1934, AS AMENDED. ALL STATEMENTS REGARDING THE COMPANY'S EXPECTED FINANCIAL
POSITION, BUSINESS AND FINANCING PLANS ARE FORWARD-LOOKING STATEMENTS. ALTHOUGH
THE COMPANY BELIEVES THAT THE EXPECTATIONS REFLECTED IN SUCH FORWARD-LOOKING
STATEMENTS ARE REASONABLE, IT CAN GIVE NO ASSURANCE THAT SUCH EXPECTATIONS WILL
PROVE TO HAVE BEEN CORRECT. IMPORTANT FACTORS THAT COULD CAUSE ACTUAL RESULTS TO
DIFFER MATERIALLY FROM SUCH EXPECTATIONS ("CAUTIONARY STATEMENTS") ARE
DISCLOSED IN THIS PROSPECTUS, INCLUDING IN CONJUNCTION WITH THE FORWARD-LOOKING
STATEMENTS INCLUDED IN THIS PROSPECTUS AND UNDER THE HEADING "RISK FACTORS."
ALL SUBSEQUENT WRITTEN AND ORAL FORWARD-LOOKING STATEMENTS ATTRIBUTABLE TO THE
COMPANY OR PERSONS ACTING ON THE COMPANY'S BEHALF ARE EXPRESSLY QUALIFIED IN
THEIR ENTIRETY BY THE CAUTIONARY STATEMENTS.
"21st Century" is a trademark of the Company and is registered in certain
jurisdictions. This Prospectus also includes trademarks of companies other than
the Company.
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PROSPECTUS SUMMARY
The following is a brief summary of the matters covered by this Prospectus and
is qualified in its entirety by the more detailed information (including the
financial statements and the notes thereto) included elsewhere herein. Unless
the context indicates otherwise, "21st Century" or the "Company" means 21st
Century Telecom Group, Inc. All information contained in this Prospectus gives
effect to the Company's 1,000-for-1 common stock split and an increase in the
authorized number of shares of the Company's common stock, which were effected
in January 1998.
THE COMPANY
21st Century is an integrated, facilities-based communications company which
seeks to be the first provider of bundled voice, video and high-speed data
services in selected midwestern markets beginning with Chicago's Area 1, for
which the Company has been awarded a 15-year renewable franchise by the City of
Chicago. Area 1 stretches more than 16 miles along Chicago's densely populated
lakefront skyline and includes the affluent residential neighborhoods of the
Gold Coast, Lincoln Park and Dearborn Park and the nation's second largest
business and financial district. The Company has developed (and has begun to
install and activate) an advanced fiber optic network that employs a distributed
ring-star architecture characterized by fiber-richness, two-way interactivity
and SONET-based redundancy and self-healing attributes (the "DRS Network").
The DRS Network accommodates not only traditional voice and video applications,
but also the rapidly growing demand for high-speed data services. The Company
believes that its DRS Network provides the Company with significant strategic
advantages that will differentiate 21st Century from its competitors, such as
improved time-to-market, multiple revenue streams, enhanced service quality and
reliability and the ability to provide attractively priced bundled services.
The Company has secured a 15-year renewable attachment agreement with the
Chicago Transit Authority (the "CTA"), which reduces costly and time-consuming
"make-ready" and underground construction for the DRS Network and enables the
Company to install and activate the DRS Network rapidly and efficiently by
taking advantage of access to the CTA's elevated and underground rail systems.
The Company also has secured pole attachment agreements with Commonwealth Edison
Company ("Commonwealth Edison") and a subsidiary of Ameritech Corporation
("Ameritech") which provide 21st Century access to scarce pole space within
Area 1 to further facilitate deployment of its DRS Network. The decentralized
configuration of the DRS Network (which includes distributed hubs and nodes that
act "intelligently" to route network traffic efficiently) together with the
CTA and the pole attachment agreements, enable network construction to be driven
in large part by market demand and revenue potential in contrast to the
conventional approach of building a system from the headend outward on a block-
by-block basis. To fully exploit this advantage, the Company's sales and
marketing strategy is coordinated with ongoing network construction and focused
on securing bulk contracts with 125-unit or larger multiple dwelling unit
buildings ("MDUs"). The Company believes that this strategy will help to
identify the optimal sequence of node activation on the DRS Network and tie
capital expenditures more directly to revenue-producing subscribers.
21st Century's DRS Network currently provides video, audio and data services.
These services include 110 analog video channels, 59 interactive information
channels with local content (e.g., train and airline schedules, restaurant
menus, local news and sports scores, stock quotes and expressway traffic
updates) and 22 specialty audio channels (e.g., international and foreign
language programming, BBC radio broadcasts, reading services for the blind,
commercial-free music categories and select distant-market FM stations), with
significant capacity for additional broadband and narrowband products and
services. The Company's data product is its 4 Mbps cable modem Internet access
service, which is delivered at symmetrical speeds more than 125 times faster
than the prevalent 28.8 Kbps telephone modem and 25 times faster than an ISDN
modem. The Company is also hosting websites for commercial customers. The
Company will also provide switched, facilities-based competitive local
exchange carrier ("CLEC") services with last mile connectivity and local dial
tone to both commercial accounts and selected residential subscribers upon
receipt of the necessary regulatory approval and installation of the requisite
telephony equipment. The Company currently provides telephony service on a test
basis and plans to begin offering in mid-1998 a broad range of competitive
telephony services (e.g., local, long distance and enhanced services) to
<PAGE>
both commercial accounts and selected residential subscribers, most of whom
currently have no facilities-based alternative to the service provided over the
network of the incumbent local exchange carrier ("ILEC").
The City of Chicago is the third largest urban market in the United States and
Area 1 is the densest section of the city, characterized by a high concentration
of MDUs and commercial office buildings. Area 1 has several significant and
attractive attributes, including a relatively high density of 12,000 housing
units per square mile (compared with a density for the entire City of Chicago of
5,000 housing units per square mile); more than 300,000 homes (many of which are
located in upscale, demographically attractive lakefront neighborhoods);
existing cable penetration that the Company believes is significantly below the
national average for urban areas; and approximately 51,000 employers in the
City's prominent business and financial districts, which include such businesses
and landmarks as the Mercantile Exchange, Sears Tower, Chicago Board of Trade,
Chicago Board of Options Exchange, Federal Reserve, Hancock Building, Amoco
Tower, major banks and other premier businesses.
21st Century has taken significant steps to implement its business plan and
service offerings in Chicago's Area 1. In addition to securing the Area 1
franchise, the CTA attachment agreement and the Commonwealth Edison and
Ameritech pole attachment agreements, the Company has (i) constructed and
activated its network operations center ("NOC"), which includes a video
headend and a data operations center ("DOC"), (ii) completed the northern
fiber transport ring of the DRS Network, extending from the downtown business
district to the northern portions of the city bordering Evanston, (iii) secured
programming content for more than 170 channels of video and interactive
information programming, (iv) constructed and activated portions of the outside
fiber distribution network to reach selected MDUs, (v) initiated customer
installation processes, billing, call center and customer care services, (vi)
secured contracts for more than 4,000 residential subscribers (which include
more than 2,000 new subscribers under 5-year bulk MDU agreements as well as
subscribers acquired in early 1997 from an affiliated company) and (vii) passed
with its initial distribution facilities more than 3,800 additional potential
subscribers. The Company has also entered into a letter of intent for the
acquisition and installation of the switching and other ancillary equipment
necessary for it to provide telephony services.
BUSINESS STRATEGY AND COMPETITIVE ADVANTAGES
The Company believes that it can exploit its innovative DRS Network, superior
product offerings and other strategic assets to compete strongly in Chicago's
Area 1 and other selected markets. 21st Century's strategy and competitive
advantages include the following key components:
DEVELOP HIGH-CAPACITY, FULL-SERVICE DRS NETWORK. 21st Century intends to
exploit the advantages of its innovative, internally-developed DRS Network
architecture to provide fully integrated voice, video and high-speed data
services. Key attributes of the DRS Network include (i) an advanced integrated
network design built to the rigorous Bellcore standards, (ii) the distribution
of switching and traffic routing mechanics at specific locations out on the DRS
Network (rather than being concentrated at one point as in conventional
networks), allowing the Company to efficiently and economically route traffic
regardless of penetration and usage levels, (iii) a SONET-based redundancy and
self-healing architecture with both circuit and route diversity, (iv) multiple
layers of power redundancy to ensure network reliability and (v) a large fiber
capacity permitting delivery of advanced two-way, fully-interactive broadband
services, as well as significant unutilized capacity to allow the Company to
upgrade services, add applications and develop new product offerings without
service interruption or interference.
DEPLOY DRS NETWORK COST-EFFECTIVELY ON A REVENUE-DRIVEN BASIS. The
decentralized configuration of the DRS Network, combined with the CTA and pole
attachment agreements, allows the Company to rapidly and efficiently deploy the
DRS Network to accommodate market demand on a revenue-driven basis. This
strategy contrasts sharply with the typical approach of building a conventional
coaxial cable system from the headend outward on a block-by-block basis. This
DRS Network advantage will also allow the Company to efficiently utilize its
capital resources to secure larger MDU bulk video contracts which will be used
as the basis for node activation;
<PAGE>
thus, more significant revenue streams should be realized earlier in the planned
3-4 year construction buildout than would be realized by a conventional coaxial
cable system buildout. After a large MDU is activated within a node, the Company
will then market its premium cable and pay-per-view video services, as well as
its high-speed data and, when available, telephony services, to its cable
subscribers in order to leverage MDU subscriber relationships. In addition, 21st
Century will market its full range of voice, video and high-speed data services
to the other MDUs and homes passed (collectively, "Homes Passed") which are
located between the node and the transport ring. For commercial subscribers, the
Company will seek initially to deploy the DRS Network in Chicago's dense central
downtown area to (i) small to mid-sized commercial accounts and communications-
intensive businesses that have an interest in the Company's high-speed data and
Internet services and (ii) organizations such as the Building Owners Management
Association and other facilities management companies that influence the
selection of communications facilities installed at multiple buildings, as well
as industry associations which the Company believes will encourage member
companies to use the Company's services.
PROVIDE SUPERIOR PRODUCT OFFERINGS ON A BUNDLED BASIS. The Company believes
that its voice, video and high-speed data product offerings will be superior to
competitive products currently available in Area 1 in terms of (i) the breadth
and quality of the individual product offerings, (ii) the extent of the enhanced
service features offered to the customer and (iii) the ability to bundle such
product offerings into a simple, convenient and attractively priced package. The
Company's current video offering includes 110 analog video channels, 59
interactive information channels and 22 specialty audio channels, with
significant capacity for additional broadband and narrowband products and
services. 21st Century's fiber-rich DRS Network is designed with only one to
four amplifiers in cascade between its NOC and the subscriber (compared to up to
40 amplifiers used by conventional networks). This reduction in amplifiers
significantly reduces signal degradation and results in higher video quality and
telephony reliability, a superior audio component and greater data transmission
accuracy. The Company's interactive information channels, which provide useful
local content and information, are currently not available from any other single
source in Area 1. The Company's high-speed data offering includes cable modems
that provide access to the Internet at 4 Mbps, which is approximately 125 times
faster than the prevalent 28.8 Kbps telephone modem and 25 times faster than an
ISDN modem. Beginning in mid-1998, the Company expects to begin marketing a
broad range of competitive telephony services (e.g., local, long distance, call
waiting, call forwarding, caller ID and three-way calling) to both commercial
accounts and selected residential subscribers, most of whom currently have no
facilities-based alternative to the service provided over the ILEC's network.
The Company's bundled service offering will provide customers with convenient
"one-stop shopping," attractive pricing through significant bundled discounts,
a single source for installation and service and the ease of a single monthly
bill.
LEVERAGE STRATEGIC ASSETS. The Company's core strategic assets include (i)
the 15-year renewable franchise granted by the City of Chicago, which permits
the construction and installation of a network serving the entirety of Chicago's
Area 1 and (ii) the attachment agreement negotiated with the CTA and the pole
attachment arrangements negotiated with Commonwealth Edison and Ameritech, which
facilitate the timely and efficient buildout of the DRS Network through the
utilization of scarce pole space and city infrastructure rights-of-way. Each of
these assets is a valuable and important component of the Company's facilities-
based business strategy and together would be difficult for another entrant to
replicate.
SECURE FIRST-TO-MARKET ADVANTAGES. The Company seeks to be the first-to-
market in offering bundled voice, video and high-speed data services in
Chicago's Area 1 and other selected markets. The Company believes that the rapid
buildout of the DRS Network will enable it to acquire a significant customer
base and will give it a competitive advantage over other prospective bundled and
single-service providers.
CONTINUE TO ATTRACT EXPERIENCED MANAGEMENT. The Company's management team
has extensive and diverse experience in the cable television, Internet, data and
telecommunications industries. During the past year, the Company's senior
management has demonstrated its expertise by constructing and activating the
NOC, completing the northern fiber transport ring of the DRS Network, securing
necessary programming content and initiating services. The Company intends to
continue to attract qualified senior-level management with demonstrated
expertise from the various industries comprising the Company's service offering.
<PAGE>
FOCUS ON SUPERIOR CUSTOMER CARE. The Company is committed to providing
superior customer care to differentiate 21st Century from its competitors. To
accomplish this, the Company has (i) contracted with a third party to provide a
single billing statement for its voice, video and data services (which will
facilitate bundled discounting for multiple services, permit customized billing
statements and permit monthly, transactional and metered billing to support the
Company's planned product lines) and (ii) established a relationship with a
leading call center services provider to staff and operate a 24-hour call
center. The Company believes that the quality and reliability of its services
will result in fewer in-bound subscriber complaints, service requests and other
non-revenue producing calls. In addition, the Company has installed
sophisticated status monitoring equipment in the NOC and throughout its DRS
Network, which should allow the Company to become aware of and remedy many
potential problems before they are detectable by subscribers.
EXPAND TO ADDITIONAL MARKETS. The Company intends to expand its operations
to selected midwestern markets which have the size, demographics and
geographical location suitable for its business strategy. Although the Company
may consider stand-alone systems, the Company expects to focus on markets in
which it can use its Chicago DRS Network and NOC to achieve synergies and
economies of scale. The Company has applied for franchises in a number of cities
in suburban Chicago, central, southcentral and southwestern Michigan and
northern Indiana.
CURRENT INVESTORS
In addition to the $1.9 million initial equity investment by the Company's
founding common shareholders, the Company obtained a $21.8 million investment in
the form of convertible 8% cumulative preferred stock in January 1997 from a
group of private equity investors which includes various entities affiliated
with Purnendu Chatterjee and Soros Management Fund; various entities affiliated
with William Farley, chairman of Fruit of the Loom, Inc.; Chicago-based
telecommunications investment specialists JK&B Capital; and Boston Capital
Ventures. In September and November 1997, the Company issued an additional $1.15
million of convertible 8% cumulative preferred stock, $1.0 million of which was
issued to Consolidated Communications, a wholly owned subsidiary of McLeod, Inc.
In January 1998, several common shareholders and certain other persons and
entities purchased approximately $1.5 million of convertible 8% cumulative
preferred stock.
<PAGE>
THE EXCHANGE OFFER
Registration Agreement The Old Securities were sold by the Company on February
9, 1998 (the "Issue Date"), to Credit Suisse First
Boston Corporation, BancAmerica Robertson Stephens and
BancBoston Securities Inc. (the "Initial Purchasers"),
which placed such Old Securities with institutional
investors. In connection therewith, the Company
executed and delivered for the benefit of the holders
of the Old Securities the Registration Rights Agreement
obligating the Company to file with the Commission
within 45 days after the date of issuance of the Old
Securities, a registration statement under the
Securities Act relating to (i) an exchange offer for
the Old Notes (the "Notes Exchange Offer") and (ii) an
exchange offer for shares of Old Exchangeable Preferred
Stock (the "Preferred Stock Exchange Offer" and,
together with the Notes Exchange Offer, the "Exchange
Offer") and to use its best efforts to cause such
registration statement to become effective within 150
days after the Issue Date.
The Exchange Offer New Notes are being offered in exchange for an equal
principal amount at maturity of Old Notes. As of the
date hereof, there was outstanding $363,135,000
principal amount at maturity of Old Notes. New
Exchangeable Preferred Stock is being offered in
exchange for an equal number of shares of Old
Exchangeable Preferred Stock. Because the New Notes and
New Exchangeable Preferred Stock will be recorded in
the Company's accounting records at the same carrying
value as the Old Notes and Old Exchangeable Preferred
Stock, respectively, no gain or loss will be recognized
by the Company upon the consummation of the Exchange
Offer. See "The Exchange Offer--Accounting Treatment."
Holders of the Old Notes or Old Exchangeable Preferred
Stock do not have appraisal or dissenter's rights in
connection with the Exchange Offer under the Illinois
Business Corporation Act (the "IBCA"), the governing
law of the state of incorporation of the Company.
Based on interpretations by the staff of the
Commission, as set forth in no-action letters issued to
third parties, the Company believes that the New
Securities issued pursuant to the Exchange Offer may be
offered for resale, resold or otherwise transferred by
holders thereof (other than any holder who is an
"affiliate" of the Company within the meaning of Rule
405 under the Securities Act) without compliance with
the registration and prospectus delivery provisions of
the Securities Act; provided, however, that such New
Securities are acquired in the ordinary course of the
holder's business and such holders are not engaged in,
and do not intend to engage in, a distribution of such
New Securities and have no arrangement with any person
to participate in a distribution of such New
Securities. The staff of the Commission has not
considered the Exchange Offer in the context of a no-
action letter and there can be no assurance that the
staff of the Commission would make a similar
determination with respect to the Exchange Offer. Each
broker-dealer that receives New Securities for its own
account in exchange for Old Securities, where such Old
Securities were acquired by such broker-dealer as a
result of market-making activities or other
<PAGE>
trading activities, must acknowledge that it
will deliver a prospectus in connection with
any resale of such New Securities. See "Plan
of Distribution." To comply with the
securities laws of certain jurisdictions, it
may be necessary to qualify for sale or
register the New Notes or New Exchangeable
Preferred Stock prior to offering or selling
such New Notes or New Exchangeable Preferred
Stock. The Company has agreed, pursuant to the
Registration Agreement and subject to certain
specified limitations therein, to register or
qualify the New Notes and New Exchangeable
Preferred Stock for offer or sale under the
securities or "blue sky" laws of such
jurisdictions as may be necessary to permit
the holders of New Securities to trade such
New Securities without any restrictions or
limitations under the securities laws of the
several states of the United States. If a
holder of Old Securities does not exchange
such Old Securities for New Securities
pursuant to the Exchange Offer, such Old
Securities will continue to be subject to the
restrictions on transfer contained in the
legend thereon. In general, the Old Securities
may not be offered or sold, unless registered
under the Securities Act, except pursuant to
an exemption from, or in a transaction not
subject to, the Securities Act and applicable
state securities laws. See "Risk Factors--
Consequences of Failure to Exchange."
Expiration Date 5:00 p.m. Eastern Standard Time, on April
[__], 1998 (30 days following the commencement
of the Exchange Offer), unless the Exchange
Offer is extended, in which case the term
"Expiration Date" means the latest date and
time to which the Exchange Offer is extended.
Conditions to the Exchange Offer The Exchange Offer is subject to certain
customary conditions, which may be waived by
the Company. See "The Exchange Offer--
Conditions." Except for the requirements of
applicable Federal and state securities laws,
there are no Federal or state regulatory
requirements to be complied with or obtained
by the Company in connection with the Exchange
Offer. NO VOTE OF THE COMPANY'S SECURITY
HOLDERS IS REQUIRED TO EFFECT THE EXCHANGE
OFFER AND NO SUCH VOTE (OR PROXY THEREFOR) IS
BEING SOUGHT HEREBY.
Procedures for Tendering
Old Notes Each holder of Old Notes wishing to accept the
Notes Exchange Offer must complete, sign and
date the appropriate Letter of Transmittal
(the "Notes Letter of Transmittal"), or a
facsimile thereof, in accordance with the
instructions contained herein and therein, and
mail or otherwise deliver such Notes Letter of
Transmittal, or such facsimile together with
the Old Notes to be exchanged and any other
required documentation to the Notes Exchange
Agent (as defined) at the address set forth
herein and therein. See "The Exchange Offer--
Procedures for Tendering."
Procedures for Tendering Old
Exchangeable Preferred Stock Each holder of Old Exchangeable Preferred
Stock wishing to accept the Preferred Stock
Exchange Offer must complete, sign and date
the
<PAGE>
appropriate Letter of Transmittal (the
"Preferred Stock Letter of Transmittal"), or a
facsimile thereof, in accordance with the
instructions contained herein and therein, and
mail or otherwise deliver such Preferred Stock
Letter of Transmittal, or such facsimile
together with the Old Exchangeable Preferred
Stock to be exchanged and any other required
documentation to the Preferred Stock Exchange
Agent (as defined) at the address set forth
herein and therein. See "The Exchange Offer--
Procedures for Tendering."
Withdrawal Rights Tenders of Old Securities may be withdrawn at
any time prior to 5:00 p.m., Eastern Standard
Time, on the Expiration Date. To withdraw a
tender of Old Securities, a written or
facsimile transmission notice of withdrawal
must be received by the Exchange Agent (as
defined) at its address set forth below under
"Exchange Agent" prior to 5:00 p.m., Eastern
Standard Time, on the Expiration Date.
Acceptance of Old Securities and
Delivery of New Securities Subject to certain conditions, the Company
will accept for exchange any and all Old
Securities which are properly tendered in the
Exchange Offer prior to 5:00 p.m., on the
Expiration Date. The New Securities issued
pursuant to the Exchange Offer will be
delivered promptly following the Expiration
Date. See "The Exchange Offer--Terms of the
Exchange Offer."
Exchange Agents State Street Bank and Trust Company is serving
as exchange agent (the "Notes Exchange Agent")
in connection with the Notes Exchange Offer.
Boston EquiServe Trust Company, N.A. is
serving as exchange agent (the "Preferred
Stock Exchange Agent") in connection with the
Preferred Stock Exchange Offer. Each of the
Notes Exchange Agent and the Preferred Stock
Exchange Agent are also referred to herein as
the "Exchange Agent."
Use of Proceeds There will be no proceeds to the Company from
the Exchange Offer. The net proceeds to the
Company from the Private Placement were
approximately $240.3 million (after deduction
of discounts and estimated offering expenses).
The Company will continue using such proceeds
for capital expenditures associated with the
continued expansion of the DRS Network in
Chicago's Area 1 and for additional working
capital and other general corporate purposes,
including funding operating deficits.
<PAGE>
SUMMARY OF TERMS OF NEW NOTES AND
NEW EXCHANGEABLE PREFERRED STOCK
The Exchange Offer relates to the exchange of Old Notes for an equal
principal amount at maturity of New Notes and Old Exchangeable Preferred Stock
for an equal number of shares of New Exchangeable Preferred Stock. The New
Notes will be obligations of the Company evidencing the same indebtedness as the
Old Notes and will be entitled to the benefits of the same Indenture (as
defined), which governs both the Old Notes and the New Notes. The form and
terms of the New Notes and the New Exchangeable Preferred Stock are
substantially identical to the form and terms of the Old Notes and the Old
Exchangeable Preferred Stock, respectively, except that the offer of the New
Securities will have been registered under the Securities Act and, therefore,
the New Securities will not bear legends restricting the transfer thereof.
COMPARISON WITH OLD NOTES AND OLD EXCHANGEABLE PREFERRED STOCK
Freely Transferable Generally, the New Securities will be freely
transferable under the Securities Act by
holders who are not affiliates of the Company.
The New Notes and New Exchangeable Preferred
Stock otherwise will be substantially
identical in all material respects to the Old
Notes and Old Exchangeable Preferred Stock,
respectively. See "The Exchange Offer--Terms
of the Exchange Offer."
Registration Rights The holders of Old Securities currently are
entitled to certain registration rights
pursuant to a registration rights agreement
(the "Registration Rights Agreement") dated as
of February 2, 1998, between the Company and
the Initial Purchasers. However, upon
consummation of the Exchange Offer, subject to
certain exceptions, holders of Old Securities
who do not exchange their Old Securities for
New Securities in the Exchange Offer will no
longer be entitled to registration rights and
will not be able to offer or sell their Old
Securities, unless such Old Securities are
subsequently registered under the Securities
Act (which, subject to certain limited
exceptions, the Company will have no
obligation to do), except pursuant to an
exemption from, or in a transaction not
subject to, the Securities Act and applicable
state securities laws. See "Risk Factors--
Consequences of Failure to Exchange."
THE NEW NOTES
TERMS OF THE NEW NOTES
Maturity February 15, 2008.
Yield and Interest The issue price per New Note represents a
yield to maturity on the New Notes of 12 1/4%
(computed on a semi-annual bond equivalent
basis) calculated from the Issue Date. Except
as described herein, no cash interest will
accrue or be payable on the New Notes prior to
February 15, 2003. Thereafter, cash interest
will accrue at a rate of 12 1/4% per annum,
and cash interest will be payable on February
15 and August 15 of each year, commencing
August 15, 2003.
<PAGE>
Original Issue Discount For U.S. Federal income tax purposes, the New
Notes will be issued with OID. Each holder of
a New Note must include such OID in gross
income for U.S. Federal income tax purposes in
advance of the receipt of the cash payments to
which such income is attributable. See
"Certain United States Federal Income Tax
Consequences."
Optional Redemption The New Notes will not be redeemable at the
option of the Company prior to February 15,
2003, except that until February 15, 2001, the
Company may redeem, at its option, in the
aggregate up to 35% of the principal amount at
maturity of the Notes at the redemption price
set forth herein with the net proceeds of one
or more Equity Offerings following which there
is a Public Market if at least $236.0 million
principal amount at maturity of the Notes
remains outstanding after any such redemption.
On or after February 15, 2003, the New Notes
may be redeemed at the option of the Company,
in whole or in part, at the redemption prices
set forth herein, together with accrued and
unpaid interest, if any, to the date of
redemption. See "Description of the New
Notes--Optional Redemption."
Change of Control Upon a Change of Control, each holder of New
Notes may require the Company to purchase all
or any portion of such holder's New Notes at a
purchase price equal to 101% of the Accreted
Value thereof plus accrued and unpaid
interest, if any, to the date of purchase.
There can be no assurance that the Company
will be able to raise sufficient funds to meet
this purchase obligation should it arise. See
"Description of the New Notes--Change of
Control."
Ranking The New Notes will be unsecured senior
obligations of the Company and will rank pari
passu in right of payment with all
unsubordinated, unsecured indebtedness of the
Company and will be senior in right of payment
to all subordinated indebtedness of the
Company. As of December 31, 1997, after giving
effect to the Private Placement and the
application of the proceeds therefrom, the
Company would have had outstanding $200.2
million of unsubordinated indebtedness and no
subordinated indebtedness. The Notes will be
effectively subordinated to all current and
future indebtedness of the Company's
subsidiaries, including trade payables and
other accrued liabilities.
Restrictive Covenants The Indenture (as defined) contains certain
covenants that, among other things, limit (i)
the incurrence of additional Indebtedness by
the Company and its Restricted Subsidiaries
(as defined), (ii) the payment of dividends
and other distributions by the Company and its
Restricted Subsidiaries in respect of their
capital stock, (iii) investments or other
restricted payments by the Company and its
Restricted Subsidiaries, (iv) asset sales, (v)
certain transactions with affiliates, (vi) the
sale or issuance of capital stock of
Restricted Subsidiaries, (vii) the incurrence
of liens and the entering into of
sale/leaseback transactions and (viii) mergers
and consolidations. The Indenture also
prohibits certain restrictions on
distributions from Restricted Subsidiaries.
All of these limitations and prohibitions,
however, are subject to a number of important
qualifications and exceptions. See
"Description of the New Notes--Certain
Covenants."
<PAGE>
Use of Proceeds There will be no proceeds to the Company from
the Exchange Offer. The net proceeds to the
Company from the Private Placement were
approximately $240.3 million (after deduction
of discounts and estimated offering expenses).
The Company will continue using such proceeds
for capital expenditures associated with the
continued expansion of the DRS Network in
Chicago's Area 1 and for additional working
capital and other general corporate purposes,
including funding operating deficits.
THE NEW EXCHANGEABLE PREFERRED STOCK
TERMS OF THE NEW EXCHANGEABLE PREFERRED STOCK
Liquidation Preference $1,000 per share.
Dividends Dividends on the New Exchangeable Preferred
Stock will accrue at a rate of 13 3/4% per
annum of the liquidation preference thereof
and will be payable quarterly in arrears on
February 15, May 15, August 15 and November 15
of each year commencing May 15, 1998.
Dividends will be payable in cash, except that
on each dividend payment date occurring on or
prior to February 15, 2003, dividends may be
paid, at the Company's option, by the issuance
of additional shares of New Exchangeable
Preferred Stock (including fractional shares)
having an aggregate liquidation preference
equal to the amount of such dividends. It is
not anticipated that the Company will pay any
dividends in cash for any period ending on or
prior to February 15, 2003.
Ranking The New Exchangeable Preferred Stock will rank
senior to all other classes of equity
securities of the Company outstanding upon
consummation of the Exchange Offer. The
Company may not authorize any new class of
Parity Stock or Senior Stock without the
approval of at least a majority of the shares
of Exchangeable Preferred Stock then
outstanding, voting or consenting, as the case
may be, as one class. See "Description of the
New Exchangeable Preferred Stock--Ranking."
Optional Redemption The New Exchangeable Preferred Stock will not
be redeemable prior to February 15, 2003,
except that, on or prior to February 15, 2001,
the Company may redeem in whole but not in
part, at its option, the outstanding New
Exchangeable Preferred Stock at a redemption
price of 113 3/4% of the liquidation
preference thereof, plus accumulated and
unpaid dividends to the date of redemption,
with the net proceeds of an Equity Offering.
On or after February 15, 2003, the New
Exchangeable Preferred Stock is redeemable at
the option of the Company, in whole or in
part, at the redemption prices set forth
herein plus accumulated and unpaid dividends,
if any, to the date of redemption. See
"Description of the New Exchangeable Preferred
Stock--Optional Redemption."
<PAGE>
Mandatory Redemption The New Exchangeable Preferred Stock is
subject to mandatory redemption at its
liquidation preference, plus accumulated and
unpaid dividends, if any, on February 15,
2010, out of any funds legally available
therefor.
Change of Control In the event of a Change of Control (as
defined), the Company shall offer to purchase
all outstanding shares of New Exchangeable
Preferred Stock, in whole or in part, at a
purchase price equal to 101% of the aggregate
liquidation preference thereof, plus
accumulated and unpaid dividends, if any, to
the date of purchase.
In the event the Company is not permitted by
applicable law or by the terms of any
indebtedness of the Company to make the offer
referred to above or to purchase any shares of
New Exchangeable Preferred Stock pursuant to
such offer, holders of a majority of the
Exchangeable Preferred Stock will designate an
Independent Financial Advisor (as defined) to
determine the appropriate dividend rate (the
"reset rate") that the New Exchangeable
Preferred Stock should bear so that, after the
dividend rate on the New Exchangeable
Preferred Stock is reset to such reset rate,
the New Exchangeable Preferred Stock would
have a market value of 101% of the liquidation
preference. After determination of the reset
rate, the New Exchangeable Preferred Stock
shall accrue and accumulate dividends at the
reset rate from and after the date of
occurrence of the Change of Control; provided,
however, that the reset rate shall in no event
be less than 13 3/4% per annum (the initial
dividend rate on the New Exchangeable
Preferred Stock) or greater than 15% per
annum. See "Description of the New
Exchangeable Preferred Stock--Change of
Control."
Voting Rights Holders of the New Exchangeable Preferred
Stock will have limited voting rights,
including (i) those required by law and (ii)
that holders of the outstanding shares of New
Exchangeable Preferred Stock, voting together
as a class with the holders of any other
series of preferred stock upon which like
rights have been conferred and are
exercisable, upon the failure of the Company
(1) to pay dividends for six or more dividend
periods (whether or not consecutive), (2) to
satisfy any mandatory redemption obligation
with respect to the New Exchangeable Preferred
Stock, (3) to comply with the covenants set
forth in the Amended Articles (as defined) or
(4) to make certain payments on certain
Indebtedness, will be entitled to elect the
lesser of (x) two members to the Board of
Directors of the Company and (y) that number
of directors constituting 25% of the members
of the Board of Directors of the Company. See
"Description of the New Exchangeable Preferred
Stock--Voting Rights."
Restrictive Covenants The Amended Articles (as defined herein) limit
(i) the incurrence of additional Indebtedness
by the Company and its Restricted
Subsidiaries, (ii) the payment of dividends
and other distributions by the Company and its
Restricted Subsidiaries in respect of their
capital stock, (iii) investments or other
restricted payments by the Company and its
Restricted Subsidiaries, (iv) asset sales, (v)
certain transactions with affiliates, (vi) the
sale or issuance of capital stock of
Restricted
<PAGE>
Subsidiaries and (vii) mergers and
consolidations. The Amended Articles will also
prohibit certain restrictions on distributions
from Restricted Subsidiaries. All these
limitations and prohibitions, however, are
subject to a number of important
qualifications. See "Description of the New
Exchangeable Preferred Stock--Certain
Covenants."
Senior Debt Restrictions The Company's debt instruments, including the
Indenture for the Notes, contain provisions
which restrict, and if a default under any
thereof exists prohibit, redemption or
repurchase of the New Exchangeable Preferred
Stock, including upon a Change of Control or
through the issue of Exchange Debentures, and
the payment of cash dividends on the New
Exchangeable Preferred Stock. See "Risk
Factors" and "Description of the New Notes--
Certain Covenants."
Exchange Feature On any scheduled dividend payment date, the
Company may, at its option, exchange all but
not less than all the shares of Exchangeable
Preferred Stock then outstanding for Exchange
Debentures in a principal amount equal to the
liquidation preference of the shares of
Exchangeable Preferred Stock held by such
holder at the time of such exchange.
THE EXCHANGE DEBENTURES
Securities Offered 13 3/4% Subordinated Exchange Debentures Due
2010 issuable in exchange for the Exchangeable
Preferred Stock in an aggregate principal
amount equal to the sum of the liquidation
preference of the Exchangeable Preferred
Stock, plus accumulated and unpaid dividends
to the date of exchange.
Maturity February 15, 2010.
Interest The Exchange Debentures will bear interest at
the rate of 13 3/4% per annum, payable semi-
annually in arrears on February 15 and August
15, commencing with the first of such dates to
occur after the date of exchange (the
"Exchange Date"). On or prior to February 15,
2003, interest may, at the option of the
Company, be paid by issuing additional
Exchange Debentures with a principal amount
equal to such interest. After February 15,
2003, interest on the Exchange Debentures may
be paid only in cash.
Ranking The Exchange Debentures will be general
unsecured obligations of the Company,
subordinated in right of payment to all
existing and future Senior Indebtedness
(including the Notes) of the Company and to
all indebtedness and other liabilities
(including trade payables) of the Company's
subsidiaries. As of December 31, 1997 after
giving effect to the Private Placement and the
application of the proceeds therefrom, the
Company would have had $200.2 million of
outstanding indebtedness, all of which would
have been senior in right of payment to the
Exchange Debentures. See "Description of the
Exchange Debentures--Ranking."
<PAGE>
Optional Redemption The Exchange Debentures will not be redeemable
prior to February 15, 2003, except that, until
February 15, 2001, the Company may redeem in
whole but not in part, at its option, the
Exchange Debentures at a redemption price of
113 3/4% of the principal amount thereof,
plus accrued and unpaid interest to the date
of redemption, with the net proceeds of an
Equity Offering. On or after February 15,
2003, the Exchange Debentures are redeemable
at the option of the Company, in whole or in
part, at the redemption prices set forth
herein plus accrued and unpaid interest, if
any, to the date of redemption. See
"Description of the Exchange Debentures--
Optional Redemption."
Change of Control In the event of a Change of Control, holders
of the Exchange Debentures will have the right
to require the Company to purchase their
Exchange Debentures, in whole or in part, at a
price equal to 101% of the aggregate principal
amount thereof, plus accrued and unpaid
interest, if any, to the date of purchase. See
"Description of the Exchange Debentures--
Change of Control."
Restrictive Covenants The indenture under which the Exchange
Debentures will be issued (the "Exchange
Indenture") limits (i) the incurrence of
additional Indebtedness by the Company and its
Restricted Subsidiaries, (ii) the payment of
dividends and other distributions by the
Company and its Restricted Subsidiaries in
respect of their capital stock, (iii)
investments or other restricted payments by
the Company and its Restricted Subsidiaries,
(iv) asset sales, (v) certain transactions
with affiliates, (vi) the sale or issuance of
capital stock of Restricted Subsidiaries and
(vi) mergers and consolidations. The Exchange
Indenture also prohibits certain restrictions
on distributions from Restricted Subsidiaries.
All these limitations and prohibitions,
however, are subject to a number of important
qualifications. See "Description of the
Exchange Debentures--Certain Covenants."
RISK FACTORS
See "Risk Factors" for certain factors that should be considered by holders of
Old Securities before tendering their Old Securities in the Exchange Offer.
<PAGE>
SUMMARY FINANCIAL AND OPERATING DATA
The following table sets forth summary financial and operating data for the
Company. The summary financial data as of and for the periods ended March 31,
1995, 1996 and 1997 have been derived from the audited financial statements of
the Company. The summary financial and operating data as of and for the nine
months ended December 31, 1996 and 1997 have been derived from the unaudited
financial statements of the Company and, in the opinion of the Company, include
all adjustments, consisting of normal recurring accruals, necessary for a fair
presentation of such information. Operating results for the nine months ended
December 31, 1997 are not necessarily indicative of the results that may be
expected for the entire year. The summary financial and operating data set forth
below should be read in conjunction with "Use of Proceeds," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Financial Statements included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
Year Ended March 31, ------------------------------
--------------------------------------- DECEMBER 31,
------------------------------
1995 1996 1997 1996 1997
----------- ------------ ------------ ------------- ---------------
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Subscriber revenues $ -- $ -- $ 27,480 $ -- $ 123,532
Operating expenses -- 9,617 200,911 190,817 413,979
Selling, general and administrative 624,963 694,122 7,276,439
expenses 2,337,534 1,572,936
Depreciation and amortization 38,923 108,182 170,108 114,734 643,427
---------- ----------- ----------- ----------- ------------
Operating loss (663,886) (811,921) (2,681,073) (1,878,487) (8,210,313)
Interest income -- -- 301,624 142,603 484,678
Interest expense (115,428) (214,688) (437,843) (376,828) (119,226)
---------- ----------- ----------- ----------- ------------
Net loss (779,314) (1,026,609) (2,817,292) (2,112,712) (7,844,861)
Preferred dividend requirement -- -- (280,795) -- (1,349,934)
---------- ----------- ----------- ----------- ------------
Net loss attributable to common
shares $ (779,314) $(1,026,609) $(3,098,087) $(2,112,712) $ (9,194,795)
========== =========== =========== =========== ============
Net loss per common share $(.52) $(.64) $(1.56) $(1.11) $(3.86)
========== =========== =========== =========== ============
Weighted average common
shares 1,508,000 1,609,129 1,988,365 1,900,527 2,384,722
OTHER DATA:
Capital expenditures $ -- $ -- $ 246,863 $ 47,118 $ 15,007,751
Number of subscribers
(end of period) -- -- 1,734 -- 3,019
<CAPTION>
December 31, 1997
----------------------------
Actual AS ADJUSTED(1)
------------ ------------
<S> <C> <C>
Balance Sheet Data:
Total assets $23,835,488 $265,392,870
Total liabilities 15,874,148 207,874,148
Total Exchangeable Preferred
Stock Due 2010 -- 45,455,300
Total shareholders' equity 7,961,340 12,063,422
</TABLE>
(1) Adjusted to give effect to the Private Placement and the application of the
net proceeds therefrom, the receipt of approximately $1.5 million of
proceeds received from the issuance by the Company in January 1998 of 95.4
shares of Class A Convertible 8% Cumulative Preferred Stock and reflects the
repayment of $8.0 million outstanding under the Interim Credit Facility.
<PAGE>
RISK FACTORS
Holders of Old Securities should carefully consider the following risk
factors, as well as other information set forth in this Prospectus, before
tendering the Old Securities in the Exchange Offer. The risk factors below
(other than "Consequences of Failure to Exchange") are generally applicable to
the Old Securities as well as the New Securities.
This Prospectus contains certain forward-looking statements regarding the
Company's operations, economic performance and financial condition, in
particular, statements made as to plans to develop and construct the DRS
Network, add and upgrade facilities and offer services, the Company's intention
to connect certain subscribers to the DRS Network, the development of the
Company's businesses, the markets for the Company's services and products, the
Company's anticipated capital expenditures, the Company's anticipated sources of
capital and effects of regulatory reform and competitive and technological
developments. Such forward-looking statements are subject to known and unknown
risks and uncertainties. Actual results could differ materially from those
currently anticipated due to a number of factors, including those identified in
this Section and elsewhere in this Prospectus. Such risks include, but are not
limited to, the Company's ability to successfully market its services to new
subscribers, access markets, finance network developments, and obtain rights-of-
way, building access rights and any required governmental authorizations,
franchises and permits, all in a timely manner, at a reasonable cost and on
satisfactory terms and conditions, as well as regulatory, legislative, judicial,
competitive and technological developments that could cause actual results to
vary materially from the future results indicated, expressed or implied, in such
forward-looking statements. Certain of these and other risk factors are more
completely described below.
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Old Securities who do not exchange their Old Securities for New
Securities pursuant to the Exchange Offer will continue to be subject to the
restrictions on transfer of such Old Securities as set forth in the legend
thereon as a consequence of the issuance of the Old Securities pursuant to
exemptions from, or in transactions not subject to, the registration
requirements of the Securities Act and applicable state securities laws. In
general, the Old Securities may not be offered or sold, unless registered under
the Securities Act, except pursuant to an exemption from, or in a transaction
not subject to, the Securities Act and applicable state securities laws. The
Company does not currently anticipate that it will register the Old Securities
under the Securities Act. Based on interpretations by the staff of the
Commission, as set forth in no-action letters to third parties, the Company
believes that the New Securities issued pursuant to the Exchange Offer in
exchange for Old Securities may be offered for resale, resold or otherwise
transferred by the holders thereof (other than any such holder that is an
"affiliate" of the issuer within the meaning of Rule 405 under the Securities
Act) without compliance with the registration and prospectus delivery provisions
of the Securities Act provided that such New Securities are acquired in the
ordinary course of such holders' business and such holders are not engaged in,
and do not intend to engage in, a distribution of such New Securities and have
no arrangement or understanding with any person to participate in the
distribution of such New Securities. The staff of the Commission has not
considered the Exchange Offer in the context of a no-action letter and there can
be no assurance that the staff of the Commission would make a similar
determination with respect to the Exchange Offer. Each broker-dealer that
receives New Securities for its own account pursuant to the Exchange Offer must
acknowledge that it will deliver a prospectus in connection with any resale of
such New Securities. The Letters of Transmittal state that by so acknowledging
and by delivering a prospectus, a broker-dealer will not be deemed to admit that
it is an "underwriter" within the meaning or the Securities Act. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of New Securities received in
exchange for Old Securities where such Old Securities were acquired by such
broker-dealer as a result of market-making activities or other trading
activities. The Company has agreed that, for a period of one year after the
Expiration Date, it will make this Prospectus available to any broker-dealer for
use in connection with any such resale. See "Plan of Distribution." However,
to comply with the securities laws of certain jurisdictions, if applicable, the
New Securities may not be offered or sold unless they have been registered or
qualified for sale in such jurisdictions or an exemption for registration or
qualification is available and is complied
<PAGE>
with. To the extent that Old Securities are tendered and accepted in the
Exchange Offer, the trading market for the untendered and the tendered but
unaccepted Old Securities could be adversely affected.
HISTORY OF LOSSES; EXPECTATION OF FUTURE LOSSES AND NEGATIVE CASH FLOWS FROM
OPERATIONS
The Company has had a cumulative net loss of $12,888,744 from its inception in
1992 through December 31, 1997, and incurred net losses of $2,817,292 and
$7,844,895 for its fiscal year ended March 31, 1997 and the nine months ended
December 31, 1997, respectively. At December 31, 1997, the Company had an
accumulated deficit of $14,519,473. The implementation of the Company's business
plan to build out the DRS Network and commence construction of new networks
involves significant additional expenditures and substantially increased
depreciation and amortization expenses. Revenues currently are minimal and may
be slow in growing as services are new and may be subject to start-up and other
delays. Accordingly, the Company expects that it will incur net losses and
significant negative cash flow (after capital expenditures) during the next
several years as it continues to expand its operations. In addition to timely
and cost-effective construction efforts, the ability of the Company to achieve
profitability and positive cash flow will depend in large part on the successful
marketing of the voice, video and high-speed data services offered or to be
offered by the Company. There can be no assurance that the Company can
successfully compete in obtaining subscribers for its broadband services or that
the Company will generate sufficient revenues such that the Company's operations
will become profitable or generate positive cash flows in the future. If the
Company cannot achieve operating profitability or positive cash flows from
operating activities, it may not be able to meet its working capital or debt
service requirements, including its obligations under the New Notes, which would
cause an event of default under the Indenture and would substantially reduce or
eliminate the value of the New Exchangeable Preferred Stock. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
SIGNIFICANT CAPITAL REQUIREMENTS
The Company's business requires substantial investment to finance capital
expenditures and related expenses to construct the DRS Network in Chicago, to
construct additional networks, to fund subscriber equipment, to purchase
equipment to initiate telephony services, to fund operating deficits as it
builds its subscriber base and to maintain the quality of its networks. The
Company estimates that its aggregate capital expenditure requirements related to
DRS Network construction will total approximately $270 million, of which between
approximately $90 million to $120 million is expected to be spent during
calendar year 1998. Actual costs and the timing thereof may vary significantly
from these estimates and will depend in part on the number of miles of the DRS
Network to be constructed in a particular period, other factors affecting
construction costs, the number of subscribers, the mix of services purchased,
the cost of subscriber equipment paid for or financed by the Company and other
factors. The Company has entered into a commitment letter with BankBoston, N.A.
and Bank of America NT&SA for a $50 million bank revolving credit facility to
provide supplemental financing. Although the Company's management believes that
the proceeds from the Private Placement, together with operating cash flow, will
provide sufficient funds to complete the DRS Network, the Company may need
additional financing to complete the DRS Network, to expand into additional
cities, for new business activities or in the event it decides to make
acquisitions. Sources of additional capital may include public and private
equity and debt financing, and the $50 million bank revolving credit facility
referred to above. There can be no assurance that the proposed bank financing or
other financing will be available to the Company on acceptable terms or at all.
If the Company is not successful in obtaining sufficient funds it may be
required to defer or abandon its expansion plans, which could limit the
Company's growth and prospects, and reduce some of the economies of scale the
Company expects to obtain, including with respect to purchases of equipment
programming and advertising, which could have an adverse effect on the Company's
results of operations and financial condition. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
HIGH LEVERAGE; ABILITY TO SERVICE DEBT; RESTRICTIVE COVENANTS
<PAGE>
At December 31, 1997, on a pro forma basis, after giving effect to the Private
Placement and the application of the net proceeds therefrom, the Company would
have had $200.2 million of indebtedness, $45.5 million of Exchangeable Preferred
Stock and $12.1 million of shareholders' equity. The Indenture and the Amended
Articles limit, but do not prohibit, the incurrence of additional indebtedness
by the Company and its subsidiaries, and the Company may incur substantial
additional indebtedness to finance the construction of the DRS Network and
purchase related equipment. All additional indebtedness of the Company will rank
senior in right of payment to any payment obligations with respect to the New
Exchangeable Preferred Stock and the Exchange Debentures (to the extent that
such additional indebtedness represents Senior Indebtedness) and may be secured
debt, pari passu with or structurally senior to the New Notes. See "--Holding
Company Structure; Priority of Secured Debt." The debt service requirements of
any additional indebtedness would make it more difficult for the Company to meet
its payment obligations with respect to the New Notes, the New Exchangeable
Preferred Stock and the Exchange Debentures.
The level of the Company's indebtedness could adversely affect the Company in
a number of ways, including the following (i) a substantial portion of the
Company's cash flow from operations must be dedicated to the payment (after ten
years) of the principal of and (after five years), of interest on the Notes and
will not be available for other purposes, (ii) the ability of the Company to
obtain any necessary financing in the future for working capital, capital
expenditures, debt service requirements or other purposes may be limited, (iii)
the Company's level of indebtedness could limit its flexibility in planning for,
or reacting to, changes in its business, (iv) the Company may be more highly
leveraged than some of its competitors, which may place it at a competitive
disadvantage and (v) the Company's degree of indebtedness may make it more
vulnerable to a downturn in its business or the economy generally.
There can be no assurance that the Company will be able to meet its debt
service obligations, including its obligations under the New Notes. In order to
meet its debt service obligations, the Company must successfully implement its
strategy, including constructing the DRS Network in Chicago, increasing the
number of subscribers for video and high-speed data services, initiating and
obtaining subscribers for its voice services and generating significant and
sustained growth in the Company's cash flow. There can be no assurance that the
Company will successfully implement its strategy or that the Company will be
able to generate sufficient cash flow from operating activities to meet its debt
service obligations and its working capital requirements. In the event the
implementation of the Company's strategy is delayed or is unsuccessful or the
Company does not generate sufficient cash flow to meet its debt service
obligations and its working capital requirements, the Company may need to seek
additional financing. There can be no assurance that any such financing could be
obtained on terms that are acceptable to the Company, or at all. In the absence
of such financing, the Company could be forced to dispose of assets in order to
make up for any shortfall in the payments due on its indebtedness under
circumstances that might not be favorable to realizing the highest price for
such assets. There can be no assurance that the Company's assets could be sold
quickly enough or for sufficient amounts to enable the Company to meet its
obligations, including its obligations with respect to the Notes.
The Indenture and the Amended Articles impose, and future indebtedness may
impose, operating and financial restrictions on the Company and its
subsidiaries. These restrictions affect, and in certain cases significantly
limit or prohibit, among other things, the ability of the Company and its
subsidiaries to incur additional indebtedness, create liens upon assets, apply
the proceeds from the disposal of assets, make investments, make dividend
payments and other distributions on capital stock and redeem capital stock. The
limitations in the Indenture and the Amended Articles are subject to a number of
important qualifications and exceptions.
If the Company is unable to generate sufficient cash flow or otherwise obtain
funds necessary to make required payments from new financings or from asset
sales, or if the Company otherwise fails to comply with the various covenants in
its indebtedness, it would be in default under the terms thereof, which would
permit the holders of such indebtedness to accelerate the maturity of such
indebtedness and could cause defaults under other indebtedness of the Company.
Such defaults could delay or preclude payment of interest or principal on the
New Notes or the payment of dividends on the New Exchangeable Preferred Stock.
The ability of the Company to meet its obligations
<PAGE>
will be dependent upon the future performance of the Company, which will be
subject to prevailing economic conditions and to financial, business and other
factors. See "Description of Certain Indebtedness," "Description of the New
Notes--Certain Covenants" and "Description of the New Exchangeable Preferred
Stock--Certain Covenants."
HOLDING COMPANY STRUCTURE; PRIORITY OF SECURED DEBT
The Company is (or shortly after the Exchange Offer will be) a holding company
with no direct operations and no significant assets other than the stock of its
subsidiaries. The Company is (or will be) dependent on the cash flows of its
subsidiaries to meet its obligations, including the payment of the principal of
and interest on the Notes and the payment of dividends on the Exchangeable
Preferred Stock. The Company's subsidiaries are (or will be) separate legal
entities that have no obligation to pay any amounts due pursuant to the Notes or
the Exchangeable Preferred Stock or to make any funds available therefor,
whether by dividends, loans or other payments. The ability of the Company's
subsidiaries to make such dividends and other payments to the Company will be
subject to, among other things, the availability of funds, the terms of such
subsidiaries' indebtedness and applicable state laws. Because the Company's
subsidiaries will not guarantee the payment of the principal of or interest on
the Notes or the payment of dividends on the Exchangeable Preferred Stock, any
right of the Company to receive the assets of any of its subsidiaries upon its
liquidation or reorganization (and the consequent right of holders of the Notes
or the Exchangeable Preferred Stock to participate in the distribution or
realize proceeds from those assets) will be effectively subordinated to the
claims of the creditors of any such subsidiary (including trade creditors and
holders of indebtedness of such subsidiary), except if and to the extent that
the Company is itself a creditor of such subsidiary, in which case the claims of
the Company would still be effectively subordinated to any security interest in
the assets of such subsidiary held by other creditors.
The New Notes are unsecured and therefore will be effectively subordinated in
right of payment to any secured indebtedness of the Company. The Indenture
permits the Company and its subsidiaries to incur an unlimited amount of
indebtedness to finance the acquisition of equipment, inventory and network
assets and to secure such indebtedness. Up to $50 million of bank indebtedness
may be secured by liens on all assets of the Company and its subsidiaries. In
the event of a bankruptcy, liquidation, dissolution, reorganization or similar
proceeding with respect to the Company, the holders of any secured indebtedness
will be entitled to proceed against the collateral that secures such
indebtedness and such collateral will not be available for satisfaction of any
amounts owed under the Notes until such other creditors have been paid in full.
In addition, to the extent such assets did not satisfy in full the secured
indebtedness, the holders of such indebtedness would have a claim for any
shortfall that would be pari passu (or effectively senior if the indebtedness
were issued by a subsidiary) with the New Notes. Accordingly, there may only be
a limited amount of assets available to satisfy any claims of the holders of the
New Notes upon an acceleration of the New Notes. See "Description of the New
Notes--Ranking."
ABILITY TO PAY DIVIDENDS ON THE NEW EXCHANGEABLE PREFERRED STOCK
The ability of the Company to pay any dividends is subject to applicable
provisions of state law and its ability to pay cash dividends on the New
Exchangeable Preferred Stock after February 15, 2003, will be subject to the
terms of the Indenture and any other indebtedness of the Company then
outstanding. The terms of the Indenture permit the Company to pay cash dividends
on the New Exchangeable Preferred Stock in the absence of any Default (as
defined) under the Indenture. There can be no assurance that the Indenture or
the terms of other indebtedness of the Company will permit the Company to pay
cash dividends on the New Exchangeable Preferred Stock. Moreover, under Illinois
law the Company is permitted to pay dividends on its capital stock, including
the New Exchangeable Preferred Stock, only out of its surplus, or in the event
that it has no surplus, out of its net profits for the year in which a dividend
is declared or for the immediately preceding fiscal year. Surplus is defined as
the excess of a company's total assets over the sum of its total liabilities
plus the par value of its outstanding capital stock. In order to pay dividends
in cash, the Company must have surplus or net profits equal to the full amount
of the cash
<PAGE>
dividends at the time such dividend is declared. The Company cannot predict what
the value of its assets or the amount of its liabilities will be in the future
and, accordingly, there can be no assurance that the Company will be able to pay
cash dividends on the New Exchangeable Preferred Stock.
RANKING OF THE NEW EXCHANGEABLE PREFERRED STOCK
The Company's obligations with respect to the New Exchangeable Preferred Stock
are subordinate and junior in right of payment to all present and future
indebtedness of the Company and its subsidiaries, including the New Notes, but
will rank senior to existing equity securities of the Company (other than the
Old Exchangeable Preferred Stock). In the event of bankruptcy, liquidation or
reorganization of the Company, the assets of the Company will be available to
pay obligations on the New Exchangeable Preferred Stock only after all holders
of indebtedness, and all other creditors, of the Company have been paid, and
there may not be sufficient assets remaining to pay amounts due on any or all of
the New Exchangeable Preferred Stock then outstanding. See "Description of the
New Exchangeable Preferred Stock--Ranking."
While any shares of New Exchangeable Preferred Stock are outstanding, the
Company may not authorize, create or increase the authorized amount of any class
or series of stock that ranks senior to or pari passu with the New Exchangeable
Preferred Stock with respect to the payment of dividends or amounts upon
liquidation, dissolution or winding up without the consent of the holders of a
majority of the outstanding shares of Exchangeable Preferred Stock. However,
without the consent of any holder of Exchangeable Preferred Stock, the Company
may create additional classes of stock, increase the authorized number of shares
of preferred stock or issue a new series of stock that ranks junior to the New
Exchangeable Preferred Stock with respect to the payment of dividends and
amounts upon liquidation, dissolution or winding up.
SUBORDINATION OF THE EXCHANGE DEBENTURES
The payment of principal, premium, if any, and interest on or any other
amounts owing in respect of, the Exchange Debentures, if issued, will be
subordinated to the prior payment in full of all existing and future Senior
Indebtedness, including indebtedness represented by the New Notes, and will be
effectively subordinated to all indebtedness and other liabilities (including
trade payables) of the Company's subsidiaries. The Indenture and the Exchange
Indenture permit the incurrence by the Company and its subsidiaries of
additional indebtedness, all of which may constitute Senior Indebtedness, under
certain circumstances. In addition, the Company may not pay principal of,
premium, if any, or interest on or any other amounts owing in respect of, the
Exchange Debentures, or purchase, redeem or otherwise retire the Exchange
Debentures, if (i) the obligations with respect to the Notes are not paid when
due or (ii) any other event of default has occurred under the Indenture, and is
continuing or would occur as a consequence of such payment. In the event of
bankruptcy, liquidation or reorganization of the Company, the assets of the
Company will be available to pay obligations on the Exchange Debentures only
after all Senior Indebtedness has been paid, and there may not be sufficient
assets remaining to pay amounts due on any or all of the Exchange Debentures
then outstanding. See "Description of the Exchange Debentures--Ranking."
COMPETITION
The cable television, Internet and telephone service businesses are highly
competitive and the level of competition is increasing. The ability of the
Company to compete will depend in part on the technical advantages of its
systems, the quality and performance of the DRS Network, the Company's focus on
customer service, the pricing of its services and its ability to offer a bundle
of services not available from any other single vendor. There can be no
assurance that the Company will be able to compete successfully, that customers
will prefer bundled to single services or that competitive pressures will not
have a material adverse effect on the Company's business, operating results or
financial condition. See "Business--Competition." Also, there can be no
assurance that the market for
<PAGE>
cable, Internet or telephone services will not ultimately be dominated by
approaches other than approaches marketed by the Company. Many of the Company's
competitors and potential competitors have longer operating histories, greater
name recognition, a larger subscriber base and significantly greater financial,
marketing, technical and other competitive resources than the Company. As a
result, they may be able to adapt more quickly to changes in customer
requirements, or to devote greater resources to the promotion and sale of their
products than can the Company. There can be no assurance that the Company's
current or potential competitors will not develop products comparable or
superior to those developed by the Company, adapt more quickly than the Company
to new technologies, evolving industry trends or changing customer requirements
or be more successful than the Company in marketing their products. Competition
could increase if new companies enter the market, which could result in price
reductions and loss of market share and could have a material adverse effect on
the Company's financial condition or results of operations. Although the Company
believes it has certain technological and other advantages over its competitors,
such advantages require continued investment by the Company in research,
development, DRS Network implementation and sales and marketing, and the Company
may not realize upon or maintain such advantages.
Television. In providing cable television service, the Company currently
competes with other cable television providers in Chicago, including TCI
Communications, Inc., which conducts business under the trade name Chicago Cable
("Chicago Cable"), a subsidiary of Tele-Communications, Inc. ("TCI"), and
competes or may compete with other means of video distribution, including
broadcast television stations, direct broadcast satellite ("DBS") companies,
microwave multipoint distribution systems ("MMDS"), satellite master antenna
television ("SMATV") and private home dish earth stations. Additional
competition may also come from new wireless local multipoint distribution
services ("LMDS") authorized by the Federal Communications Commission (the
"FCC"). In addition, the Telecommunications Act of 1996 (the "1996 Telecom Act")
repealed the cable television cross ownership ban and telephone companies will
now be permitted to provide cable television service within their service areas.
The Company also faces competition from other communications and entertainment
media, including newspapers, movie theaters, live sporting events and entities
that make videotaped movies and programs available for home rental.
Internet Services. In providing Internet access and high-speed data services,
the Company will compete with other network providers of such services,
providers of satellite-based Internet services, long-distance carriers that
offer Internet services and other cable television companies that offer or may
in the future offer Internet services. Technologies such as integrated services
digital network ("ISDN"), digital subscriber line ("DSL") and DBS offer high-
speed or broadband connections to the Internet, which address the basic
requirements for most Internet consumers today. In providing Internet services,
the Company likely will compete with companies such as DirecPC, one of the
principal providers of satellite-based Internet services in the United States,
long-distance carriers such as AT&T Corp. ("AT&T") and MCI Communications
Corporation ("MCI") and cable modem services such as @Home, a joint venture
among TCI and other large cable companies, and such Internet services providers
("ISPs") as WorldCom, Inc. ("WorldCom") and Teleport Communications Group
("TCG"), which also compete with 21st Century in the telephone and cable
industries. The Company will also compete with Ameritech, which recently
announced that it is providing high-speed Internet access using asynchronous
digital subscriber line ("ADSL") technology and will be collaborating with
Microsoft Corporation to facilitate the installation of its ADSL service.
Ameritech has announced plans to provide high-speed Internet access initially in
Ann Arbor, Michigan, and expects to offer such access in the Chicago area by
mid-1998.
Telephone. Once the Company begins providing local and long-distance
telephone service and long-distance access services, the Company will compete
with Ameritech, presently the only facilities-based provider available to the
local residential market, as well as with WorldCom and TCG. The Company will
also compete with long-distance carriers such as AT&T, MCI and Sprint
Corporation ("Sprint"), both in long-distance service and potentially in local
service. In January 1998, AT&T entered into an agreement to acquire all of the
outstanding common stock of TCG. The Company's ability to compete successfully
in telephony will depend on the overall bundle of services the Company is able
to offer, including price, features and customer service.
<PAGE>
ABILITY TO COMPLETE DRS NETWORK CONSTRUCTION
The timing of completion of the various phases of construction of the DRS
Network is subject to numerous uncertainties. See "--Franchise Compliance and
Renewal" and "Legislation and Regulation." Although the CTA, Commonwealth
Edison and Ameritech attachment agreements reduce the need for underground
construction, the Company still will be required to build significant portions
of the DRS Network underground, and also must complete connections through
wiring of multiple units in MDUs and other multi-unit buildings. Delays in
receiving the necessary financing, in performing the "make-ready" work to use
essential utility facilities (e.g., to attach the cable to utility poles), in
receiving necessary permits and approvals for underground and other
construction, and in conducting the construction itself (due to inclement
weather, labor problems and other causes) could adversely affect the Company's
schedule. In order to develop the DRS Network, the Company must obtain building
access agreements, certain permits and certain rights-of-way and fiber capacity
from entities such as telecommunications companies and other utilities,
railroads, highway authorities, local governments and transit authorities. There
can be no assurance that the Company will be able to maintain its existing
franchises, permits and rights or obtain the other permits, building access
agreements and rights needed to implement its business plan on acceptable terms
and in a timely manner. In constructing the DRS Network, the Company also will
be dependent on the performance of contractors and other third parties. There
can be no assurance that the Company will be able to secure a sufficient number
of contractors or other third parties to construct the DRS Network at an
acceptable price or at all or that such contractors or other third parties will
perform in accordance with the Company's expectations. Any delay in implementing
or constructing the DRS Network or installing necessary equipment will have an
adverse effect on the Company's results of operations and financial condition.
ABILITY TO MANAGE GROWTH
The Company's plan is to obtain subscribers quickly and to grow rapidly. To
date, the Company's operations have been limited, and rapid growth may place a
significant strain on the Company's DRS Network and management, administrative,
operational and financial resources. The Company's ability to manage its growth
successfully will require the Company to further enhance its operational,
management, financial and information systems and controls. The Company's
success will also depend in part upon its ability to hire and retain qualified
sales, marketing, administrative, operating and technical personnel. In
addition, as the Company increases its service offerings and expands its
targeted markets, there will be additional demands on the Company's customer
support, sales, marketing and administrative resources as well as on the DRS
Network infrastructure. While the Company's DRS Network is operational, it has
not been tested under circumstances consistent with the more significant volume
of activity anticipated upon buildout of the DRS Network and increase of the
Company's subscriber base. The Company's inability to effectively manage its
growth could have a significant adverse effect on the Company, its results of
operations and financial condition.
While the Company does not currently intend to pursue an acquisition strategy,
the Company may acquire existing companies or networks under certain
circumstances. If the Company acquires existing companies or networks, or enters
into joint ventures as part of its expansion plan, it will be subject to the
risks generally attendant to an acquisition strategy or joint venture. Such
risks include the acquired company or joint venture not having all the benefits
that are anticipated, the diversion of resources and management time, the
integration of the acquired business or joint venture with the Company's
operations, the potential impairment of relationships with employees or
customers as a result of the acquisition or joint venture, the additional debt
burden or dilution incurred to pay the purchase price or capital investment
requirements, and other matters. There are also additional risks in
participating in joint ventures, including the risk that the other joint venture
partners may at any time have economic, business or legal interests or goals
that are inconsistent with those of the joint venture or the Company or that a
joint venture partner may be unable to meet its economic or other obligations in
the joint venture and that the Company may be required to fulfill some or all of
those obligations.
<PAGE>
SALES AND DISTRIBUTION STAFFING
As of December 31, 1997, the Company had 17 employees in sales and marketing,
many of whom have been employed by the Company for less than one year. In order
to increase its direct sales effort, the Company will need to increase the size
of its internal sales and marketing staff, and will be required to obtain
marketing personnel who have experience in all three components of its broadband
service. There can be no assurance that the Company will be able to identify and
attract sufficient numbers of qualified personnel or that the Company's sales
and marketing operations will successfully compete against the more extensive
and well-funded sales and marketing operations of many of the Company's current
and future competitors.
UNCERTAIN DEMAND FOR BROADBAND SERVICES
The Company's business strategy to provide broadband services is comparatively
untested and subject to certain risks such as future competition, pricing,
regulatory uncertainties and operating and technical difficulties. The demand
for such services, at the prices proposed to be charged by the Company, is
uncertain. In addition, some of the broadband services being considered by the
Company, including high-speed data transmission services for residential
subscribers, are not currently available to business or residential subscribers.
The Company's business could be adversely affected if demand for an integrated
bundle of broadband services (voice, video and high-speed data) is materially
lower than anticipated.
FRANCHISE COMPLIANCE AND RENEWAL
The Company's franchise for Chicago Area 1 contains many conditions, such as
time limitations on commencement and completion of system construction, customer
service standards, minimum number of channel requirements and the provision of
free service to schools and certain other public institutions. While the Company
believes that the conditions in its Chicago Area 1 franchise are typical for the
industry, to the extent that the Company fails to meet these conditions, it may
be subject to certain monetary penalties or revocation of the franchise.
The Company's franchise for the Chicago system expires in June 2011. The
Communications Act of 1934, as amended, provides for a reasonable expectation of
franchise renewal, limits the ability of local franchise authorities to fail to
renew a franchise and specifies a procedure and period within which local
franchise authorities must act. Nonetheless, the Company's franchise may be
subject to non-renewal under certain circumstances. Failure of the Company to
obtain renewal of its franchise would have a material adverse effect on the
Company's business.
COMMENCEMENT OF TELEPHONY SERVICES; DEPENDENCE ON INTERCONNECTIONS
The Company does not yet offer telephony services and must complete a number
of steps before it can begin offering such services, including receipt of
necessary regulatory approvals, purchase and installation of switching and other
equipment, negotiation and completion of direct or indirect interconnection
agreements with Ameritech, negotiation of arrangements with third parties to
provide long-distance and other services and successful roll-out and
implementation of the proposed telephony service offerings. The Company made
application to the Illinois Commerce Commission on October 27, 1997 for
necessary regulatory approvals to provide local telephone service, has entered
into a letter of intent with Nortel to provide the necessary switching and other
equipment and is currently in negotiations with Ameritech with respect to an
interconnection agreement. The 1996 Telecom Act established certain requirements
and standards for interconnection arrangements, and the Company's
interconnection agreement with Ameritech will be based in large part on such
requirements. See "Legislation and Regulation--Federal Regulation of
Telecommunications Services." The Company also is seeking additional
<PAGE>
management, technical and sales personnel with particular expertise in the
telephony business to assist in implementing its telephony strategy. Although
the Company expects to begin offering telephony services in mid-1998, there is
no assurance that it will be able to do so. Delays in receiving regulatory
approval, installing necessary equipment and completing the DRS Network,
negotiating or implementing interconnection or other agreements or securing
necessary personnel, or any other delay in the telephony service offering, could
adversely affect the Company and its results of operations and financial
condition.
DEPENDENCE ON INTEGRATED BILLING AND INFORMATION SYSTEMS AND CUSTOMER CARE
OPERATIONS
The Company outsources certain of its billing and customer service operations
and is therefore dependent on others to provide sophisticated information and
processing systems, monitor costs, bill subscribers, fill subscriber orders and
achieve operating efficiencies. As the Company increases its provision of
broadband services, its dependence on integrated billing and information
management systems will increase significantly. Integrated billing systems for
voice, video and data broadband services are in beta testing phase, but are not
currently available for commercial use. The inability of the Company to
adequately identify all of its information and processing needs or to obtain
upgraded billing and information systems as necessary, could have a material
adverse impact on the Company's ability to expand its business and on its
results of operations and financial condition. Further, the failure of third-
party providers to adequately provide billing and customer care services could
adversely affect the Company.
RAPID TECHNOLOGICAL CHANGES
The telecommunications industry is subject to rapid and significant changes in
technology and changes in subscriber requirements and preferences. The Company
may be required to select, in advance, one technology over another, but at a
time when it would be impossible to predict with any certainty which technology
will prove to be the most economic, efficient or capable of attracting
subscriber usage. There can be no assurance that subsequent technological
developments will not reduce the competitiveness of the Company's DRS Network
and require upgrades or additional equipment that could be expensive and time
consuming.
EQUIPMENT COST AND AVAILABILITY
The ability of the Company to compete effectively and to expand its customer
base will depend, in part, upon the cost and availability of the set-top box to
be used with its video and audio offerings. There can be no assurance that the
Company will be able to obtain such set-top boxes in a timely manner and in
sufficient quantities to enable it to buildout the DRS Network to additional
subscribers, or at a cost that enables it to price its video and audio offerings
competitively. If the Company cannot obtain such set-top boxes in a timely
manner, in sufficient quantities and at an appropriate cost, its business,
financial condition and results of operations may be adversely affected.
DEPENDENCE ON THE INFRASTRUCTURE AND COMMERCIAL VIABILITY OF THE INTERNET
The success of the Company's bundled service offering will depend in part upon
the development and commercial viability of an infrastructure for providing
Internet access and services. Because global commerce and online exchange of
information on the Internet and other similar open wide-area-networks are new
and evolving, it is difficult to predict with any assurance whether the Internet
will prove to be a viable commercial marketplace. The Internet has experienced,
and is expected to continue to experience, significant growth in the number of
users and amount of traffic. There can be no assurance that the Internet
infrastructure will continue to be able to support the demands placed on it by
this continued growth. In addition, the Internet could lose its viability due to
delays in the development or adoption of new standards and protocols to handle
increased levels of Internet activity or due to
<PAGE>
increased governmental regulation. If the necessary infrastructure or
complementary services or facilities are not developed, or if the Internet does
not become a viable commercial marketplace, the Company's results of operations
or financial condition could be materially adversely affected.
EVOLVING REGULATORY ENVIRONMENT
Although the 1996 Telecom Act, together with the Cable Television Consumer
Protection and Competition Act of 1992 (the "1992 Cable Act") and other recent
laws and regulations, eliminated most limitations on competition in the
broadband service business, the 1996 Telecom Act is complex and in many areas
sets forth policy objectives to be implemented by regulation. It is generally
expected that the 1996 Telecom Act will undergo considerable interpretation and
implementation through regulation and court decisions over the next several
years. There can be no assurance that such interpretation or implementing
regulations will be favorable to the Company. In certain areas, particularly
telephony, further regulation is expected to affect the Company's provision of
service. The Company's ability to compete successfully in the provision of
telephone service will depend in part on the timing of the implementation of
such regulations and whether they are favorable to the Company. It is also
important to the Company that the provisions limiting the ability of franchise
authorities to deny awarding or renewing franchises not change in a manner
adverse to the Company. See "--Commencement of Telephony Services; Dependence
on Interconnections" and "Legislation and Regulation."
DEPENDENCE ON KEY PERSONNEL
The Company's success depends to a significant degree upon the continuing
contributions of its key management, sales, marketing and product development
personnel. The Company's business is currently managed by a small number of key
management and operating personnel. The Company does not maintain "key man"
insurance on these or any other employees. The Company believes that its future
success will depend in large part upon its ability to attract and retain highly
skilled managerial, sales, marketing and product development personnel. The loss
of the services of key personnel, or the inability to attract, recruit and
retain sufficient or additional qualified personnel, could have a material
adverse effect on the Company. See "Management."
ABSENCE OF PRIOR MARKET FOR SECURITIES
The Securities are new securities for which there is currently no market.
Although the Initial Purchasers have informed the Company that they intend to
make a market in the Securities and, if issued, the Exchange Debentures, they
are not obligated to do so, and any such market-making may be discontinued at
any time without notice. Although the Securities and, if issued, the Exchange
Debentures, are expected to be tradable in the PORTAL market, the Company does
not intend to apply for listing of the Securities or, if issued, the Exchange
Debentures, on any securities exchange or for quotation through The Nasdaq Stock
Market, Inc. Accordingly, there can be no assurance as to the development or
liquidity of any market for the Securities or, if issued, the Exchange
Debentures. If a market for the Securities or, if issued, the Exchange
Debentures, were to develop, the Securities or, if issued, the Exchange
Debentures, may trade at prices that may be higher or lower than their initial
offering prices depending upon many factors, including prevailing interest
rates, the Company's operating results and the markets for similar securities.
Historically, the markets for securities such as the Securities and the Exchange
Debentures have been subject to disruptions that have caused substantial
volatility in the prices of securities similar to the Securities. There can be
no assurance that, if a market for the Securities or, if issued, the Exchange
Debentures, were to develop, such a market would not be subject to similar
disruptions. Such disruptions may materially and adversely affect such liquidity
and trading independent of the financial performance of, and prospects for, the
Company.
CONSEQUENCES OF ORIGINAL ISSUE DISCOUNT ON NOTES
<PAGE>
The New Notes will be issued at a substantial discount from their principal
amount. Consequently, purchasers of the New Notes generally will be required to
include amounts in gross income for Federal tax purposes in advance of receipt
of the cash payments to which the income is attributable, and no cash payments
of interest will be made until after February 15, 2003.
Moreover, the New Notes will constitute "applicable high yield discount
obligations" ("AHYDOs") because the yield to maturity of the New Notes
exceeds the relevant applicable Federal rate (the "AFR") at the time of issue
by more than 5 percentage points. For February 1998, the annual long-term AFR is
5.93% and the annual mid-term AFR is 5.69% (based on semi-annual compounding).
The appropriate AFR depends upon the weighted average maturity of the New Notes.
Because the New Notes constitute AHYDOs, the Company will not be entitled to
deduct OID accruing with respect thereto until such amounts are actually paid.
See "Certain United States Federal Income Tax Consequences" for a more
detailed discussion of the Federal income tax consequences to holders of New
Notes.
If a bankruptcy proceeding is commenced by or against the Company under the
United States Bankruptcy Code after the issuance of the New Notes, the claim of
a holder of New Notes may be limited to an amount equal to the sum of (i) the
initial offering price for the Notes and (ii) that portion of the original issue
discount that is not deemed to constitute "unmatured interest" for purposes of
the United States Bankruptcy Code. Any original issue discount that was not
amortized as of the commencement of any such bankruptcy proceeding would
constitute "unmatured interest."
LIMITATION ON CHANGE OF CONTROL
Unless the Company has consummated a Qualified Public Offering (as defined
below under "Description of Capital Stock"), beginning on the fourth
anniversary of the Issue Date and terminating on the earlier to occur of three
years thereafter and the consummation of a Qualified Public Offering by the
Company, holders of the Company's Class A Convertible 8% Cumulative Preferred
Stock will have the right to require the sale of the Company subject to certain
conditions. A Change of Control may occur in such a transaction. In addition, a
Change of Control may result from other transactions which could occur at any
time. Under the Indenture (in the case of the New Notes), the Amended Articles
(in the case of the New Exchangeable Preferred Stock) and the Exchange Indenture
(in the case of the Exchange Debentures), in the event of a Change of Control,
(i) each holder of New Notes may require the Company to purchase all or any
portion of such holder's New Notes at a purchase price equal to 101% of the
Accreted Value thereof plus accrued and unpaid interest, if any to the date of
purchase, (ii) the Company is required to offer to purchase all outstanding
shares of New Exchangeable Preferred Stock, in whole or in part, at a purchase
price equal to 101% of the aggregate liquidation preference thereof, plus
accumulated and unpaid dividends, if any to the date of purchase and (iii) each
holder of Exchange Debentures may require the Company to purchase such holder's
Exchange Debentures, in whole or in part, at a purchase price equal to 101% of
the aggregate principal amount thereof, plus accrued and unpaid interest, if any
to the date of purchase. The Company is not required to provide any credit
support or otherwise set aside funds for any obligation to purchase the New
Notes, the New Exchangeable Preferred Stock or the Exchange Debentures in the
event of a Change of Control. Accordingly, there can be no assurance that the
Company will have sufficient funds to satisfy any such repurchase obligations.
See "Description of the New Notes--Change of Control," "Description of the
New Exchangeable Preferred Stock--Change of Control," "Description of the
Exchange Debentures--Change of Control," "Description of Capital Stock--Right
to Require Sale" and "Description of the Warrants--Take Along Rights."
CONTROL BY HOLDERS OF CLASS A CONVERTIBLE 8% CUMULATIVE PREFERRED STOCK
Although no single shareholder has control over the corporate decisions of the
Company, the holders of the Class A Convertible 8% Cumulative Preferred Stock
are collectively in a position to control the taking of many
<PAGE>
significant corporate actions by the Company, including the making of any
significant capital commitments, the incurrence of any significant indebtedness,
mergers and the payment of dividends on the Common Stock, pursuant to agreements
which provide that prior to taking such actions, the Company will need to obtain
the approval of the nominees to the Board of Directors of the holders of the
Class A Convertible 8% Cumulative Preferred Stock. These restrictions terminate
upon the consummation of a Qualified Public Offering. In addition, in the event
that a Qualified Public Offering is not completed before the fourth anniversary
of the Issue Date, the holders of the Class A Convertible 8% Cumulative
Preferred Stock have the right to require the sale of the Company, subject to
certain conditions. See "Description of Capital Stock."
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its capital stock
and does not anticipate paying cash dividends on its capital stock in the
foreseeable future. It is the current policy of the Company's Board of Directors
to retain earnings to finance the expansion of the Company's operations. Future
declaration and payment of dividends, if any, will be determined in light of the
then-current conditions, including the Company's earnings, operations, capital
requirements, financial condition and other factors deemed relevant by the Board
of Directors. In addition, the Company's ability to pay dividends is limited by
the terms of the Indenture, the Amended Articles and the terms of the Company's
existing preferred stock. See "Description of the New Notes," "Description of
the New Exchangeable Preferred Stock" and "Description of Capital Stock."
USE OF PROCEEDS
There will be no proceeds to the Company from the Exchange Offer. The net
proceeds to the Company from the Private Placement were approximately $240.3
million (after deduction of discounts and estimated offering expenses). The
Company will continue using such proceeds for capital expenditures associated
with the continued expansion of the DRS Network in Chicago's Area 1 and for
additional working capital and other general corporate purposes, including
funding operating deficits.
The Company estimates that capital expenditures in calendar year 1998 for
continued construction of the DRS Network in Chicago Area 1, including the
installation of telephony equipment to commence voice services for certain
customers, will be approximately $90 million to $120 million. Actual costs, and
the timing thereof, may vary from this range and will depend in part on factors
affecting construction costs, the number of subscribers, the mix of services
purchased, the cost of subscriber equipment paid for or financed by the Company
and other factors.
<PAGE>
CAPITALIZATION
The following table sets forth the cash and capitalization of the Company as
of December 31, 1997 on a historical basis after reflecting an increase in
authorized common shares and a 1,000-for-1 common stock split and as adjusted to
reflect the Private Placement, the sale of Class A Convertible 8% Cumulative
Preferred Stock and the application of the net proceeds therefrom. See ''Use of
Proceeds'' and ''Selected Financial Data.''
<TABLE>
<CAPTION>
December 31, 1997
-------------------------------------
Historical AS ADJUSTED
------------------ -----------------
<S> <C> <C>
Cash and cash equivalents(1)(2)................................................ $ 1,404,975 $235,162,357
============ ============
Debt(1):
12/1//4% Senior Discount Notes Due 2008...................................... $ -- $200,000,000
Interim credit facility(1)................................................... 8,000,000 --
Debentures and related interest payable...................................... 227,185 227,185
------------ ------------
Total debt................................................................... 8,227,185 200,227,185
Redeemable preferred stock:
13/3//4% Senior Cumulative Exchangeable Preferred Stock Due 2010
$.01 par value, 0 shares authorized, issued and outstanding at
September 30, 1997; 100,000 shares authorized, 50,000 issued and
outstanding, as adjusted................................................... -- 45,455,300
Shareholders' equity:
Class A Convertible 8% Cumulative Preferred Stock no par value,
500,000 shares authorized at December 31, 1997, 1,453.1 shares
issued and outstanding, and 1,222,569.0 common share warrants
outstanding and 1,548.5 shares issued and outstanding, and
1,302,868.7 related common share warrants outstanding,
as adjusted(2)............................................................. 23,074,331 24,581,713
Common Stock, no par value, 50,000,000 shares authorized, 2,910,776.5
issued and outstanding at December 31, 1997, and 2,939,106.5 issued
and outstanding as adjusted(3)(4).......................................... 2,787,782 2,787,782
Non-Voting Common Stock, no par value, 1,000,000 shares authorized,
522,032.3 issued and outstanding at December 31, 1997, and
550,362.3 issued and outstanding as adjusted(4)............................ -- --
Additional paid-in-capital(5)................................................ -- 2,594,700
Accumulated deficit and other................................................ (17,900,773) (17,900,773)
------------ ------------
Total shareholders' equity................................................... 7,961,340 12,063,422
------------ ------------
Total capitalization........................................................... $ 16,188,525 $257,745,907
============ ============
</TABLE>
(1) The Company entered into the Interim Credit Facility in November 1997.
Borrowings outstanding under the Interim Credit Facility were $8.0 million
at December 31, 1997 and $9.0 million at January 31, 1998. The Company used
a portion of the proceeds from the Private Placement to repay borrowings
outstanding under the Interim Credit Facility, together with accrued and
unpaid interest, and to terminate such facility.
(2) The as adjusted number includes 95.4 shares of Class A Preferred Stock which
the Company issued to several common shareholders and others in January 1998
for an aggregate consideration of approximately $1.5 million.
(3) Excludes 728,667.7 shares of Common Stock issuable upon exercise of options
outstanding on December 31, 1997.
(4) The as adjusted number includes 28,330 shares of common stock and 28,330
shares of non-voting common stock which the Company issued in conjunction
with the January 1998 sale of Class A Preferred Stock.
(5) Of the $50 million gross proceeds from the issuance of the Units offered
hereby, $47.3 million has been allocated to the 13/3//4% Senior Cumulative
Exchangeable Preferred Stock Due 2010 and $2.7 million has been allocated to
additional paid-in-capital to reflect the issuance of the Warrants. No
assurance can be given that the value allocated to the Warrants will be
indicative of the price at which the Warrants may actually trade.
<PAGE>
SELECTED FINANCIAL DATA
The following table sets forth selected financial and operating data for the
Company. The selected financial data as of and for the periods ended March 31,
1994, 1995, 1996 and 1997 have been derived from the audited financial
statements of the Company. The selected financial and operating data as of and
for the nine months ended December 31, 1996 and 1997 have been derived from the
unaudited financial statements of the Company and, in the opinion of the
Company, include all adjustments, consisting of normal recurring accruals,
necessary for a fair presentation of such information. Operating results for the
nine months ended December 31, 1997 are not necessarily indicative of the
results that may be expected for the entire year. The selected financial and
operating data set forth below should be read in conjunction with ''Use of
Proceeds,'' ''Management's Discussion and Analysis of Financial Condition and
Results of Operations'' and the Financial Statements included elsewhere in this
Offering Circular.
<TABLE>
NINE MONTHS ENDED
Period From YEAR ENDED MARCH 31, DECEMBER 31,
10/29/92- ---------------------------------------- ---------------------------
3/31/94 1995 1996 1997 1996 1997
----------- ----------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Subscriber revenues $ -- $ -- $ -- $ 27,480 $ -- $ 123,532
Operating expenses -- -- 9,617 200,911 190,817 413,979
Selling, general and
administrative expenses 370,809 624,963 694,122 2,337,534 1,572,936 7,276,439
Depreciation and
amortization 11,770 38,923 108,182 170,108 114,734 643,427
---------- ----------- ----------- ----------- ----------- -------------
Operating loss (382,579) (663,886) (811,921) (2,681,073) (1,878,487) (8,210,313)
Interest income -- -- -- 301,624 142,603 484,678
Interest expense (38,055) (115,428) (214,688) (437,843) (376,828) (119,226)
---------- ----------- ----------- ----------- ----------- -------------
Net loss (420,634) (779,314) (1,026,609) (2,817,292) (2,112,712) (7,844,861)
Preferred dividend
requirement -- -- -- (280,795) -- (1,349,934)
---------- ----------- ----------- ----------- ----------- -------------
Net loss attributable to
common shares $ (420,634) $ (779,314) $(1,026,609) $(3,098,087) $(2,112,712) $ (9,194,795)
========== =========== =========== =========== =========== =============
Net loss per common share $(.28) $(.52) $(.64) $(1.56) $(1.11) $(3.86)
========== =========== =========== =========== =========== =============
Weighted average common
shares 1,481,000 1,508,000 1,609,129 1,988,365 1,900,527 2,384,722
Other Data:
Capital expenditures $ -- $ -- $ -- $ 246,863 $ 47,118 $ 15,007,751
Number of subscribers
(end of period) -- -- -- 1,734 -- 3,019
BALANCE SHEET DATA
(END OF PERIOD):
Total assets $ 428,914 $ 847,659 $ 1,664,877 $15,553,488 $ 23,835,488
Total liabilities 726,450 1,910,781 3,409,433 1,718,862 15,874,148
Total redeemable preferred
stock -- -- -- 20,634,399 (1)
Total shareholders' equity (297,536) (1,063,122) (1,744,556) (6,799,773) 7,961,340 (1)
</TABLE>
- --------------
(1) Prior to the Private Placement, the terms of the Class A Preferred Stock
were amended to remove the redemption right and to replace it with a right
to require the sale of the Company. Accordingly, the Class A Preferred Stock
was included in total shareholders' equity as of December 31, 1997.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following should be read in conjunction with the Company's Financial
Statements included elsewhere in this Prospectus.
GENERAL
21st Century was awarded a franchise in 1996 by the City of Chicago that
allows for the construction of the DRS Network in Chicago's Area 1. Under this
15-year renewable license, the Company is granted unrestricted access to the
public right-of-way to construct, operate and maintain its DRS Network to all
residential and commercial subscribers. From inception through the date of this
Prospectus, the Company's principal focus has been the development of its
communications business in Chicago's Area 1.
The Company has incurred net losses in each quarter since its inception, and
as of December 31, 1997, the Company had an accumulated deficit of $14,519,473
The Company anticipates that it will continue to incur net losses during the
next several years as it continues to expand its operations as a result of
substantially increased depreciation and amortization from the construction of
networks and operating expenses as it builds its subscriber base. There can be
no assurance that growth in the Company's revenues or subscriber base will occur
or that the Company will be able to achieve or sustain profitability or positive
cash flow. See ''Risk Factors--History of Losses; Expectation of Future Losses
and Negative Cash Flows from Operations.''
RESULTS OF OPERATIONS
Nine Months Ended December 31, 1997 Compared to Nine Months Ended December 31,
1996.
Revenues. The Company generated subscriber revenues of $123,532 for the nine
months ended December 31, 1997. No subscriber revenues were generated for the
nine months ended December 31, 1996. The commencement of subscriber revenues
resulted principally from the purchase of 1,734 bulk subscribers from an
affiliated entity during January 1997.
Expenses. The Company incurred operating expenses of $413,979 for the nine
months ended December 31, 1997 which represent primarily local access and
origination programming support as required by the franchise agreement and the
start up of basic programming fees. Operating expenses of $190,817 for the nine
months ended December 31, 1996 represent primarily local access and origination
programming support as required by the franchise agreement. General and
administrative expenses were $7,276,439 and $1,572,936 for the nine months ended
December 31, 1997 and December 31, 1996, respectively. Depreciation and
amortization costs were $643,427 and $114,734 for the nine months ended December
31, 1997 and December 31, 1996, respectively. The commencement of operating
expenses and the increase in general and administrative expenses as well as
depreciation and amortization reflects the Company's acquisition of subscribers,
the addition of employees and the expansion of the DRS Network, and $849,700 of
compensation expense related to stock options granted in October 1997. Interest
expense decreased from $376,828 to $119,226 due to the lower levels of
borrowings outstanding for the nine months ended December 31, 1997 caused by the
conversion of certain subordinated debentures into common stock and the
repayment in January 1997 of the June 21, 1996 loan and security agreement.
Net Loss. For the nine months ended December 31, 1997 the Company incurred a
net loss of $7,844,861, and for the nine months ended December 31, 1996 the
Company incurred a net loss of $2,112,712. The Company expects its net losses to
continue to increase as it introduces new services and as the Company continues
to build-out the DRS Network and seeks to expand its business. See ''Risk
Factors--History of Losses; Expectation of Future Losses and Negative Cash Flows
from Operations.''
<PAGE>
Year Ended March 31, 1997 Compared to the Year Ended March 31, 1996.
The Company's net loss of $2,817,292 in fiscal 1997 was an increase over the
net loss of $1,026,609 in 1996. The higher losses reflect primarily the
additional activities undertaken to prepare for the initiation of services in
1997. These activities accelerated in February 1997 with the close of the
Company's initial private preferred stock offering. Operating expenses increased
to $200,911 in fiscal 1997 from $9,617 in fiscal 1996 primarily due to local
access and origination programming support as required by the franchise
agreement. Selling, general and administrative expenses increased to $2,337,534
in fiscal 1997 from $694,122 in fiscal 1996. This increase was primarily due to
higher payroll-related costs of $675,574, increased legal and professional fees
of $561,167, higher bank fees of $130,706 and increased occupancy costs of
$122,991. Interest expense increased by $223,155 due to the additional interest
on the revolving credit note outstanding for most of fiscal 1997. Depreciation
and amortization increased due to higher balances subject thereto.
Year Ended March 31, 1996 Compared to the Year Ended March 31, 1995.
The Company's results of operations for the fiscal year 1996 were comparable
to fiscal 1995. Operating expenses in fiscal 1996 of $9,617 represent mapping
and design charges. The $69,159 increase in selling, general and administrative
expenses is primarily due to increases of $95,569 in professional fees, $31,122
in office expense and $15,051 in travel and entertainment. These increases were
offset by a $79,039 decrease in payroll-related costs. Interest expense
increased by $99,260 due to the increased balance of debentures and notes
payable outstanding during the period. Depreciation and amortization increased
due to higher balances subject thereto.
LIQUIDITY AND CAPITAL RESOURCES
The cost of development, construction and start-up activities of the Company
will require substantial capital. As of March 31, 1997, the Company had expended
more than $3,800,000 related to the acquisition of the franchise for Chicago's
Area 1, including $3,000,000 to the City of Chicago for prepaid franchise fees.
The Company also purchased 1,734 bulk video subscribers from an affiliated
entity in January 1997 for $3,381,300.
Net cash used in operating activities was $5,987,369 for the nine months ended
December 31, 1997, $6,910,766 for the year ended March 31, 1997, $611,227 for
the year ended March 31, 1996 and $264,216 for the year ended March 31, 1995.
Net cash used in operating activities for the nine months ended December 31,
1997 resulted principally from the Company's net loss from operations, offset by
increases in accounts payable and the compensation expense recognized related to
the stock option plan of $849,700. Net cash used in operating activities for the
year ended March 31, 1997 resulted from the net loss from operations and
increases in prepayments consisting primarily of the $3,000,000 prepayment of
franchise fees to the City of Chicago and decreases in various payables made
possible by the equity infusion of approximately $20 million. Net cash required
for operations in 1996 and 1995 resulted primarily from net losses and increases
in deferred legal costs offset by increases in various payables incurred during
the acquisition of the Area 1 franchise.
Cash flow used in investing activities totaled $10,014,597 in the nine months
ended December 31, 1997 and $3,628,163 in the year ended March 31, 1997. Cash
requirements in the nine months ended December 31, 1997 consisted primarily of
the cost of building and equipping the NOC, facilitating the corporate
headquarters and network construction. Cash requirements in the year ended March
31, 1997 consisted primarily of the purchase of 1,734 Area 1 bulk subscribers
for $3,381,300.
<PAGE>
Cash flow from financing activities was $9,175,999 in the nine months ended
December 31, 1997, $18,768,915 in the year ended March 31, 1997, $608,765 in the
year ended March 31, 1996 and $266,429 in the year ended March 31, 1995. In the
nine months ended December 31, 1997, cash flow from financing activities was
generated through borrowings under the interim credit facility of $8,000,000,
and through the private sale of preferred equity totaling $1,175,999. For the
year ended March 31, 1997 approximately $20,000,000 of cash flow was generated
through the private sale of preferred equity. In fiscal 1996, cash flow from
financing activities was generated by the private sale of $342,000 in common
stock to a small group of Chicago investors and the sale of $266,765 in
convertible debentures to existing shareholders. In fiscal 1995, cash flow from
financing activities was generated by the sale of $266,429 in convertible
debentures.
The Company estimates that its aggregate capital expenditure requirements
related to DRS Network construction in Area 1 for the period from the date of
this Prospectus to the end of the current fiscal year, March 31, 1998 and for
the fiscal years 1999, 2000 and 2001, the time frame in which construction of
the DRS Network in Area 1 is expected to be completed, will total approximately
$270 million, of which between approximately $90 million to $120 million is
expected to be spent during calendar year 1998. The Company will fund these
expenditures from the net proceeds of the Private Placement and operating cash
flows. In order to retain funds available to support its operations, the Company
has no expectation of paying cash interest on the Notes or cash dividends on the
Exchangeable Preferred Stock prior to February 15, 2003. The Company may require
additional financing in the future if it begins to develop additional franchise
areas or if the development of Area 1 in Chicago is delayed or requires costs in
excess of current expectations. The Company has entered into a commitment letter
with BankBoston, N.A. and Bank of America NT&SA for a $50 million bank revolving
credit facility to provide supplemental financing. There can be no assurance
that the Company will be able to obtain such proposed bank financing or any such
additional debt or equity financing, or that the terms thereof will not be
unfavorable to the Company or its existing creditors or investors. See ''Risk
Factors--Significant Capital Requirements.''
<PAGE>
THE EXCHANGE OFFER
TERMS OF EXCHANGE OFFER
GENERAL
In connection with the sale of the Old Securities pursuant to a Purchase
Agreement dated as of February 2, 1998, between the Company and the Initial
Purchasers, the Initial Purchasers and their assignees became entitled to the
benefits of the Registration Rights Agreement, dated February 2, 1998.
Under the Registration Rights Agreement, the Company is obligated to (i)
file the Registration Statement of which this Prospectus is a part for a
registered exchange offer with respect to an issue of New Notes and New
Exchangeable Preferred Stock with terms substantially identical in all material
respects to the Old Notes and Old Exchangeable Preferred Stock, respectively
(except that such New Notes and New Exchangeable Preferred Stock will not
contain terms with respect to transfer restrictions), within 45 days after
February 9, 1998, the date the Old Notes and Old Exchangeable Preferred Stock
were issued (the "Issue Date") and (ii) use its best efforts to cause the
Registration Statement to be declared effective within 150 days after the Issue
Date. For each Old Note surrendered pursuant to the Notes Exchange Offer, the
holder of such Old Note will receive a New Note having a principal amount at
maturity equal to that of the surrendered Old Note. For each share of Old
Exchangeable Preferred Stock surrendered pursuant to the Preferred Stock
Exchange Offer, the holder of such share of Old Exchangeable Preferred Stock
will receive a share of New Exchangeable Preferred Stock having a liquidation
preference equal to that of the surrendered share of Old Exchangeable Preferred
Stock. The Exchange Offer being made hereby if commenced and consummated within
such applicable time periods will satisfy those requirements under the
Registration Rights Agreement. See "Description of the New Notes--Exchange
Offer, Registration Rights."
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letters of Transmittal (which together constitute the Exchange
Offer), the Company will accept for exchange all Old Securities validly tendered
and not withdrawn prior to 5:00 p.m., Eastern Standard Time, on the Expiration
Date. The Company will issue New Notes in exchange for an equal principal
amount at maturity of outstanding Old Notes accepted in the Exchange Offer and
will issue New Exchangeable Preferred Stock in exchange for an equal number of
shares of outstanding Old Exchangeable Preferred Stock accepted in the Exchange
Offer. As of the date of this Prospectus, there was outstanding $363,135,000
aggregate principal amount at maturity of Old Notes.
This Prospectus, together with the Letters of Transmittal, is being sent to
all registered holders as of March [__],1998. The Company's obligation to
accept Old Securities for exchange pursuant to the Exchange Offer is subject to
certain condition as set forth herein under "--Conditions."
The Company shall be deemed to have accepted validly tendered Old Notes
when, as and if the Company has given oral or written notice thereof to the
Notes Exchange Agent. The Notes Exchange Agent will act as agent for the
tendering holders of Old Notes for the purposes of receiving the New Notes from
the Company and delivering New Notes to such holders. The Company shall be
deemed to have accepted validly tendered Old Exchangeable Preferred Stock when,
as and if the Company has given oral or written notice thereof to the Preferred
Stock Exchange Agent. The Preferred Stock Exchange Agent will act as agent for
the tendering holders of Old Exchangeable Preferred Stock for the purposes of
receiving the New Exchangeable Preferred Stock from the Company and delivering
New Exchangeable Preferred Stock to such holders.
In the event the Exchange Offer is consummated, subject to certain limited
exceptions, the Company will not be required to register the Old Securities. In
such event, holders of Old Securities seeking liquidity in their investment
would have to rely on exemptions to registration requirements under the U.S.
securities laws. See "Risk Factors--Consequences of Failure to Exchange."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
<PAGE>
The term "Expiration Date" shall mean April [__] , 1998 (30 days following
the commencement of the Exchange Offer), unless the Company, in its sole
discretion, extends the Exchange Offer, in which case the term "Expiration Date"
shall mean the latest date to which the Exchange Offer is extended. In order to
extend the Expiration Date, the Company will notify each Exchange Agent of any
extension by oral or written notice and will mail to the record holders of Old
Securities an announcement thereof, each prior to 9:00 a.m., Eastern Standard
Time, on the next business day after the previously scheduled Expiration Date.
Such announcement may state that the Company is extending the Exchange Offer for
a specified period of time.
Notwithstanding any extension of the Exchange Offer, if for any reason the
Exchange Offer is not consummated before August 3, 1998, the Company will, at
its own expense, (a) as promptly as practicable, file a shelf registration
statement covering resales of the Old Securities (a "Shelf Registration
Statement"), (b) use its best efforts to cause a Shelf Registration Statement to
be declared effective under the Securities Act and (c) keep the Shelf
Registration Statement effective until the earlier of 24 months following the
Issue Date and such time as all of the Old Securities have been sold thereunder,
or otherwise can be sold pursuant to Rule 144 without any limitations under
clauses (c), (e), (f) and (h) of Rule 144. The Company will, in the event a
Shelf Registration Statement is filed, among other things, provide to each
holder for whom such Shelf Registration Statement was filed copies of the
prospectus which is a part of such Shelf Registration Statement, notify each
such holder when such Shelf Registration Statement has become effective and take
certain other actions as are required to permit unrestricted resales of the Old
Securities. A holder selling such Old Securities pursuant to the Shelf
Registration Statement generally would be required to be named as a selling
security holder in the related prospectus and to deliver a prospectus to
purchasers, will be subject to certain of the civil liability provisions under
the Securities Act in connection with such sales and will be bound by the
provisions of the Registration Rights Agreement which are applicable to such a
holder (including certain indemnification obligations).
The Company reserves the right (i) to delay accepting any Old Securities,
to extend the Exchange Offer or to terminate the Exchange Offer and not accept
Old Securities not previously accepted if any of the conditions set forth herein
under "--Conditions" shall have occurred and shall not have been waived by the
Company, by giving oral or written notice of such delay, extension or
termination to the Exchange Agent or (ii) to amend the terms of the Exchange
Offer in any manner deemed by it to be advantageous to the holders of the Old
Securities. Any such delay in acceptance, extension, termination or amendment
will be followed as promptly as practicable by oral or written notice thereof.
If the Exchange Offer is amended in a manner determined by the Company to
constitute a material change, the Company will promptly disclose such amendment
in a manner reasonably calculated to inform the holders of the Old Securities of
such amendment and the Company will extend the Exchange Offer for a period of
five to ten business days, depending upon the significance of the amendment and
the manner of disclosure to holders of the Old Securities, if the Exchange Offer
would otherwise expire during such five to ten business day period.
Without limiting the manner in which the Company may choose to make public
announcement of any delay, extension, amendment or termination of the Exchange
Offer, the Company shall have no obligations to publish, advertise, or otherwise
communicate any such public announcement, other than by making a timely release
to an appropriate news agency.
NO VOTE OF THE COMPANY'S SECURITY HOLDERS IS REQUIRED UNDER APPLICABLE LAW
TO EFFECT THE EXCHANGE OFFER AND NO SUCH VOTE (OR PROXY THEREFOR) IS BEING
SOUGHT HEREBY.
Holders of Old Securities do not have any appraisal or dissenters' rights
in connection with the Exchange Offer under the Illinois Business Corporation
Act, the governing law of the state of incorporation of the Company.
PROCEDURES FOR TENDERING
<PAGE>
To tender in the Exchange Offer, a holder must complete, sign and date the
Notes Letter of Transmittal or Preferred Stock Letter of Transmittal, as the
case may be, or a facsimile thereof, have the signatures thereon guaranteed if
required by such Letter of Transmittal and mail or otherwise deliver such Letter
of Transmittal or such facsimile, together with any other required documents, to
the Notes Exchange Agent or Preferred Stock Exchange Agent, as the case may be,
prior to 5:00 p.m. Eastern Standard Time, on the Expiration Date. In addition,
either (i) certificates for such tendered Old Securities must be received by the
Exchange Agent along with the Letter of Transmittal, (ii) a timely confirmation
of a book-entry transfer (a "Book-Entry Confirmation") of such Old Securities,
if such procedure is available, into the Exchange Agent's account at the
Depository Trust Company (the "Book-Entry Transfer Facility") pursuant to the
procedure for book-entry transfer described below, must be received by the
Exchange Agent prior to the Expiration Date or (iii) the holder must comply with
the guaranteed delivery procedures described below. THE METHOD OF DELIVERY OF
OLD SECURITIES, LETTERS OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT
THE ELECTION AND RISK OF THE HOLDERS. IF SUCH DELIVERY IS BY MAIL, IT IS
RECOMMENDED THAT REGISTERED MAIL, PROPERLY INSURED, WITH RETURN RECEIPT
REQUESTED, BE USED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE
TIMELY DELIVERY. NO LETTERS OF TRANSMITTAL OR OLD SECURITIES SHOULD BE SENT TO
THE COMPANY. To be tendered effectively, the Old Securities, the Letter of
Transmittal and all other required documents must be received by the appropriate
Exchange Agent prior to 5:00 p.m., Eastern Standard Time, on the Expiration
Date. Delivery of all documents must be made to the appropriate Exchange Agent
at the addresses set forth below. Holders may also request their respective
brokers, dealers, commercial banks, trust companies or nominees to effect such
tender for such holders.
The tender by a holder of Old Securities will constitute an agreement
between such holder and the Company in accordance with the terms and subject to
the conditions set forth therein and in the Letter of Transmittal.
Only a holder of Old Securities may tender such Old Securities in the
Exchange Offer. The term "holder" with respect to the Exchange Offer means any
person in whose name Old Notes or Old Exchangeable Preferred Stock are
registered on the books of the Company or any other person who has obtained a
properly completed bond power from the registered holder.
Any beneficial owner whose Old Securities are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender shall contact such registered holder promptly and instruct such
registered holder to tender on his behalf. If such beneficial owner wishes to
tender on his own behalf, such beneficial owner must, prior to completing and
executing the Letter of Transmittal and delivering his Old Securities, either
make appropriate arrangements to register ownership of the Old Securities in
such owner's name or obtain a properly completed bond power from the registered
holder. The transfer of registered ownership may take considerable time.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by any member firm of a registered national
securities exchange or of the National Association of Securities Dealers, Inc.
or a commercial bank or trust company having an office or correspondent in the
U.S. (an "Eligible Institution") unless the Old Securities tendered pursuant
thereto are tendered (i) by a registered holder who has not completed the box
entitled "Special Issuance Instructions" or "Special Delivery Instructions" on
the Letter of Transmittal or (ii) for the account of an Eligible Institution.
In the event that signatures on a Letter of Transmittal or a notice of
withdrawal, as the case may be, are required to be guaranteed, such guarantee
must be by an Eligible Institution.
If the Letter of Transmittal is signed by a person other than the
registered holder of any Old Securities listed therein, such Old Securities must
be endorsed or accompanied by bond powers or stock powers, as the case may be,
and a proxy which authorizes such person to tender the Old Securities on behalf
of the registered holder, in each case as the name of the registered holder or
holders appears on the Old Securities.
<PAGE>
If the Letter of Transmittal of any Old Securities bond powers or stock
powers are signed by trustees, executors, administrators, guardians, attorneys-
in-fact, officers of corporations or others acting in a fiduciary or
representative capacity, such person should so indicate when signing, and unless
waived by the Company, evidence satisfactory to the Company of their authority
to so act must be submitted with the Letter of Transmittal.
All questions as the validity, form, eligibility (including time of
receipt) and withdrawal of the tendered Old Securities will be determined by the
Company in its sole discretion, which determination will be final and binding.
The Company reserves the absolute right to reject any and all Old Securities not
properly tendered or any Old Securities which, if accepted by the Company,
would, in the opinion of counsel for the Company, be unlawful. The Company also
reserves the right to waive any irregularities or conditions of tender as to
particular Old Securities. The Company's interpretation of the terms and
conditions of the Exchange Offer (including the instructions in the Letters of
Transmittal) will be final and binding on all parties. Unless waived, any
defects or irregularities in connection with tenders of Old Securities must be
cured within such time as the Company shall determine. None of the Company, the
Notes Exchange Agent, the Preferred Stock Exchange Agent or any other person
shall be under any duty to give notification of defects or irregularities with
respect to tenders of Old Securities, nor shall any of them incur any liability
for failure to give such notification. Tenders of Old Securities will not be
deemed to have been made until such irregularities have been cured or waived.
Any Old Securities received by an Exchange Agent that are not properly tendered
and as to which the defects or irregularities have not been cured or waived will
be returned without cost to such holder by such Exchange Agent to the tendering
holders of such Old Securities, unless otherwise provided in the Letter of
Transmittal, as soon as practicable following the Expiration Date.
In addition, the Company reserves the right in its sole discretion, subject
to the provisions of the Indenture and the Amended Articles, to (i) purchase or
make offers for any Old Securities that remain outstanding subsequent to the
Expiration Date or, as set forth under "--Conditions," to terminate the Exchange
Offer in accordance with the terms of the Registration Rights Agreement and (ii)
to the extent permitted by applicable law, purchase Old Securities in the open
market, in privately negotiated transactions or otherwise. The terms of any
such purchase or offers could differ from the terms of the Exchange Offer.
By tendering, each holder will represent to the company that (i) it is not
an affiliate of the Company (as defined under Rule 405 of the Securities Act),
(ii) any New Securities to be received by it were acquired in the ordinary
course of its business and (iii) at the time of commencement of the Exchange
Offer, it was not engaged in, and did not intend to engage in, a distribution of
such New Securities and had no arrangement or understanding with any person to
participate in a distribution (within the meaning of the Securities Act) of the
New Securities. If a holder of Old Securities is an affiliate of the Company,
and is engaged in or intends to engage in a distribution of the New Securities
or has any arrangement or understanding with respect to the distribution of the
New Securities to be acquired pursuant to the Exchange Offer, such holder could
not rely on the applicable interpretations of the staff of the Commission and
must comply with the registration and prospectus delivery requirement of the
Securities Act in connection with any secondary resale transaction. Each broker
or dealer that receives New Securities for its own account in exchange for Old
Securities, where such Old Securities were acquired by such broker or dealer as
a result of market-making activities, or other trading activities, must
acknowledge that it will deliver a prospectus in connection with any resale of
such New Securities. See "Plan of Distribution."
ACCEPTANCE OF OLD SECURITIES FOR EXCHANGE; DELIVERY OF NEW SECURITIES
Upon satisfaction or waiver of all of the conditions to the Exchange Offer,
the Company will accept, promptly after the Expiration Date, all Old Securities
properly tendered and will issue the New Securities promptly after acceptance of
the Old Securities. See "--Conditions" below. For purposes of the Exchange
Offer, the Company shall be deemed to have accepted validly tendered Old Notes
for exchange when, as and if the Company has given oral or written notice
thereof to the Notes Exchange Agent, and shall be deemed to have accepted
validly tendered Old Exchangeable Preferred Stock for exchange when, as and if
the Company has given oral or written notice thereof to the Preferred Stock
Exchange Agent.
<PAGE>
For each Old Note for exchange, the holder of such Old Note will receive a
New Note having a principal amount at maturity equal to that of the surrendered
Old Note, and for each share of Old Exchangeable Preferred Stock for exchange,
the holder of such share will receive a share of New Exchangeable Preferred
Stock having a principal amount equal to that of the surrendered share of Old
Exchangeable Preferred Stock.
If (i) by March 26, 1998 (45 days after the Issue Date), neither the
Exchange Offer Registration Statement nor the Shelf Registration Statement has
been filed with the SEC, (ii) by August 8, 1998 (180 days after the Issue Date),
the Exchange Offer is not consummated and, if applicable, the Shelf Registration
Statement is not declared effective or (iii) after either the Exchange Offer
Registration Statement or the Shelf Registration Statement is declared
effective, such Registration Statement thereafter ceases to be effective or
usable (subject to certain exceptions) in connection with resales of Old
Securities or New Securities in accordance with and during the periods specified
in the Registration Rights Agreement (each such event referred to in clauses (i)
through (iii) a "Registration Default"), additional interest or dividends, as
the case may be, will accrue or accumulate on the applicable Old Securities and
New Securities at the rate of 0.50% per annum from and including the date on
which any such Registration Default shall occur to but excluding the date on
which all Registration Defaults have been cured. Such interest or dividends, as
the case may be, will be payable in cash and will be in addition to any other
interest or dividends payable from time to time with respect to the Old
Securities and the New Securities.
In all cases, issuance of New Securities for Old Securities that are
accepted for exchange pursuant to the Exchange Offer will be made only after
timely receipt by the appropriate Exchange Agent of certificates for such Old
Securities or a timely Book-Entry Confirmation of such Old Securities into such
Exchange Agent's account at the Book-Entry Transfer Facility, a properly
completed and duly executed Letter of Transmittal and all other required
documents. If any tendered Old Securities are not accepted for any reason set
forth in the terms and conditions of the Exchange Offer or if Old Securities are
submitted for a greater principal amount or larger number of shares, as the case
may be, than the holder desires to exchange, such unaccepted or nonexchanged Old
Securities will be returned without expense to the tendering holder thereof (or,
in the case of Old Securities tendered by book-entry transfer procedures
described below, such nonexchanged Old Securities will be credited to an account
maintained with such Book-Entry Transfer Facility) as promptly as practicable
after the expiration or termination of the Exchange Offer.
BOOK-ENTRY TRANSFER
The Notes Exchange Agent and the Preferred Stock Exchange Agent will make a
request to establish an account with respect to the Old Notes and the Old
Exchangeable Preferred Stock, respectively, at the Book-Entry Transfer facility
for purposes of the Exchange Offer within two business days after the date of
the Prospectus. Any financial institution that is a participant in the Book-
Entry Transfer Facility's systems may make book-entry delivery of Old Securities
by causing the Book-Entry Transfer Facility to transfer such Old Securities into
the appropriate Exchange Agent's account at the Book-Entry Transfer Facility in
accordance with such Book-Entry Transfer Facility's procedures for transfer.
However, although delivery of Old Securities may be effected through book-entry
transfer at the Book-Entry Transfer Facility, the Letter of Transmittal or
facsimile thereof with any required signature guarantees and any other required
documents must, in any case, be transmitted to and received by the appropriate
Exchange Agent at one of the addresses set forth below under "--Exchange Agents"
on or prior to the Expiration Date or the guaranteed delivery procedures
described below must be complied with.
GUARANTEED DELIVERY PROCEDURES
If a registered holder of the Old Securities desires to tender such Old
Securities, the Old Securities are not immediately available, or time will not
permit such holder's Old Securities or other required documents to reach the
appropriate Exchange Agent before the Expiration Date, or the procedures for
book-entry transfer cannot be completed on a timely basis, a tender may be
effected if (i) the tender is made through an Eligible Institution, (ii) prior
to the Expiration Date, the Exchange Agent received from such Eligible
Institution a properly completed and
<PAGE>
duly executed Letter of Transmittal (or a facsimile thereof) and Notice of
Guaranteed Delivery, substantially in the form provided by the Company (by
facsimile transmission, mail or hand delivery), setting forth the name and
address of the holder of such Old Securities and the amount of Old Securities
tendered, stating that the tender is being made thereby and guaranteeing that
within five New York Stock Exchange ("NYSE") trading days after the date of
execution of the Notice of Guaranteed Delivery, the certificates for all
physically tendered Old Securities, in proper form to transfer, or a Book-Entry
Confirmation, as the case may be, and any other documents required by the Letter
of Transmittal will be deposited by the Eligible Institution with the
appropriate Exchange Agent and (iii) the certificate for all physically tendered
Old Securities, in proper form for transfer, or a Book-Entry Confirmation, as
the case may be, and all other documents required by the Letter of Transmittal
are received by the appropriate Exchange Agent within five NYSE trading days
after the date of execution of the Notice of Guaranteed Delivery.
WITHDRAWAL OF TENDERS
Tenders of Old Securities may be withdrawn at any time prior to 5:00 p.m.
Eastern Standard Time, on the Expiration Date.
For a withdrawal to be effective, a written notice of withdrawal must be
received by the appropriate Exchange Agent at one of the addresses set forth
below under "--Exchange Agents." Any such notice of withdrawal must specify the
name of the person having tendered the Old Securities to be withdrawn, identify
the Old Securities to be withdrawn (including the principal amount of such Old
Notes and the number of shares of such Old Exchangeable Preferred Stock) and
(where certificates for Old Securities have been transmitted) specify the name
in which such Old Securities are registered, if different from that of the
withdrawing holder. If certificates for the Old Securities have been delivered
or otherwise identified to an Exchange Agent, then, prior to the release of such
certificates, the withdrawing holder must also submit the serial numbers of the
particular certificates to be withdrawn and a signed notice of withdrawal with
signatures guaranteed by an Eligible Institution unless such holder is an
Eligible Institution. If Old Securities have been tendered pursuant to the
procedures of book-entry transfer described above, any notice of withdrawal must
specify the name and number of the account at the Book-Entry Transfer Facility
to be credited with the withdrawn Old Securities and otherwise comply with the
procedures of such facility. All questions as to the validity, form and
eligibility (including time of receipt) of such notices will be determined by
the Company, whose determination shall be final and binding on all parties. Any
Old Securities so withdrawn will be deemed not to have been validly tendered for
exchange for purposes of the Exchange Offer. Any Old Securities which have been
tendered for exchange but which are not exchanged for any reason will be
returned to the holder thereof without cost to such holder (or, in the case of
Old Securities tendered by book-entry transfer into the Exchange Agent's account
at the Book-Entry Transfer Facility pursuant to the book-entry transfer
procedures described above, such Old Securities will be credited to an account
maintained with such Book-Entry Transfer Facility for the Old Securities) as
soon as practicable after withdrawal, rejection of tender or termination of the
Exchange Offer. Properly withdrawn Old Securities may be retendered by
following one of the procedures described under the "--Procedures for Tendering"
above at any time on or prior to the Expiration Date.
CONDITIONS
Notwithstanding any other term of the Exchange Offer, the Company will not
be required to accept for exchange, or to issue New Securities in exchange for,
any Old Securities and may terminate or amend the Exchange Offer as provided
herein before the acceptance of such Old Securities, if because of any changes
in law, or applicable interpretations thereof by the Commission, the Company
determines that it is not permitted to effect the Exchange Offer. In addition,
the Company has no obligation to, and will not knowingly, accept tenders of Old
Securities from affiliates of the Company (within the meaning of Rule 405 under
the Securities Act) or from any other holder or holders who are not eligible to
participate in the Exchange Offer under applicable law or interpretations
thereof by the Commission, or if the New Securities to be received by such
holder or holders of Old Securities in the Exchange Offer, upon receipt, will
not be tradeable by such holder without restriction under the Securities Act and
the Exchange Act and without material restriction under the "blue sky" or
securities law of substantially all of the states.
<PAGE>
EXCHANGE AGENTS
State Street Bank and Trust Company has been appointed as Notes Exchange
Agent in connection with the Notes Exchange Offer. Questions and requests for
assistance in connection with the Notes Exchange Offer and requests for
additional copies of this Prospectus or of the Notes Letter of Transmittal
should be directed to the Notes Exchange Agent addressed as follows:
By Registered or Certified Mail;
By Overnight Courier; or By Hand:
State Street Bank and Trust Company
Two International Place, 4th Floor
Boston, Massachusetts 02110-2804
Attention: Corporate Trust Department
By Facsimile: (617) 664-5371
Attention: Corporate Trust Department
Telephone: (617) 664-5635
Boston EquiServe Trust Company, N.A. has been appointed as Preferred Stock
Exchange Agent in connection with the Preferred Stock Exchange Offer. Questions
and requests for assistance in connection with the Preferred Stock Exchange
Offer and requests for additional copies of this Prospectus or of the Preferred
Stock Letter of Transmittal should be directed to the Preferred Stock Exchange
Agent addressed as follows:
By Registered or Certified Mail;
By Overnight Courier; or By Hand:
Boston EquiServe Trust Company, N.A.
Mail Stop 45-01-40
150 Royall Street
Canton, Massachusetts 02021
Attention: Corporate Reorganization Department
By Facsimile: (781) 575-2549
Attention: Corporate Reorganization Department
Telephone: (781) 575-4325
FEES AND EXPENSES
The expenses of soliciting tenders pursuant to the Exchange Offer will be
borne by the Company. The principal solicitation for tender pursuant to the
Exchange Offer is being made by mail; however, additional solicitations may be
made by telegraph, telephone, telecopy or in person by officers and regular
employees of the Company.
The Company will not make any payments to brokers, dealers or other persons
soliciting acceptances of the Exchange Offer. The Company, however, will pay
each Exchange Agent reasonable and customary fees for its services and will
reimburse such Exchange Agent for its reasonable out-of-pocket expenses in
connection therewith. The Company may also pay brokerage houses and other
custodians, nominees and fiduciaries the reasonable out-of-
<PAGE>
pocket expenses incurred by them in forwarding copies of the Prospectus and
related documents to the beneficial owners of the Old Securities, and in
handling or forwarding tenders for exchange.
The expenses to be incurred in connection with the Exchange Offer will be
paid by the Company, including fees and expenses of each Exchange Agent, the
Trustee (as hereinafter defined), the Transfer Agent (as hereinafter defined)
and accounting, legal printing and related fees and expenses.
The Company will pay all transfer taxes, if any, applicable to the exchange
of Old Securities pursuant to the Exchange Offer. If, however, certificates
representing New Securities or Old Securities for principal amounts not tendered
or accepted for exchange are to be delivered to, or are to be registered or
issued in the name of, any person other than the registered holder of the Old
Securities tendered, or if tendered Old Securities are registered in the name of
any person other than the person signing the Letter of Transmittal, or if a
transfer tax is imposed for any reason other than exchange of Old Securities
pursuant to the Exchange Offer, then the amount of any such transfer taxes
(whether imposed on the registered holder or any other persons) will be payable
by the tendering holder. If satisfactory evidence of payment of such taxes or
exemption therefrom is not submitted with the Letter of Transmittal, the amount
of such transfer taxes will be billed directly to such tendering holder.
ACCOUNTING TREATMENT
The New Notes and New Exchangeable Preferred Stock will be recorded in the
Company's accounting records at the same carrying values as the Old Notes and
Old Exchangeable Preferred Stock, respectively, as reflected in the Company's
accounting records on the date of the exchange. Accordingly, no gain or loss
for accounting purposes will be recognized upon the consummation of the Exchange
Offer. The expense of the Exchange Offer will be amortized by the Company over
the term of the New Notes and New Exchangeable Preferred Stock in accordance
with generally accepted accounting principles.
<PAGE>
BUSINESS
GENERAL
21st Century is an integrated, facilities-based communications company, which
seeks to be the first provider of bundled voice, video and high-speed data
services in selected midwestern markets beginning with Chicago's Area 1, for
which the Company has been awarded a 15-year renewable franchise by the City of
Chicago. Area 1 stretches more than 16 miles along Chicago's densely populated
lakefront skyline and includes the affluent residential neighborhoods of the
Gold Coast, Lincoln Park and Dearborn Park and the nation's second largest
business and financial district. The Company has developed (and has begun to
install and activate) the DRS Network, which employs a distributed ring-star
architecture characterized by fiber-richness, two-way interactivity and SONET-
based redundancy and self-healing attributes. The DRS Network accommodates not
only traditional voice and video applications, but also the rapidly growing
demand for high-speed data services. The Company believes that its DRS Network
provides the Company with significant strategic advantages that will
differentiate 21st Century from its competitors, such as improved time-to-
market, multiple revenue streams, enhanced service quality and reliability, and
the ability to provide attractively priced bundled services.
The Company has secured a 15-year renewable attachment agreement with the CTA,
which reduces costly and time-consuming "make-ready" and underground
construction for the DRS Network and enables the Company to install and activate
the DRS Network rapidly and efficiently by taking advantage of access to the
CTA's elevated and underground rail systems. The Company also has secured pole
attachment agreements with Commonwealth Edison and Ameritech which provide 21st
Century access to scarce pole space within Area 1 to further facilitate
deployment of its DRS Network. The decentralized configuration of the DRS
Network, which includes distributed hubs and nodes that act "intelligently" to
route network traffic efficiently, together with the CTA and the pole attachment
agreements, enable network construction to be driven in large part by market
demand and revenue potential in contrast to the conventional approach of
building a system from the headend outward on a block-by-block basis. To fully
exploit this advantage, the Company's sales and marketing strategy is
coordinated with ongoing network construction and focused on securing bulk
contracts with 125-unit or larger MDUs. The Company believes that this strategy
will help to identify the optimal sequence of node activation on the DRS Network
and tie capital expenditures directly to revenue-producing subscribers.
21st Century's DRS Network currently provides video, audio and data services.
These services include 110 analog video channels, 59 interactive information
channels with local content (e.g., train and airline schedules, restaurant
menus, local news and sports scores, stock quotes and expressway traffic
updates) and 22 specialty audio channels (e.g., international and foreign
language programming, BBC radio broadcasts, reading services for the blind,
commercial-free music categories and select distant-market FM stations), with
significant capacity for additional broadband and narrowband products and
services. The Company's data product is its 4 Mbps cable modem Internet access
service, which is delivered at symmetrical speeds more than 125 times faster
than the prevalent 28.8 Kbps telephone modem and 25 times faster than an ISDN
modem. The Company is also hosting websites for commercial customers. The
Company will also provide switched, facilities-based CLEC services with last
mile connectivity and local dial tone to both commercial accounts and selected
residential subscribers upon receipt of the necessary regulatory approval and
installation of the requisite telephony equipment. The Company currently
provides telephony service on a test basis and plans to begin offering in mid-
1998 a broad range of competitive telephony services (e.g., local, long distance
and enhanced services) to both commercial accounts and selected residential
subscribers, most of whom currently have no facilities-based alternative to the
service provided over the ILEC's network.
21st Century has taken significant steps to implement its business plan and
service offerings in Chicago's Area 1. In addition to securing the Area 1
franchise, the CTA attachment agreement and the Commonwealth Edison and
Ameritech pole attachment agreements, the Company has (i) constructed and
activated its NOC, which includes a video headend and its DOC, (ii) completed
the northern fiber transport ring of the DRS Network, extending from
<PAGE>
the downtown business district to the northern portions of the city bordering
Evanston, (iii) secured programming content for more than 170 channels of video
and interactive information programming, (iv) constructed and activated portions
of the outside fiber distribution network to reach selected MDUs, (v) initiated
installation processes, billing, call center and customer care services, (vi)
secured contracts for more than 4,000 residential subscribers (which includes
more than 2,000 new subscribers under 5-year bulk MDU agreements as well as
subscribers acquired in early 1997 from an affiliated company) and (vii) passed
with its initial distribution facilities more than 3,800 additional potential
subscribers. The Company has also entered into a letter of intent for the
acquisition and installation of the switching and other ancillary equipment
necessary for it to provide telephony services.
BUSINESS STRATEGY AND COMPETITIVE ADVANTAGES
The Company believes that it can exploit its innovative DRS Network, superior
product offerings and other strategic assets to compete strongly in Chicago's
Area 1 and other selected markets. 21st Century's strategy and competitive
advantages include the following:
DEVELOP HIGH-CAPACITY, FULL-SERVICE DRS NETWORK. 21st Century intends to
exploit the advantages of its innovative, internally-developed DRS Network
architecture to provide fully integrated voice, video and high-speed data
services. Key attributes of the DRS Network include (i) an advanced integrated
network design built to the rigorous Bellcore standards, (ii) the distribution
of switching and traffic routing mechanics at specific locations out on the DRS
Network (rather than being concentrated at one point as in conventional
networks), allowing the Company to efficiently and economically route traffic
regardless of penetration and usage levels, (iii) a SONET-based redundancy and
self-healing architecture with both circuit and route diversity, (iv) multiple
layers of power redundancy to ensure network reliability and (v) a large fiber
capacity permitting delivery of advanced two-way, fully-interactive broadband
services, as well as significant unutilized capacity to allow the Company to
upgrade services, add applications and develop new product offerings without
service interruption or interference.
DEPLOY DRS NETWORK COST-EFFECTIVELY ON A REVENUE-DRIVEN BASIS. The
decentralized configuration of the DRS Network, combined with the CTA and pole
attachment agreements, allows the Company to rapidly and efficiently deploy the
DRS Network to accommodate market demand on a revenue-driven basis. This
strategy contrasts sharply with the typical approach of building a conventional
coaxial cable system from the headend outward on a block-by-block basis. This
DRS Network advantage will also allow the Company to efficiently utilize its
capital resources to secure larger MDU bulk video contracts which will be used
as the basis for node activation; thus, more significant revenue streams should
be realized earlier in the planned 3-4 year construction buildout than would be
realized by a conventional coaxial cable system buildout. After a large MDU is
activated within a node, the Company will then market its premium cable and pay-
per-view video services, as well as its high-speed data and, when available,
telephony services, to its cable subscribers in order to leverage MDU subscriber
relationships. In addition, 21st Century will market its full range of voice,
video and high-speed data services to Homes Passed. For commercial subscribers,
the Company will seek initially to deploy the DRS Network in Chicago's dense
central downtown area to (i) small to mid-sized commercial accounts and
communications-intensive businesses that have an interest in the Company's high-
speed data and Internet services and (ii) organizations such as the Building
Owners Management Association and other facilities management companies that
influence the selection of communications facilities at multiple buildings, as
well as industry associations which the Company believes will encourage member
companies to use the Company's services.
PROVIDE SUPERIOR PRODUCT OFFERINGS ON A BUNDLED BASIS. The Company believes
that its voice, video and high-speed data product offering will be superior to
competitive products currently available in Area 1 in terms of (i) the breadth
and quality of the individual product offerings, (ii) the extent of the enhanced
service features offered to the customer and (iii) the ability to bundle such
product offerings into a simple, convenient and attractively priced package. The
Company's current video offering includes 110 analog video channels, 59
interactive information channels and 22 specialty audio channels, with
significant capacity for additional broadband and narrowband
<PAGE>
products and services. 21st Century's fiber-rich DRS Network is designed with
only one to four amplifiers in cascade between its NOC and the subscriber
(compared to up to 40 amplifiers used by conventional networks). This reduction
in amplifiers significantly reduces signal degradation and results in higher
video quality and telephony reliability, a superior audio component and greater
data transmission accuracy. The Company's interactive information channels,
which provide useful local content and information, are currently not available
from any other single source in Area 1. The Company's high-speed data offering
includes cable modems that provide access to the Internet at 4 Mbps, which is
approximately 125 times faster than the prevalent 28.8 Kbps telephone modem and
25 times faster than an ISDN modem. Beginning in mid-1998, the Company expects
to begin marketing a broad range of competitive telephony services (e.g., local,
long distance, call waiting, call forwarding, caller ID and three-way calling)
to both commercial accounts and selected residential subscribers, most of whom
currently have no facilities-based alternative to the service provided over the
ILEC's network. The Company's bundled service offering will provide customers
with convenient "one-stop shopping," attractive pricing through significant
bundled discounts, a single source for installation and service and the ease of
a single monthly bill.
LEVERAGE STRATEGIC ASSETS. The Company's core strategic assets include (i)
the 15-year renewable franchise granted by the City of Chicago, which permits
the construction and installation of a network serving the entirety of Chicago's
Area 1 and (ii) the attachment agreement negotiated with the CTA and the pole
attachment arrangements negotiated with Commonwealth Edison and Ameritech, which
facilitate the timely and efficient buildout of the DRS Network through the
utilization of scarce pole space and city infrastructure rights-of-way. Each of
these assets is a valuable and important component of the Company's facilities-
based business strategy and together would be difficult for another entrant to
replicate.
SECURE FIRST-TO-MARKET ADVANTAGES. The Company seeks to be the first-to-
market in offering bundled voice, video and high-speed data services in
Chicago's Area 1 and other selected markets. The Company believes that the rapid
buildout of the DRS Network will enable it to acquire a significant customer
base and will give it a competitive advantage over other prospective bundled and
single-service providers.
CONTINUE TO ATTRACT EXPERIENCED MANAGEMENT. The Company's management team
has extensive and diverse experience in the cable television, Internet, data and
telecommunications industries. During the past year, the Company's senior
management has demonstrated its expertise by constructing and activating the
NOC, completing the northern fiber transport ring of the DRS Network, securing
necessary programming content, and initiating services. The Company intends to
continue to attract qualified senior-level management with demonstrated
expertise from the various industries comprising the Company's service offering.
FOCUS ON SUPERIOR CUSTOMER CARE. The Company is committed to providing
superior customer care to differentiate 21st Century from its competitors. To
accomplish this, the Company has (i) contracted with a third party to provide a
single billing statement for its voice, video and data services (which will
facilitate bundled discounting for multiple services, permit customized billing
statements and permit monthly, transactional and metered billing to support the
Company's planned product lines) and (ii) established a relationship with a
leading call center services provider to staff and operate a 24-hour call
center. The Company has provided a dedicated toll-free number to the call center
for all subscriber needs and has established call center performance parameters
under which (i) at least 90% of customer calls are to be answered within 30
seconds, (ii) customers are to receive a busy signal less than 3% of the time
and (iii) customer-abandoned calls are to account for less than 5% of all calls.
The Company believes that the quality and reliability of its services will
result in fewer in-bound subscriber complaints, service requests and other non-
revenue producing calls. In addition, the Company has installed sophisticated
status monitoring equipment in the NOC and throughout its DRS Network, which
should allow the Company to become aware of and remedy many potential problems
before they are detectable by subscribers.
EXPAND TO ADDITIONAL MARKETS. The Company intends to expand its operations
to selected midwestern markets which have the size, demographics and
geographical location suitable for its business strategy. Although the Company
may consider stand-alone systems, the Company expects to focus on markets in
which it can use its Chicago DRS Network and NOC to achieve synergies and
economies of scale. The Company has applied for
<PAGE>
franchises in a number of cities in suburban Chicago, central, south-central and
south-western Michigan and northern Indiana.
MARKET OVERVIEW
The City of Chicago is the third largest urban market in the United States and
Area 1 is the densest section of the city, characterized by a high concentration
of MDUs and commercial office buildings. Area 1 has several significant and
attractive attributes, including a relatively high density of 12,000 housing
units per square mile (compared with a density for the entire City of Chicago of
5,000 housing units per square mile); more than 300,000 homes (many of which are
located in upscale, demographically attractive lakefront neighborhoods);
existing cable penetration that the Company believes is significantly below the
national average for urban areas and approximately 51,000 employers in the
City's prominent business and financial districts, which include such businesses
and landmarks as the Mercantile Exchange, Sears Tower, Chicago Board of Trade,
Chicago Board of Options Exchange, Federal Reserve, Hancock Building, Amoco
Tower, major banks and other premier businesses.
INTERACTIVE BROADBAND DRS NETWORK
DRS NETWORK COMPONENTS. The DRS Network consists of six main components: the
NOC, the Transport Ring, Transport Hubs, Campus Rings, Campus Hubs and Nodes.
The following graphic depicts the design of the DRS Network.
[PICTURE OF NETWORK]
The NOC processes voice, video and data signals before they are transported to
the rest of the system. The DOC and a video headend are located at the NOC and,
when the Company begins to offer telephony service, a telephone switch will also
be located at the NOC. The NOC also functions as a gateway to other networks
outside the DRS Network. The NOC monitors DRS Network activity and receives
real-time information regarding DRS Network performance and power supply status.
When the Company begins to offer telephony service, the NOC will monitor the
activation of equipment at the premises of the Company's telephony subscribers.
The Transport Ring, a group of fiber-optic cables that run along the CTA
right-of-way, carries voice, video and high-speed data signals between the NOC
and the Transport Hubs. Transport Hubs connect the Transport Ring and the Campus
Rings and also provide a diagnostic function by trouble-shooting potential
problems on the DRS Network. The Campus Rings are groups of fiber-optic cables
that carry voice, video and high-speed data signals between the Transport Hubs
and the Campus Hubs. The Campus Hubs connect the Campus Rings and the lines that
feed the Nodes and provide a diagnostic function similar to the Transport Hubs.
The Nodes connect the subscribers to the Campus Hubs via coaxial cable. The
Nodes represent the point in the DRS Network where light sent over the DRS
Network via fiber-optic cable is translated into radio frequencies for delivery
to the subscriber. The Nodes also monitor the DRS Network and detect potential
problems. The "star distribution" of the DRS Network refers to the star-shaped
DRS Network components branching off each Node to the subscribers.
Delivery of telephony services over the DRS Network will require the
installation of switching and other ancillary equipment at the NOC and at the
Nodes, where the existing twisted-pair telephone wire will connect to the DRS
Network. The Company has entered into a letter of intent for the acquisition and
installation of such equipment.
DESIGN ATTRIBUTES. The Company's DRS Network was conceived and designed by
the Company's engineers and incorporates SONET, Ring and Star architectures as
well as wave-division multi-plexing elements, and includes certain attributes of
Hybrid Fiber Coax ("HFC"). Key attributes of the DRS Network include (i) an
advanced integrated network design built to the rigorous Bellcore standards,
(ii) the distribution of switching and traffic
<PAGE>
routing mechanics at specific locations out on the DRS Network (rather than
being concentrated at one point as in conventional networks), allowing the
Company to efficiently and economically route traffic regardless of penetration
and usage levels, (iii) a SONET-based redundancy and self-healing architecture
with both circuit and route diversity, (iv) multiple layers of power redundancy
to ensure network reliability and (v) a large fiber capacity permitting delivery
of advanced two-way, fully-interactive broadband services, as well as
significant unutilized capacity to allow the Company to upgrade services, add
applications and develop new product offerings without service interruption or
interference. In addition, the DRS Network is designed with only one to four
amplifiers in cascade between its NOC and the subscriber (compared to up to 40
amplifiers used by conventional networks). This reduction in amplifiers
significantly reduces signal degradation and results in higher video quality and
telephony reliability, a superior audio component and greater data transmission
accuracy.
The DRS Network uses signal processing techniques to deliver communication
services such as Internet access and high-speed data, Shared Tenant Services
("STS"), Small Business Services and Plain Old Telephone Services, which the
Company intends to provide directly or in conjunction with strategic business
partners. The DRS Network is able to separate data and voice signals from the
video signals, which will enable it to provide higher reliability and the
advanced network management necessary for residential and commercial data
communications and telephony services.
DRS NETWORK ADVANTAGES. The DRS Network has several advantages including (i)
intelligent routing of network traffic, (ii) advanced functionality at
subscribers' premises, (iii) efficient introduction of new switched and
broadband services and (iv) dedicated, two-way, high-speed data connectivity.
INTELLIGENT ROUTING OF TRAFFIC. The DRS Network routes traffic
intelligently using grooming and hairpinning techniques. Grooming is a
technique by which voice, video and data signals are kept on the DRS Network,
thereby decreasing the reliance on and the costs incurred by using other
companies' communications networks. Hairpinning, a type of grooming, is a
technique that allows voice, video and data signals to be diverted away from
the Company's NOC, where network traffic is likely to be heavy, and routed by
Campus Hubs or Transport Hubs.
ADVANCED FUNCTIONALITY AT SUBSCRIBERS' PREMISES. The Company uses an
advanced analog set-top box with 512K RAM and flash memory, which will allow
it to provide subscribers additional functions and features. Among such
functions and features are interactive data channel capability, impulse pay-
per-view, fully computerized addressability, forward and return path
capability, bit-mapped graphics, downloadable software capability, fully
interactive seven-day electronic program guide, enhanced signal theft
protection and dataport connectivity to printers, faxes and personal
computers. The Company believes that this terminal is designed to readily
convert to digital technology at a cost that is competitive with analog
industry standards. See "Risk Factors--Equipment Cost and Availability."
EFFICIENT INTRODUCTION OF NEW SWITCHED AND BROADBAND TECHNOLOGIES. 21st
Century should be able to introduce most new switched and broadband
technologies to its subscribers without causing service interruption or
interference. The DRS Network's architecture has reserved bandwidth from
750MHz to 860MHz. This bandwidth has been allocated for future digital video
services representing approximately 90 to 100 channels. While the Company does
not anticipate conversion to digital in the near future given the DRS
Network's initial 110 analog video channel offering, the DRS Network's large
fiber capacity will allow the Company to upgrade services, add applications
and develop new product offerings without service interruption or
interference.
DEDICATED, TWO-WAY, HIGH-SPEED DATA CONNECTIVITY. The DOC allows true
two-way (duplex), high-speed interactivity. At the DOC a redundant series of
routers, servers and switches are installed, from which typical ISP
functionalities (Domain Naming System, Mail, News, Proxy, etc.) are
administered and dual connections to national ISPs are maintained. 21st
Century will store the most popular Web pages, along with local content, in
servers located in the DOC. By storing these Web pages and local content
within the DOC and
<PAGE>
providing cable modem access to these resources, subscribers can receive any
of this information at up to four Mbps, or approximately 125 times faster than
the prevalent 28.8 Kbps telephone modem. As a further benefit, since the cable
modem is connected directly from the subscriber's PC to the coaxial portion of
the DRS Network, there is no need for a second telephone line to access the
Internet, no delay associated with dialing into and signing onto a typical
ISP's modem service and no surcharge for making a call into the DOC (as is
typically the case with 128 Kbps ISDN service).
As an integral part of the DRS Network design, the Company has reserved fiber-
optic capacity dedicated for providing a wide variety of high-speed data
services, including high-speed (up to OC-12) private line quality access to the
Internet. The use of multi-protocol switching platforms in both the Campus and
Transport hubs and the DRS Network's high fiber count will allow the Company to
offer private virtual networks to link offices, buildings and campuses located
in Area 1. Further, the high-speed data network will extend to both commercial
as well as residential areas and will support a host of other applications,
including telecommuting, distance-learning, software distribution, site
mirroring, bulk data transfer and teleconferencing.
BROADBAND SERVICES
The Company's service offering will include a wide range of voice, video and
high-speed data services that the Company expects to provide on a bundled basis.
The Company's bundled service offering will provide customers with convenient
"one-stop shopping," attractive pricing through significant bundled discounts,
a single source for installation and service and the ease of a single monthly
bill.
VIDEO AND AUDIO. The Company currently offers 110 analog video channels, 59
interactive information channels with local content and 22 specialty audio
channels, with significant capacity for additional broadband and narrowband
products and services. The 110 analog video channels include a basic package of
84 channels, one of the largest basic packages in the United States, designed to
appeal to Chicago's ethnic and cultural diversity. Basic video channels for
business customers also include specialized business programming such as
Bloomberg, CNN, CNN Financial and Knowledge TV. This specialized business
programming will be combined with downlink teleconferencing from the NOC.
Programming for the Company's video offering comes from national and local
networks, including most major networks such as ESPN, HBO, Showtime, Disney and
CourtTV and local networks such as local affiliates of ABC, CBS, NBC and Fox.
The video offering includes an on-screen 7-day interactive program guide, one-
button VCR recording and near-video-on-demand pay-per-view movies, with start
times every 30 minutes, 24 hours per day. The Company also plans to offer a
custom camera-monitored security channel for apartment and condominium buildings
that execute master agreements with the Company.
Also included in the Company's basic video package are 59 interactive
information channels, which include local bus and train schedules, airline
schedules, employment ads, restaurant menus, local news and sports scores, stock
quotes, expressway traffic updates, personal ads and other relevant local
content (including building-specific information for large MDU accounts). The
Company plans to expand its interactive information offering to 100 channels
during 1998. This server-delivered information is accessed on the customer's
television via a specialized universal remote control.
The Company's 22 specialty audio channels include international and foreign
language broadcasts (selected to appeal to concentrations of nationalities
residing in Chicago's Area 1), BBC radio broadcasts, reading services for the
blind, commercial-free music categories and select distant-market FM stations.
HIGH-SPEED DATA AND INTERNET SERVICES. The Company will provide high-speed
Internet access services using a high-speed cable modem in much the same way
customers currently receive Internet services over a modem linked to the local
telephone network. The cable modems presently being used with the Company's DRS
Network will operate at 4 Mbps, which is approximately 25 times faster than ISDN
modems and more than 125 times faster than the prevalent 28.8 Kbps analog
modems. The customer's cable line (with cable modem) will be connected
<PAGE>
directly into the Internet. Because the cable modem connects through a cable
line rather than through a telephone line, the Internet connection will always
be active and there will be no need to dial up for access to the Internet or
wait to connect through a port leased by an ISP. The Company is also hosting
websites for commercial customers and expects to offer private virtual networks
to link offices, buildings or campuses located throughout the franchise area. In
addition to supporting cable modem services for Internet access, the DRS Network
is capable of connecting computers or computer networks via a separate fiber
connection. By connecting computers or computer networks at multiple locations,
subscribers can establish virtual local area networks, over which they can
transport data. The Company expects to offer such connections, which will enable
subscribers to conduct video conferences, provide Internet-protocol telephony
services, conduct electronic commerce, connect hospitals and universities for
tele-medicine and distance-learning applications and access their office
networks with the same speed and functionality as though they were using their
office desktop computers.
TELEPHONY. The DRS Network will allow the Company, after receipt of
necessary regulatory approval and installation of the requisite telephony
equipment, to act as a facilities-based CLEC offering telecommunications
services with last mile connectivity and local dial tone. The Company
anticipates that the necessary equipment and installation will cost
approximately $40 million over five years and that the installation necessary
for the Company to begin providing telephony service will take approximately
five to six months. The Company plans to begin offering in mid-1998 a broad
range of competitive telephony services (e.g., local, long distance and enhanced
services) to both commercial accounts and selected residential subscribers, most
of whom currently have no facilities-based alternative to the service provided
over the ILEC's network. The selected residential customers to which the Company
will offer telephony services initially will be limited to those residing in, or
in close proximity to, MDUs containing 24 or more residences, but the Company
expects that the threshold number of residences in MDUs to which this service
can be viably offered will be reduced over time. The Company anticipates that
its telecommunications service offerings will include local service, long-
distance and enhanced service packages. Enhanced services will include custom
calling features such as call waiting, call forwarding and three-way calling.
The Company also expects to offer more advanced custom local area signaling
services ("CLASS") features, such as caller ID and caller masking and plans to
offer voice mail as an optional service. The Company expects to provide long-
distance service on a resale basis from one or more national interexchange
carriers. The Company also plans to make available to businesses Centrex
services and PBX trunk provisioning. The Company anticipates that it will
establish wireless and paging services on a resale basis.
The Company will be required to rely on local exchange carriers ("LECs") and
interexchange carriers to provide communications capacity or interconnection for
its local and long-distance telephone service. On September 24, 1997, the
Company requested interconnection with Ameritech pursuant to the 1996 Telecom
Act. The Company expects to obtain access to Ameritech's telephone network under
an interconnection agreement, which is currently under negotiation. The terms of
the interconnection agreement will require the approval of the Illinois Commerce
Commission. The Company expects that the terms of its interconnection agreement
will be similar to those contained in interconnection agreements between
Ameritech and other telephony providers that have previously been approved by
the Illinois Commerce Commission. In addition, the 1996 Telecom Act established
certain requirements and standards for interconnection arrangements, and the
Company's interconnection agreement with Ameritech will be based in part on such
requirements. However, these requirements and standards are still being
developed and implemented by the FCC in conjunction with the states through a
process of negotiation and arbitration. See "Risk Factors--Commencement of
Telephony Services; Dependence on Interconnections" and "Legislation and
Regulation--Federal Regulation of Telecommunications Services."
The DRS Network is capable of providing telephony services, but will require
the installation of switching and other ancillary equipment at the NOC and at
the nodes, where the customer's existing twisted-pair telephone wire will
connect to the DRS Network. The Company has entered into a letter of intent for
the acquisition and installation of such equipment. Until the Company obtains
the approval of the Illinois Commerce Commission to provide CLEC services, which
the Company expects during the first quarter of 1998, it will offer a beta test
telephony service to a limited number of residential and commercial subscribers.
<PAGE>
FUTURE BROADBAND SERVICES. The Company believes that the DRS Network will
enable it to provide additional broadband services in the future, including (i)
high-speed data transmission connecting homes and offices ("extranets"), (ii)
wholesale transport and interconnection (local loop) services to connect long-
distance carriers to their customers, (iii) security services, including closed-
circuit television security monitoring and alarm systems and (iv) interactive
energy management services, which involve active monitoring by the customer of
energy usage and cost. The Company expects to commence trials of certain of
these services in 1998. The Company plans to seek strategic partnerships and
alliances to provide a number of these services. See "Risk Factors--Uncertain
Demand for Broadband Services."
SALES AND MARKETING
21st Century seeks to capitalize on its position as a new communications
company that brings competition, choice and an innovative bundle of
communications products to the residential and commercial markets covered by its
DRS Network.
RESIDENTIAL MARKETING. The Company's marketing plan for residential
customers is initially focused on establishing relationships with the managers
of residential rental properties and presidents of condominium associations
which the Company expects will lead to long-term bulk video service contracts
with the residents of targeted MDUs. Once the Company has entered into bulk MDU
contracts and has connected its DRS Network to the buildings, the Company will
then market its premium cable and pay-per-view video services, as well as its
high-speed data and, when available, telephony services, to its cable
subscribers in order to leverage its existing MDU subscriber relationships. In
addition, the Company will utilize direct mail and personal sales calls to
market its full range of voice, video and data services to Homes Passed.
COMMERCIAL MARKETING. The Company's commercial marketing plan is initially
focused on Chicago's central downtown area due to the heavy concentration of
potential commercial accounts. Further, the Company expects to focus on small to
mid-sized commercial accounts (under 50 employees), a market that the Company
believes has been underserved by the incumbent providers and which has the
potential for higher margins and greater interest in switching carriers for
better pricing and customer care. Because the Company is not yet widely known,
it will seek to acquire visibility and recognition by selling to well-known,
communications-intensive accounts that have an interest in the Company's high-
speed data and Internet services. At the same time, the Company's sales staff
will seek to develop relationships with organizations such as the Building
Owners Management Association and other facilities management companies that
influence the selection of communications facilities installed at multiple
buildings, as well as industry associations which the Company believes will
encourage member companies to use the Company's services.
The Company will also focus its marketing efforts on the commercial market
outside of Chicago's central downtown area, which is made up primarily of small
businesses operating in shopping strips, commercial boulevards or small-
office/home-office environments. This market has an expanding diversity of
communications needs which 21st Century believes are well-suited to the bundled
products offered by the Company. The Company plans to focus its marketing
efforts to these subscribers on its high-speed data service capabilities, which
the Company believes will be an attractive alternative to data connectivity via
the lower-speed, twisted-pair copper lines that are currently available.
SALES AND MARKETING STAFF. The Company's sales and marketing staff currently
consists of 25 individuals. The Company expects to increase this staff to
approximately 28 during the first quarter of 1998. The sales and marketing staff
is comprised of a commercial division and a residential division, each of which
is headed by a manager who supervises various account executives. In addition,
the Company has contracted with a third-party organization for sales support on
an interim basis to assist the Company in marketing and selling its services to
certain Homes Passed. The Company has selected its account executives for the
collective diversity of their industry experience across the cable television,
telephony and data service sectors.
<PAGE>
CUSTOMER CARE
The Company believes that customer care is an essential element of its
operations and is committed to providing superior customer care to differentiate
it from its competitors. The Company believes that the quality and reliability
of its services will result in fewer in-bound subscriber complaints, service
requests and other non-revenue producing calls. In addition, the Company has
installed sophisticated status-monitoring and diagnostic equipment on both the
NOC and its DRS Network which should allow the Company to become aware of and
remedy many potential problems before they are detectable by subscribers.
BILLING. The Company has contracted with a third party to provide a single
billing statement for its voice, video and data services. This technology will
facilitate bundled discounting for multiple services, permit customized billing
statements and permit monthly, transactional and metered billing to support the
Company's planned product lines. The third party's billing and information
management system is currently integrated for video and data services, and is in
the beta testing phase for integrated voice, video and data services. If an
integrated billing and information management system for all three services is
not commercially available when the Company begins providing telephony service,
the Company's customers will still receive a single billing statement, but such
statement will be generated from two separate billing and information management
systems.
CUSTOMER SERVICE REPRESENTATIVES. The Company has established a relationship
with a leading call-center services provider to outsource its customer service
operations. The call center is currently staffed with six full-time customer
service representatives ("CSRs") trained to handle calls 24 hours per day, 365
days per year. An additional 20 CSRs have been trained and will be available to
the Company as demand requires. Each CSR is required to have a thorough
understanding of the Company's service offerings. The Company has provided a
dedicated toll-free number to the call center for all subscriber needs and has
established call center performance parameters under which (i) at least 90% of
customer calls are to be answered within 30 seconds, (ii) customers are to
receive a busy signal less than 3% of the time and (iii) customer-abandoned
calls are to account for less than 5% of all calls.
COMPETITION
VIDEO SERVICE
Cable television providers compete for subscribers in local markets with other
providers of television services and other providers of entertainment, news and
information. The competition in these markets includes broadcast television and
radio, satellite and wireless video distribution systems and competitive
television operations, newspapers, magazines and other printed sources of
information and entertainment. The enactment of the 1996 Telecom Act may create
more competition in providing cable television because it allows LECs to provide
video services in their local service areas.
CABLE SYSTEMS AND OTHER VIDEO PROVIDERS. There are existing cable television
operations and other video providers in Chicago's Area 1. In addition, because
Federal law prohibits cities from granting exclusive cable franchises and from
unreasonably refusing to grant additional competitive franchises, additional
cable television operators could obtain franchises in the future. An increasing
number of cities are exploring the feasibility of owning their own cable systems
in a manner similar to city-provided utility services.
Chicago Cable, the local subsidiary of TCI, is the incumbent provider of cable
services in Chicago's Area 1. Chicago Cable's legacy system is a traditional
street-grid, coaxial cable system, is one-way, non-interactive, limited to the
residential sector and does not currently accommodate enhanced communications
transmissions. In the Chicago metropolitan area, of which Area 1 is a part,
Chicago Cable and other subsidiaries of TCI have
<PAGE>
approximately 515,000 subscribers for their basic cable services and their cable
networks pass approximately 1,340,000 homes.
OTHER VIDEO COMPETITION IN CHICAGO. There are small wireless cable providers
serving certain MDUs in Chicago. In its current analog format, wireless cable
has limited bandwidth and cannot accommodate a video channel offering comparable
to 21st Century's. Further, the Company believes that the wireless technology
required to provide bundled voice, video and high-speed data services with real
interactivity does not exist at the present time, and the current technology
that requires a phone-line return path should be at a competitive disadvantage
to 21st Century's online cable modem Internet and high-speed data offerings.
There are alternative methods of distributing the same or similar video
programming offered by cable television systems, although cable television
systems currently account for a substantial percentage of total subscribership
to multichannel video programming distributors ("MVPDs"). In addition to
broadcast television stations, the Company competes with other multichannel
programming service providers on a direct over-the-air basis. Multichannel
programming services are distributed by communications satellites directly to
satellite dishes serving residences, private businesses and various nonprofit
organizations.
The Company expects a more significant competitive impact from medium-power
and high-power communications DBS that transmit signals that can be received by
small dish antennas. Hughes Communications, Inc. ("Hughes") commonly known as
DirecTV, a subsidiary of General Motors Corporation, and United States Satellite
Broadcasting Company, a subsidiary of Hubbard Broadcasting, began offering
multichannel programming services in 1994 via high-power communications
satellites that require a dish antenna of only approximately 18 inches. Other
DBS providers include PrimeStar and EchoStar. Although DBS providers presently
serve a relatively small percentage of pay television subscribers, their share
has been growing steadily. Competition from both medium- and high-power DBS
services could become substantial as developments in technology continue to
increase satellite transmitter power and decrease the cost and size of equipment
needed to receive these transmissions. However, the Company believes that
equipment and programming costs presently are limiting DBS market share in
cabled areas. The Company also believes that Area 1 has lower potential for DBS
due to the difficulties of attaching dishes to high-rise structures.
DBS has advantages and disadvantages as an alternative means of distributing
video signals to the home. Among the advantages are that the capital investment
(although initially high) for the satellite and uplinking segment of a DBS
system is fixed and does not increase with the number of subscribers receiving
satellite transmissions, that DBS is not currently subject to local regulation
of service or required to pay franchise fees and that the capital costs for the
ground segment of a DBS system (the reception equipment) are directly related to
and limited by the number of service subscribers. The disadvantages of DBS
presently include a limited ability to tailor the programming package to the
interests of different geographic markets, such as providing local news, other
local origination services and local broadcast stations, signal reception being
subject to line of sight angles and intermittent interference from atmospheric
conditions and terrestrially-generated radio frequency noise. The long-term
effect of competition from these services cannot be predicted. Nonetheless, the
Company believes that such competition will be significant.
MMDS and LMDS systems represent another type of video distribution service.
Both systems deliver programming services over microwave channels received by
subscribers with a special antenna. LMDS, operating in the higher 28GHz
frequency band, employs frequency reuse within a distributed architecture and is
also capable of providing simultaneous delivery of two-way voice and data, as
well as video services. MMDS and LMDS systems are less capital-intensive, are
not required to obtain local franchises or pay franchise fees and are subject to
fewer regulatory requirements than cable television systems. Although there are
relatively few MMDS systems in the United States that are currently in operation
or under construction, many markets have been licensed or tentatively licensed
by the FCC. The FCC has taken a series of actions intended to facilitate the
development of these "wireless cable systems" as alternative means of
distributing video programming, including reallocating the use of certain
frequencies to these services and expanding the permissible use of certain
channels reserved for
<PAGE>
educational purposes. The FCC's actions enable a single entity to develop a MMDS
system with a potential of up to 35 channels, and thus compete more effectively
with cable television. Developments in compression technology have significantly
increased the number of channels that can be available from other over-the-air
technologies. Subscribing to MMDS services is projected to continue to increase
over the next several years. There are currently no commercial operating
licensed LMDS systems in the United States. The FCC began auctioning commercial
LMDS licenses in February 1998. It is not expected that any commercial LMDS
systems will begin operating until late 1998.
21st Century believes that the density of high-rise buildings in the Chicago
market area is a limiting factor for wireless technologies, such as DBS, LMDS
and MMDS, all of which require a direct line of sight to the satellite or
headend tower, respectively. Satellite dish installations on metropolitan
Chicago MDUs have proven to be problematic and aesthetically undesirable.
Moreover, the Company believes that "ghosting" and other distortion created by
areas with substantial high-rise density, such as Area 1, may represent a
quality disadvantage for potential wireless competitors.
The Company also competes with master antenna television systems ("MATV")
and SMATV systems, which provide multichannel program services directly to
hotel, motel, apartment, condominium and similar multi-unit complexes within a
cable television system's franchise area. These systems are generally free of
any regulation by state and local government authorities. The 1996 Telecom Act
changed the definition of a "cable-system" to include only systems that cross
public rights-of-way. Therefore SMATV systems that serve buildings that are not
commonly owned or managed and which do not cross public rights-of-way are no
longer considered cable systems and no longer require a franchise to operate.
Prior to enactment of the 1996 Telecom Act, LECs were prohibited from offering
video programming directly to subscribers in their telephone service areas
(except in limited circumstances in rural areas). The 1996 Telecom Act
eliminated restrictions on LECs and the Company may face increased competition
from local telephone companies, which in most cases have greater financial
resources than the Company. Several major LECs, including Ameritech, have
announced plans to acquire cable television systems or provide video services to
the home through fiber optic technology.
The 1996 Telecom Act provides LECs with four options for providing video
programming directly to customers in their local exchange areas. Telephone
companies may provide video programming by radio-based systems, common carrier
systems, "open video" systems or "cable systems." LECs that elect to provide
service via "open video" systems must allow others to use up to two-thirds of
their activated channel capacity. They will be relieved of regulation as
"common carriers" and are not required to obtain local franchises, but will
still be subject to all rules governing cable systems, including franchising
requirements. It is unclear which model LECs will ultimately choose but the
video distribution service developed by local telephone companies is likely to
represent direct competition for the Company.
The ability of local telephone companies to compete with the Company by
acquiring an existing cable system is limited. The 1996 Telecom Act prohibits a
LEC and its affiliates from acquiring more than a 10% financial or management
interest in any cable company providing cable service in its telephone service
area. It further prohibits a cable operator and its affiliates from acquiring
more than a 10% financial or management interest in any LEC providing telephone
exchange service in its franchise area. A LEC and a cable operator that have a
telephone service and cable franchise in the same market may not enter into a
joint venture to provide telecommunications services or video programming. There
are exceptions to these limitations for rural locations, very small cable
systems and LECs in non-urban areas.
INTERNET AND HIGH-SPEED DATA SERVICES
<PAGE>
Internet service, both Internet access and on-line content services, is
provided by ISPs, satellite-based companies, long-distance carriers and other
cable television companies.
A large number of companies provide businesses and individuals with direct
access to the Internet and a variety of supporting services. In addition, many
companies (such as America Online, Inc., MSN Computers, Prodigy Services Company
and WebTV Networks) offer "online" services consisting of access to closed,
proprietary information networks with services similar to those available on the
Internet, in addition to direct access to the Internet. Such companies generally
offer Internet services over telephone lines using standard computer modems. The
Company believes that this form of transmission works well for smaller amounts
of data, but standard telephone lines have limitations in handling large volumes
of information, multimedia applications or high-speed data transmissions,
resulting in lengthy delays. Also, ISPs have limited numbers of ports available
for customers to dial in to the Internet, and their customers may experience
difficulties in obtaining access to the Internet or be disconnected if activity
is too great. A few ISPs also offer high-speed ISDN connections to the Internet.
The Company believes that broadband transmission is the most efficient means of
transmitting large volumes of data and information on a high-speed basis to and
from the Internet.
A few satellite companies provide broadband access to the Internet from
desktop PCs using a small dish antenna and receiver kit comparable to that used
for satellite television reception. DirecPC, principally owned and operated by
Hughes, is a prominent provider of satellite-based Internet services in the
United States. These satellite-based Internet services generally require a local
wireline telephone (twisted copper pair) return path, which will have inherent
capacity limitations and costs.
Long-distance companies are aggressively entering the Internet access markets.
Long-distance carriers have substantial transmission capabilities, traditionally
carry data to large numbers of customers and have an established billing system
infrastructure that permits them to add new services. For example, AT&T began
providing Internet access in the United States through a new service called
WorldNet, offering its long-distance customers five free hours of Internet
access per month for a one-year period. MCI is offering MCI Internet in
competition with AT&T's WorldNet service. The Company expects competition for
the end-consumer from such companies to be vigorous due to such competitors'
greater resources, operating histories and name recognition. However, the long-
distance companies are still limited by the inherent speed constraints of
traditional copper twisted-pair telephone lines.
Other cable television companies can enter the Internet services market.
Traditional cable networks provide only one-way transmission and must be
upgraded (and often reconfigured) to permit two-way data transmission, which
requires significant investments on the part of service providers. Broadband
technology must be incorporated to enable digital data to be transmitted over a
separate channel. The Company is not aware of any cable television competitors
in its existing service area providing Internet access service using cable
modems. However, owners of newer or upgraded cable television networks have the
ability to provide Internet services using cable modems. The Company believes
that some existing cable television providers are beginning to provide such
services in certain of their major markets or clusters. @Home, a joint venture
among TCI and several other large cable companies, is offering high-speed
Internet service using cable modems in areas where its affiliates have HFC
networks. The Company believes that high-speed Internet services ultimately will
be offered by other cable providers and companies such as @Home in most of the
Company's present and future service areas. In addition, @Home announced in
December 1997 that it and Best Internet Communications would collaborate to
deliver web hosting to customers of @Home's @Work division.
Wireline and wireless telephony operators also provide high-speed data
services. The wireline carriers include Ameritech and two competitive access
providers ("CAPs"): WorldCom and TCG. While Ameritech provides telephony
service in all of Area 1, its existing copper lines are not well suited to
provide high-speed data services. Recent advances in DSL technology have made it
possible to enhance the data transport capabilities over copper lines and
Ameritech recently announced that it is providing high-speed Internet access
using ADSL technology and will be collaborating with Microsoft Corporation to
facilitate the installation of its ADSL service. Ameritech has announced plans
to provide high-speed Internet access initially in Ann Arbor, Michigan, and
expects to offer such
<PAGE>
access in the Chicago area by mid-1998. However, the Company believes that the
installation and operation of ADSL technology (especially in residential areas)
will be costly to Ameritech. Neither of the CAPs offers ubiquitous telephony
service in Chicago's business district or has built a network infrastructure in
Chicago's residential areas. In addition, as in the case of Ameritech's network,
the CAPs' networks are currently designed primarily for the transport of voice
rather than data services and the Company believes the network upgrades
necessary for the CAPs to provide competitive high-speed data services will be
costly.
Wireless telephony providers offer high-speed data services via satellite
dishes. Data is transmitted to the subscriber from the satellite dish at
relatively fast rates, but the subscriber must use a telephone line to send
data. This restricts the ability of the subscriber to send information to the
speed of an analog modem (generally 56 Kbps) and necessitates the use and
expense of an additional telephone line. In addition, installation of a
satellite dish is generally difficult in an MDU environment and in Chicago's
business district.
VOICE SERVICES
Once the Company begins providing local and long-distance telephony services,
it will likely face competition in providing such services. The 1996 Telecom Act
is expected to have a substantial impact on the degree of competition because it
permits providers to enter markets that were previously closed to them.
Specifically, the 1996 Telecom Act preempts state policies that have
historically protected LECs from significant competition in local service
markets. In addition, the 1996 Telecom Act supersedes the antitrust consent
decree that prohibited the Regional Bell Operating Companies ("RBOCs") from
providing long-distance services, and establishes terms and conditions under
which RBOC entry into the long-distance market will be permitted. The overall
effect of these provisions is to blur the distinctions that previously existed
between local and long-distance services.
One major impact of the 1996 Telecom Act may be a trend toward the use and the
acceptance of bundled service packages, consisting of local and long-distance
telephony, combined with other elements such as cable television and wireless
telecommunications service. As a result, the Company will be competing with the
ILEC, Ameritech, with traditional providers of long-distance service, such as
AT&T, MCI, Sprint and WorldCom and with competitive local service providers, and
may face competition from other providers of cable television service, such as
TCI. The Company's ability to compete successfully in telephony will depend on
the attributes of the overall bundle of services the Company is able to offer,
including price, features and customer service.
Wireless telephone service (cellular and personal communication service
("PCS")) now is generally viewed by consumers as a supplement to, not a
replacement for, wireline telephone service. In particular, wireless is more
expensive than wireline local service and is generally priced on a usage basis.
However, it is possible that in the future the rate and quality differential
between wireless and wireline service will decrease, leading to more direct
competition between providers of these two types of services. In that event, the
Company's telephony operations may also face competition from wireless
operators.
OTHER TELEPHONY COMPETITORS. There are currently three principal competitive
telecommunications carriers in Chicago's Area 1: Ameritech, WorldCom and TCG.
Others have announced their entry into the local telephone business in Chicago,
but none is offering a commercially available product at this time. Of the "Big
Three" interexchange carriers, only MCI has attempted to enter the local market
to date. AT&T has publicly stated that it will be in the local Chicago market by
the end of 1998.
Ameritech is the regulated monopoly local carrier in Chicago's Area 1. It was
formed in 1983 as a result of the divestiture of AT&T. The local operating
company is known as Ameritech-Illinois, formerly Illinois Bell, and reported
operating revenues of $3.7 billion for 1996. Presently, its telephony services
are provided largely over restricted bandwidth, twisted-copper pair wire.
Ameritech offers local residential service on the basis of a per-line charge and
measured usage charges based on distance and time-of-day. Ameritech is the only
facilities-based provider presently available to the local residential market.
On the business side, Ameritech offers a wide range of
<PAGE>
switched and dedicated intraLATA local and toll services. Ameritech also offers
enhanced services such as custom calling and CLASS features to both residential
and business customers.
In late 1994, Ameritech received FCC approval to enter the cable television
business. Ameritech is initially targeting franchises in suburban Chicago and
Michigan. This new unregulated organization is called Ameritech New Media.
Ameritech is formally seeking the Area 5 franchise to compete with TCI in a
predominantly residential, single-family home market. Because Ameritech's video
division is not currently regulated, telephony services cannot currently be
bundled with cable services.
WorldCom is an integrated communications provider of local and long-distance
telecommunications services and certain Internet-related services to business
and government end-users nationally and internationally. It considers itself to
be the first CLEC and promotes its ability to offer an integrated set of
communications services. WorldCom says its strategy is to become the premier
provider of communications services to business and government end-users.
WorldCom has used a merger/acquisition strategy to achieve some of its goals.
In August 1996, MFS (now WorldCom) acquired Internet service provider UUNet
Technologies, Inc. and in August 1996, announced a merger with interexchange
carrier LDDS WorldCom. More recently, in October 1997, WorldCom announced the
purchase of Brooks Fiber Communications, which boosts its presence in the local
telecommunications arena. Finally, in November 1997, WorldCom announced a merger
with MCI, subject to regulatory approval. The combined WorldCom-MCI will offer a
broad range of services and will be one of the largest communications companies
in the world. The resulting integration of service offerings should strongly
position WorldCom against other interexchange carriers and local monopoly
carriers that do not yet provide the same range of services.
TCG is the nation's oldest competitive local telecommunications provider for
businesses and long-distance carriers. TCG's network currently encompasses more
than 6,200 route miles through 51 major markets. TCG markets its services
particularly to large businesses, interexchange carriers, ISPs, STS companies,
cable companies (dark and lit fiber transport) and other information-intensive
businesses. TCG provides dedicated and switched access, local-transport
services, central office switched services and fax and data services. TCG also
supplies point-to-point, broadcast-quality video channels between two or more
locations. TCG offers local access and is targeting interexchange carriers and
ISPs.
Switched services represented about 40% of TCG's revenue in 1996; special
access accounted for 60% during the same period. As of March 1997, four of the
nation's largest cable television companies (TCI, Cox Communications, Inc.,
Comcast Corporation and Media One) controlled approximately 88% of the voting
power of TCG. In January 1998, AT&T entered into an agreement to acquire all of
the outstanding common stock of TCG. In Chicago, TCG operates a 372-route mile
network, serving 144 commercial buildings in the downtown Loop. In September
1994, TCG was granted a CLEC license to operate in the Chicago area and has
focused its marketing efforts in Chicago's western suburbs.
TCI has formed a new division, TCI Telephony, Inc., to enable TCI to become a
participant in the competitive telephony market, and has indicated that it
intends to offer a full-range of both wired and wireless services to residential
and business customers. TCI has indicated that it plans to package its
telecommunications products with its cable services. It has been granted a
license to offer residential telephony service in Arlington Heights, Illinois (a
suburb of Chicago), but it has not stated any plan to enter the City of Chicago,
although it may choose to do so in the future.
CHICAGO FRANCHISE
21st Century was awarded a franchise effective June 1996 by the City of
Chicago for the construction of a fiber cable network in Chicago's Area 1,
representing one of the first second-provider franchise awards for a large urban
<PAGE>
area. Under this 15-year renewable franchise, the Company has been granted
unrestricted access to the public right-of-way to construct, operate and
maintain its DRS Network to all residential and commercial subscribers in the
franchise area. The franchise requires that the Company provide ubiquitous
service to all residential subscribers in the franchise area in accordance with
a specified time schedule, and allows the Company to selectively provide service
to the franchise area's business and financial districts.
Franchises typically contain many conditions, such as time limitations on
commencement and completion of system construction, customer service standards,
minimum number of channels and the provision of free service to schools and
certain other public institutions. The Company believes that the conditions in
its franchise in Chicago's Area 1 are fairly typical. The franchise obligates
the Company to meet a number of local regulatory requirements, including (i)
notices to subscribers of service and fee changes, (ii) system design,
construction, maintenance and technical criteria that, among other things,
require that the system be fully constructed within four years, (iii)
interconnection with other cable operators serving the City for purposes of
public, educational and governmental ("PEG") and leased access, (iv) various
payments to the Chicago Access Corp. ("CAC") for PEG local access obligations,
including (a) payments over ten years to CAC aggregating $1.1 million to fund
CAC's PEG local access capital costs and (b) an annual payment to CAC of one
percent of annual gross revenues, (v) preservation of 10 percent of channel
capacity for PEG local access, (vi) equal employment and affirmative action
requirements and (vii) development and fulfillment of standards for customer
service and consumer complaints. The Company may not transfer or assign the
franchise until June 1999, and then only with the prior consent of the City. The
Company is required to pay a fee for the franchise to the issuing authority
equal to 5% of gross revenues received from the operation of its cable
television system. The Company prepaid $3 million of its franchise fee, which
amount was credited toward future franchise fee payments, including a credit for
the time value of the prepayment.
EMPLOYEES
At December 31, 1997, the Company had 79 full-time employees, of which 26 were
technicians or others performing installation, maintenance, construction and
design repair on the DRS Network, 17 were involved principally in sales and
marketing, 14 were involved in matters relating to Internet and high-speed data
services and 22 had management or administrative responsibilities. The Company
considers its relations with its employees to be satisfactory. The Company
recruits from several major industries for employees with skills in voice, video
and data technologies.
PROPERTIES
The Company entered into a license agreement dated October 27, 1994 with the
CTA. The term of the agreement commenced on June 24, 1996 and is for 15 years.
The parties may elect to extend the agreement for additional 15-year terms.
Pursuant to this agreement, the CTA gave the Company a nonexclusive license to
install and maintain fiber optic cable on railway structures of the CTA's red,
brown and green transit lines.
The Company entered into a five-year pole attachment agreement dated April 3,
1996 with Commonwealth Edison. The Company has the option to renew this
agreement for one additional five-year term. Pursuant to this agreement,
Commonwealth Edison gave the Company nonexclusive licenses to attach fiber optic
strands and/or cable wire, strand hardware, hardware and power supplies to
utility poles that are owned by Commonwealth Edison so long as it does not
interfere with Commonwealth's use of such utility poles.
The Company entered into a pole attachment agreement dated November 14, 1996
with Ameritech. Either party may terminate the agreement upon six month's notice
to the other party. Pursuant to this agreement, Ameritech has given the Company
the nonexclusive right to place communications facilities on Ameritech's poles
and/or conduit systems.
<PAGE>
The Company entered into a 15-year lease dated January 31, 1997 for its
headquarters (which includes the NOC) (the "Apparel Lease") with LaSalle
National Bank. The Apparel Lease currently covers 32,422 square feet, and will
be increased on December 1, 1998 to cover 36,410 square feet and on December 1,
2000 to cover 40,397 square feet.
The Company's principal physical assets consist of fiber optic network and
equipment, located either at the equipment site or along the DRS Network. The
Company's distribution equipment along the DRS Network is generally attached to
utility poles under pole rental agreements with local public utilities, although
in some areas the distribution cable is buried in underground ducts or trenches.
The Company's franchise from the City of Chicago gives the Company rights of way
for its DRS Network. The physical components of the DRS Network require
maintenance and periodic upgrading to keep pace with technology advances. The
Company believes that its properties, taken as a whole, are in good operating
condition and are suitable for the Company's business operations.
INDUSTRY STRUCTURE AND TECHNOLOGY
GENERAL
Under the 1996 Telecom Act, cable companies may provide telephone service and
telephone companies may provide cable service, local telephone companies may
provide long-distance service and long-distance telephone companies may provide
local service, and all may provide numerous ancillary services (with certain
exceptions not material to the Company). Municipalities are required to grant
cable television franchises to qualified applicants. This change in the
regulatory environment, along with substantial growth in use of the Internet,
has led and is generally expected to continue to lead to a rush by
communications companies and other companies (such as utilities) to provide a
wider range of voice, video and data communications services to consumers.
COMMUNICATIONS TECHNOLOGIES AND SERVICES
Set forth below is a brief description of the current communications industry
systems, the technology generally used by each system (although numerous
variations exist, and some systems combine a variety of technologies), and the
hurdles each set of providers faces in offering new services.
CABLE TELEVISION. Cable television systems generally consist of coaxial
cable (which carries signals via radio frequency) and/or fiber optic cable
(which carries signal via light waves generated by a laser) that runs along
aerial or underground rights-of-way past the homes and businesses in a service
area, connecting to each home and business individually through a coaxial cable
connection tap located outside of the premises. Subscriber premises have
internal wiring running from the coaxial cable connection tap to one or more
outlets or "jacks" into which television sets or set-top terminals (which are
used for special services, descrambling, "pay-per-view" and other features)
may be connected. HFC cable networks rely on numerous amplifiers cascaded
throughout the network to increase the signal strength, which diminishes as it
travels through the network. The use of amplifiers produces distortion and noise
which causes the signal quality to degrade, and this degradation increases as
the number of amplifiers increases. Networks which are primarily fiber optic do
not use amplifiers in the fiber optic portion of the network. Optical networks
use lasers and fiber optic cable to distribute signals throughout the network.
The number of channels or features that a cable network can offer is limited by
the capacity of the HFC network and the electronic equipment which processes and
amplifies the signal.
Many traditional cable companies have sought to compete by increasing channel
capacity through the use of extensive electronics, often resulting in poor
signal quality. Most cable television systems use one-way (half-duplex, non-
interactive) networks and accordingly do not have the ability to provide
telephone services, which require full-duplex, two-way interactive cable.
Several cable companies, including large cable companies, are beginning to offer
<PAGE>
one-way data transmission (with telephony dial-back services). However, such
services generally cannot deliver high-speed performance unless the operator
substantially upgrades its cable system infrastructure.
WIRELESS CABLE. MMDS, LMDS and DBS technologies allow the transmission of
television programming, including high-speed computer data, high-definition
television and facsimile transmissions, via microwave frequencies from a single
location. Wireless cable was designed to serve primarily rural areas where
laying traditional coaxial cable is not economically feasible. The wireless
cable system's signal is sent from a centrally located facility equipped with
transmitters, antennas, satellite dishes and scrambling and descrambling
equipment, and is received by subscribers with rooftop antennas and the
necessary converters. Because wireless cable signals are sent via microwaves,
they require line-of-sight transmission from the central source to the
subscribers. Obstructions such as trees, uneven terrain or dense urban skylines
can interfere with reception, although repeaters that aid in reaching
subscribers in certain obstructed areas are being developed to alleviate these
shortcomings. As a result, the Company believes that at present this technology
is not well suited to providing broadband services in urban areas such as those
targeted by the Company.
DTH, DBS AND OTHER SATELLITE TECHNOLOGIES. Direct-to-home Satellite TV
("DTH") companies provide the satellite transmission of television products
and services. As part of the programming package, DTH companies generally
include hardware and software for the reception and decryption of satellite
television programming. The majority of DTH programming is transmitted on C-band
radio frequency, which typically requires dish sizes ranging from six to twelve
feet in diameter, depending upon the geographic location of the subscriber. In
1982, the FCC allocated spectrum within the Ku-band for DBS systems. The Ku-band
historically has allowed for higher power transmission than C-band, enabling
recipients to receive Ku-band signals using smaller satellite dishes (ranging in
size from 15 to 18 inches in diameter). DBS systems generally offer more
channels (often over 100 channels in all) than cable systems, although DBS
providers usually do not offer local programming. Unlike cable television, DBS
and DTH do not require ground construction to install or maintain or to upgrade
services, but do require a southern line-of-site, a separate dish for every
television and are not suitable for use in large MDUs. Rather, the programming
is transmitted from a ground station to the subscriber via a communications
satellite. These systems require the subscriber to purchase or lease a satellite
dish to receive signals and a receiver system to process and descramble signals
for television viewing.
Most of the small satellite dishes available at present are not two-way
interactive and therefore are not suitable for telephone or Internet services,
although businesses that can afford to do so purchase expensive dishes with two-
way interactivity and can receive each of the broadband services. Residential
systems have been designed using telephone lines to transmit to the Internet and
satellite transmission for reception from the Internet. This approach still is
subject to dial-up delays and has many of the same limitations as two-way
telephone communications as compared to service via an interactive broadband
network. Satellite transmissions are also ill-suited for voice transmissions
utilizing existing technologies due to the delay and echo inherent in the
transmission from ground to satellite and back.
WIRELINE TELEPHONY. Local wireline telephone systems consist of a network of
switches, transmission facilities between switches and the "local loop"
connections between customer premises and the nearest local exchange switch. A
call initiated by a customer can be routed by the local exchange switch either
directly to the called party, if that party is served by the same switch, to
another local or toll switch for delivery to the called party, or through one or
more switches to the POP of a long-distance carrier that transmits the call to a
more distant local switch for ultimate delivery to the called party. The
transmission facilities connecting switches are comprised primarily of very
high-capacity fiber optic cables. However, local loops generally consist of
twisted copper wire pairs that run along aerial or underground rights-of-way to
each of the premises served. These local loops generally carry analog
transmission and have relatively low transmission capacity, sufficient to carry
only one two-way voice conversation. Local loop capacity can be expanded
somewhat by using advanced technologies such as ISDN and DSL, which permits
voice and data transmission to occur simultaneously and can support some limited
level of video teleconferencing.
<PAGE>
Local loops (even with ISDN or DSL) do not have sufficient capacity for large-
scale provision of full-motion video services. Telephone service is the most
common way of communication with the Internet, but existing local loop telephone
lines do not have enough capacity for rapid downloading of large volumes of data
(such as graphics), leading many Internet users to experience delays and ISPs to
experience circuit overload.
WIRELESS TELEPHONY (CELLULAR, PCS AND ENHANCED SPECIALIZED MOBILE RADIO
("ESMR")). Wireless telephone technology is based upon the division of a
given market area into a number of smaller geographic areas or "cells." Each
cell has "base stations" or "cell sites," which are physical locations
equipped with transmitter-receivers and other equipment that communicate by
radio signal with cellular telephones located within range of the cell-site.
Cells generally have an operating range from 2 to 25 miles. Each cell site is
connected to a mobile telephone switching office ("MTSO"), which, in turn, is
connected to the local landline telephone network. When a subscriber in a
particular cell dials a number, the cellular telephone sends the call by radio
signal to the cell's transmitter-receiver, which then sends it to the MTSO. The
MTSO then completes the call by connecting it with the landline telephone
network or another cellular telephone unit. Incoming calls are received by the
MTSO, which instructs the appropriate cell to complete the communications link
by radio signal between the cell's transmitter-receiver and the cellular
telephone. Like wireline local loops, wireless telephone technologies do not
have sufficient capacity for large scale provision of video and data services.
INTERNET ACCESS. Most Internet access takes place over telephone lines using
computer modems. This form of transmission works well for text and small amounts
of data, but telephone lines generally are not capable of handling large volumes
of information, multimedia applications or high-speed data transmission,
resulting in lengthy delays. Also, ISPs have limited numbers of ports available
for customers to dial into the Internet, and their customers may experience
difficulties obtaining access to the Internet or be disconnected if the access
network is congested. A few satellite companies provide broadband access to the
Internet from desktop PCs using a small dish antenna and receiver kit comparable
to that used for satellite television reception, although such systems generally
provide only one-way satellite transmission, requiring communications in the
other direction to travel over telephone lines. High-speed cable modems used
over traditional non-interactive cable networks similarly permit high-speed
broadband reception from the Internet, but require communications from the user
to the Internet to travel over telephone lines and are therefore hampered by the
same delays and access difficulties associated with their telephone-only
counterparts.
LEGISLATION AND REGULATION
The cable television industry currently is regulated by the FCC, some state
governments and most local governments. Telecommunications services are
regulated by the FCC and state public utility commissions. Internet services are
generally unregulated at the Federal and state levels. In addition, legislative
and regulatory proposals under consideration by Congress and Federal agencies
may materially affect the cable television, telecommunications and Internet
industries. The following is a brief summary of Federal laws and regulations
affecting the growth and operation of the cable television, telecommunications
and Internet industries and a description of certain state and local laws.
CABLE COMMUNICATIONS POLICY ACT OF 1984
The Cable Communications Policy Act of 1984 (the "1984 Cable Act"), which
amended the Communications Act of 1934, as amended (the "Communications Act"),
established comprehensive national standards and guidelines for the regulation
of cable television systems and identified the boundaries of permissible
Federal, state and local government regulation. The FCC was charged with the
responsibility for adopting rules to implement the 1984 Cable Act. Among other
things, the 1984 Cable Act affirmed the right of franchising authorities (state
or local, depending on the practice in individual states) to award one or more
franchises within their jurisdictions. The 1984 Cable Act provided that in
granting or renewing franchises, franchising authorities may establish
requirements for
<PAGE>
cable-related facilities and equipment, but may not establish or enforce
requirements for video programming or information services other than in broad
categories.
CABLE TELEVISION CONSUMER PROTECTION AND COMPETITION ACT OF 1992
The 1992 Cable Act, which also amended the Communications Act, permitted a
greater degree of regulation of the cable industry with respect to, among other
things: (i) cable system rates for both basic and certain cable programming
services; (ii) programming access and exclusivity arrangements; (iii) access to
cable channels by unaffiliated programming services; (iv) leased access terms
and conditions; (v) horizontal and vertical ownership of cable systems; (vi)
customer service requirements; (vii) television broadcast signal carriage and
retransmission consent; (viii) technical standards and (ix) cable equipment
compatibility. Additionally, the 1992 Cable Act allowed municipalities to own
and operate their own cable television systems without a franchise, prevented
franchising authorities from granting exclusive franchises or unreasonably
refusing to award additional franchises covering an existing cable system's
service area, and prohibited the common ownership of cable systems and co-
located MMDS or SMATV systems. The 1992 Cable Act also prevented video
programmers affiliated with cable television companies from favoring cable
operators over competitors and required such programmers to sell their
programming to other multichannel video distributors. The legislation required
the FCC to initiate a number of rulemaking proceedings to implement various
provisions of the statute, the majority of which have been completed.
On June 28, 1996, the Supreme Court upheld cable operators' ability to enforce
prospective written policies against carrying programming that depicts sexual or
excretory activities or organs in an offensive manner on commercial leased
access channels. The Court also ruled that cable operators may not be required
to segregate indecent commercial leased access programming and block it from
viewer access, finding that this statutory provision violated cable operators'
First Amendment rights. The Court also struck down on First Amendment grounds
the statutory provision that enabled cable operators to prohibit obscene
material, sexually explicit conduct or material soliciting unlawful acts on PEG
channels.
TELECOMMUNICATIONS ACT OF 1996
The 1996 Telecom Act significantly altered the regulatory structure of
telecommunications markets by mandating that states permit competition for local
exchange services. The 1996 Telecom Act also required ILECs to provide
competitors with interconnection on reasonable and non-discriminatory terms and
conditions, with access to ILEC facilities on an unbundled basis, and to provide
competitors, at wholesale rates, telecommunications services for resale. In
addition, the 1996 Telecom Act provided a statutory procedure for the RBOCs,
which offer local exchange service, to apply to the FCC for authority to provide
long-distance services.
The 1996 Telecom Act also included significant changes in the regulation of
cable operators. Specifically, the 1996 Telecom Act reversed over a three-year
period much of the cable rate regulation established by the 1992 Cable Act. The
rates for cable programming service ("CPS" or "expanded-basic") tiers
offered by small cable operators in small cable systems were deregulated
immediately. The FCC's authority to regulate the CPS tier rates of all other
cable operators will expire on March 31, 1999. The legislation also (i)
eliminated the uniform rate requirements of the 1992 Cable Act where effective
competition exists, (ii) repealed the anti-trafficking provisions of the 1992
Cable Act, which prohibited transfers of ownership of cable systems within three
years after initial construction or acquisition, (iii) limited the rights of
franchising authorities to require certain technology and prohibit or condition
the provision of telecommunications services by the cable operator, (iv)
required cable operators to fully block or scramble both the audio and video on
sexually-explicit or indecent programming on channels primarily dedicated to
sexually-oriented programming, (v) allowed cable operators to refuse to carry
leased access programs containing "obscenity, indecency or nudity," (vi)
adjusted the pole attachment laws and (vii) allowed cable operators to enter
telecommunications markets which historically have been closed to them, while
also allowing some telecommunications providers to begin providing competitive
cable service in their local service areas.
<PAGE>
FEDERAL REGULATION OF CABLE SERVICES
The FCC has promulgated regulations covering many aspects of cable television
operations, and is required to adopt additional regulations or repeal or modify
existing regulations to implement the 1996 Telecom Act. The FCC may enforce its
regulations through the imposition of fines, issuance of cease and desist orders
and/or the imposition of other administrative sanctions, such as the revocation
of FCC licenses needed to operate certain transmission facilities often used in
connection with cable operations. A brief summary of certain Federal regulations
follows.
RATE REGULATIONS. Local franchising authorities may regulate rates for basic
cable services and equipment in communities where the cable operator is not
subject to "effective competition." The FCC resolves complaints about rates
for expanded-basic CPS and can reduce rates found to be unreasonable. Cable
services offered on a per channel or on a per program basis are not subject to
rate regulation by either local franchising authorities or the FCC. The 1996
Telecom Act deregulated the CPS rates of "small cable operators" immediately
and the CPS rates of all other cable operators after March 31, 1999.
A "small operator" is an operator that has fewer than 50,000 subscribers in
the franchise area, that with its affiliates serves less than 617,000
subscribers and that is not affiliated with entities with annual aggregate gross
revenues of more than $250 million.
Local franchise authorities must be certified by the FCC before regulating
basic cable rates. Upon certification, the local community obtains the right to
evaluate the reasonableness of basic rates under standards established by the
FCC. Certified franchising authorities are also empowered to regulate rates
charged for additional outlets and for the installation, lease and sale of
equipment used by subscribers to receive the basic service tier. Cable operators
may be required to refund overcharges with interest. The 1992 Cable Act permits
communities to certify at any time, so it is possible that the Company's
franchising authorities may choose in the future to certify to regulate the
Company's basic rates. FCC review of CPS rates is triggered by franchising
authority complaints filed within 180 days of a rate increase.
The FCC's rate regulations do not apply where a cable operator demonstrates
that it is subject to "effective competition" as defined under the 1992 Cable
Act. The Company believes that it is subject to effective competition in the
area that it currently serves.
The 1992 Cable Act also requires cable systems to permit subscribers to
purchase video programming offered by the operator on a per channel or a per
program basis without the necessity of subscribing to any tier of service, other
than the basic service tier, unless the system's lack of addressable converter
boxes or other technological limitations do not permit it to do so. Systems
facing "effective competition" are not subject to this tier buy-through
prohibition.
The 1996 Telecom Act allows cable operators to pass through franchise fees and
regulatory fees to subscribers without any prior notice. Notices of other rate
changes may be given by any reasonable written means, at the cable operator's
"sole discretion."
CARRIAGE OF BROADCAST TELEVISION SIGNALS. The 1992 Cable Act established
signal carriage requirements for cable operators. These regulations allow
commercial television broadcast stations which are "local" to a cable system,
to elect every three years whether to require the cable system to carry the
station, subject to certain exceptions, or whether to require the cable system
to negotiate for "retransmission consent" to carry the station. Commercial
stations are generally considered "local" to a cable system where the system
is located in the station's 1992 ADI, as determined by Arbitron; the regulatory
method for determining whether a station is "local" to a cable system may
change at the time of the October 1999 election. Cable systems must obtain
retransmission consent for
<PAGE>
the carriage of all "distant" commercial broadcast stations, except for certain
"superstations" (i.e., commercial satellite-delivered independent stations such
as WGN).
Local non-commercial educational television stations are also given mandatory
signal carriage rights. Subject to certain exceptions, a cable operator must
carry all such stations if the cable system is within the larger of (i) a 50-
mile radius of the station's city of license or (ii) the station's Grade B
contour (a measure of signal strength). Non-commercial stations are not given
the option to negotiate for retransmission consent.
DELETION OF NETWORK AND SYNDICATED PROGRAMMING. Cable television systems
that have 1,000 or more subscribers must, upon the appropriate request of a
local television station, delete or "black out" the network and/or syndicated
non-network programming of a distant station when the local station has
contracted for such programming on an exclusive basis.
REGISTRATION PROCEDURES AND TECHNICAL REQUIREMENTS. Prior to commencing
operation in a particular community, all cable television systems must file a
registration statement with the FCC listing the broadcast signals that it will
carry and certain other information. The Company has filed its registration
statement with the FCC. Additionally, cable operators periodically are required
to file various informational reports with the FCC. Cable operators that operate
in certain frequency bands used in the aeronautical service for airport air-to-
ground communications (108-137 MHz and 225-400 MHz bands) must notify the FCC
before commencing operations and, on an annual basis, file the results of
periodic cumulative leakage testing measurements to insure that they do not
interfere with aeronautical stations. Operators that fail to make these filings
or who exceed the FCC's allowable cumulative leakage index risk being prohibited
from operating in those frequency bands in addition to other sanctions. The
Company has filed its initial aeronautical notice with the FCC. The FCC has also
imposed technical standards applicable to the cable channels on which broadcast
stations are carried, and has prohibited franchising authorities from adopting
standards which conflict with or are more restrictive than those established by
the FCC. The FCC has applied its standards to all classes which carry downstream
National Television System Committee ("NTSC") video programming. The 1992
Cable Act requires the FCC to update periodically its technical standards to
reflect improvements in technology.
FRANCHISE AUTHORITY. The 1984 Cable Act affirmed the right of franchising
authorities (the cities, counties or political subdivisions in which a cable
operator provides cable service) to award franchises within their jurisdictions
and prohibited non-grandfathered cable systems from operating without a
franchise in such jurisdictions. The Company holds a cable franchise in the
franchise area in which it currently provides service.
In addition to the franchise matters discussed in greater detail below, local
franchise authorities typically exercise regulatory jurisdiction over cable
system design and construction, safe use of public rights-of-way, consumer
protection and customer service. The Company's franchise contains such
requirements.
The 1996 Telecom Act exempts from franchise requirements those
telecommunications services provided by a cable operator or its affiliate.
Franchise authorities may not require a cable operator to provide
telecommunications service or facilities, other than institutional networks, as
a condition of franchise grant, renewal or transfer. Similarly, franchise
authorities may not impose any conditions on the provision of such service.
Local officials may, however, regulate cable-provided telecommunications
services' use of public rights-of-way, provided that it is done outside the
cable franchising process and in a competitively neutral, non-discriminatory
way.
FRANCHISE FEES. Although franchising authorities may impose franchise fees
under the 1984 Cable Act, as modified by the 1996 Telecom Act, such payments
cannot exceed 5% of the cable system's annual gross revenues derived from the
operation of the cable system to provide cable services. Franchise fees apply
only to revenues from cable services. Franchising authorities are permitted to
charge a fee for any telecommunications provider's use of public rights-of-way
"on a competitively neutral and nondiscriminatory basis."
<PAGE>
FRANCHISE RENEWAL. Federal statutory law provides renewal procedures and
criteria designed to protect incumbent franchisees against arbitrary denials of
renewal. These formal procedures are mandatory only if timely invoked by either
the cable operator or the franchising authority. Even after the formal renewal
procedures are invoked, franchising authorities and cable operators remain free
to negotiate a renewal outside the formal process. Although the procedures
provide substantial protection to incumbent franchisees, renewal is by no means
assured, as the franchisee must meet a number of statutory standards and filing
deadlines. Even if a franchise is renewed, a franchising authority may impose
new and more onerous requirements such as upgrading facilities and equipment,
although the municipality must take into account the cost of meeting such
requirements.
CHANNEL SET-ASIDES. Federal law permits local franchising authorities to
require cable operators to set aside certain channels for PEG access
programming. In addition, cable television systems with 36 or more activated
channels are required to designate a portion of their channel capacity for
commercial leased access by unaffiliated third parties. Leased access rates are
to be set according to an FCC-prescribed formula.
OWNERSHIP. The 1996 Telecom Act prohibits a LEC or its affiliate from
acquiring more than a 10% financial or management interest in any cable operator
providing cable service in its telephone service area. It also prohibits a cable
operator or its affiliate from acquiring more than a 10% financial or management
interest in any LEC providing telephone exchange service in its franchise area.
A LEC and cable operator whose telephone service area and cable franchise area
are in the same market may not enter into a joint venture to provide
telecommunications service or video programming. There are exceptions to these
limitations for rural facilities, very small cable systems and small LECs in
non-urban areas.
The 1984 Cable Act prohibited the common ownership, operation, control or
interest in a cable system and a local television broadcast station whose
predicted Grade B contour covers any portion of the community served by the
cable system, and FCC rules continue to prohibit such cross-ownership. The 1996
Telecom Act repeals this statutory restriction on broadcast-cable cross-
ownership, but does not require the FCC to repeal its cross-ownership rule.
Nevertheless, the FCC intends to review this rule. The 1996 Telecom Act also
eliminates the FCC's restriction against the ownership or control of both a
broadcast network and a cable system, but it authorizes the FCC to adopt
regulations which will ensure carriage, channel positioning and
nondiscriminatory treatment of non-affiliated broadcast stations by cable
systems which are owned by a broadcast network.
The 1992 Cable Act prohibits the common ownership, affiliation, control or
interest in cable television systems and MMDS facilities or SMATV systems with
overlapping service areas. However, a cable system may acquire a co-located
SMATV system if it provides cable service to the SMATV system in accordance with
the terms of its cable television franchise. The 1996 Telecom Act provides that
these rules shall not apply where the cable operator is subject to effective
competition.
Pursuant to the 1992 Cable Act, the FCC has imposed limits on the number of
cable systems a single cable operator may own. In general, no cable operator may
hold an attributable interest in cable systems which pass more than 30% of all
homes nationwide. This statutory provision was found to be unconstitutional by a
Federal district court in 1993, and the FCC has stayed the effectiveness of its
applicable rules pending disposition of further administrative reconsideration
and judicial appeal. Attributable interests for these purposes include voting
interests of 5% or more (unless there is another single holder of more than 50%
of the voting stock), officerships, directorships and general partnership
interests. An FCC proceeding in which ownership attribution standards currently
are under review may lead to changes in FCC policies affecting cable ownership.
PRIVACY. The 1984 Cable Act imposes a number of restrictions on the manner
in which cable system operators can collect and disclose data about individual
system subscribers. The statute also requires that the system operator
periodically provide all subscribers with written information about its policies
regarding the collection and handling of data about subscribers, their privacy
rights under Federal law and their enforcement rights. Under the 1992 Cable Act,
the privacy requirements are strengthened to require that cable operators take
such actions as are necessary to prevent unauthorized access to personally
identifiable information.
<PAGE>
ANTI-TRAFFICKING. Under the 1996 Telecom Act, a local franchise may require
prior approval of a transfer or sale of a cable system. The 1992 Cable Act
requires franchising authorities to act on a franchise transfer request within
120 days after receipt of all information required by FCC regulations and the
franchising authority. Approval is deemed granted if the franchising authority
fails to act within such period.
ACCESS TO PROGRAMMING AND EXCLUSIVITY. As required by the 1992 Cable Act,
the FCC adopted regulations designed to increase access to video programming for
all multichannel video programming distributors by prohibiting unfair or
discriminatory practices in the sale of satellite cable programming distributed
by cable-affiliated programmers. The rules also limit exclusive programming
contracts that may be entered into between cable operators and cable-affiliated
programmers.
COPYRIGHT. Cable television systems are subject to Federal compulsory
copyright licensing covering carriage of broadcast signals. In exchange for
making semi-annual payments to a Federal copyright royalty pool and meeting
certain other obligations, cable operators obtain a statutory license to
retransmit broadcast signals. The amount of the royalty payment varies,
depending on the amount of system revenues from certain sources, the number of
distant signals carried and the location of the cable system with respect to
over-the-air television stations. Cable operators are liable for interest on
underpaid and unpaid royalty fees, but are not entitled to collect interest on
refunds received for overpayment of copyright fees.
Copyright music performed in programming supplied to cable television systems
by pay cable networks (such as HBO) and cable programming networks (such as USA
Network) has generally been licensed by the networks through private "through
to the viewer" license agreements with the American Society of Composers and
Publishers and BMI, Inc., although music used in local origination programming
is not yet covered by a license.
TELECOMMUNICATIONS AND CABLE INSIDE WIRING. The FCC recently issued new
rules of particular importance to providers of cable television and
telecommunications services to MDUs. These rules, which govern such inside
wiring matters as procedures for an incumbent provider to sell, remove or
abandon its wiring upon termination of service and shared use of space by
competing providers, may affect the competitive position of providers of cable
and telephone service to the MDU market. The FCC is continuing to review issues
such as exclusive service contracts and application of cable home wiring rules
to non-cable video distributors.
POLE ATTACHMENTS. The Communications Act permits the FCC, in the absence of
state regulation, to regulate rates, terms and conditions for pole attachments
and use of utility conduits, ducts or other rights-of-way by cable operators.
Rates for pole attachments and use of conduits and other facilities for
providers of telecommunications services are subject to different FCC
regulations.
REGULATORY FEES AND OTHER MATTERS. The FCC requires payment of annual
"regulatory fees" by the various industries it regulates, including the cable
television industry. The current fee is $0.54 per subscriber. Fees are also
assessed for other FCC licenses, including licenses for business radio, cable
television relay system and earth stations. Fees are reassessed by the FCC
annually.
In December 1994, the FCC adopted new cable television and broadcast technical
standards to support a new Emergency Alert System. The FCC has not established a
date by which cable operators must install and activate equipment necessary to
implement the new Emergency Alert System.
FCC regulations also address the carriage of local sports programming,
restrictions on origination and cablecasting by cable system operators,
application of the rules governing political broadcasts, customer service
standards, closed captioning of programming for the hearing impaired,
limitations on advertising contained in nonbroadcast children's programming and
equal employment opportunity requirements for cable system employees.
<PAGE>
FEDERAL REGULATION OF TELECOMMUNICATIONS SERVICES
Telecommunications services are subject to varying degrees of Federal, state
and local regulation. The FCC exercises jurisdiction over all facilities of and
services offered by telecommunications carriers to the extent those facilities
are used to provide, originate or terminate interstate or international
communications.
The 1996 Telecom Act substantially revised communications regulation in the
United States. The legislation is intended to allow providers to enter
communications markets that have historically been closed to them as a result of
legal restrictions and due to practical and economic considerations. At the same
time, implementation of the 1996 Telecom Act and regulatory actions at the state
level may result in increased competition in the local exchange business, which,
in turn, will give incumbent providers greater flexibility to compete
aggressively. The Company is unable to predict the ultimate outcome of Federal
and state proceedings to implement the legislation.
INTERCONNECTION. The 1996 Telecom Act establishes local exchange competition
as a national policy by preempting laws that prohibit competition in the local
exchange. The 1996 Telecom Act also requires ILECs to enter into mutual
compensation arrangements with new local telephone companies for transport and
termination of local calls on each others' networks. The Act's interconnection,
unbundling and resale standards have been developed in the first instance by the
FCC and will be implemented by the states in numerous proceedings and through a
process of negotiation and arbitration. In August 1996, the FCC adopted a wide-
ranging decision regarding the statutory interconnection obligations of the
LECs. Among other things, the order established pricing principles to be used by
the states in determining rates for unbundled local network elements and
established a method for calculating discounts to reflect costs saved by the
LECs in offering their retail services to other carriers on a wholesale basis.
In July 1997, the United States Court of Appeals for the Eighth Circuit struck
down the pricing rules established by the FCC, ruling that the FCC lacked
jurisdiction under the 1996 Telecom Act to establish pricing rules to be applied
by the states. Consequently, the pricing of interconnection, unbundled network
elements and wholesale ILEC services is a matter primarily within the
jurisdiction of state commissions at the present time. The court generally
upheld the FCC's non-pricing requirements for unbundling of network elements and
offering of wholesale services. The FCC has appealed such decision to the United
States Supreme Court.
NUMBER PORTABILITY. Another new statutory provision requires all providers
of local exchange services to give users the ability (without the impairment of
quality, reliability or convenience) to retain their existing telephone numbers
if they switch local exchange service providers ("number portability"). The
FCC has adopted an order requiring the implementation of interim portability and
mandating that permanent number portability be available in the 100 largest
metropolitan areas by December 31, 1998. However, an appeal challenging that
decision is pending.
UNIVERSAL SERVICE AND ACCESS CHARGE REFORM. The FCC has adopted rules
implementing the universal service requirements of the 1996 Telecom Act.
Pursuant to those rules, all telecommunications providers must contribute to a
newly established Universal Service Fund. Carriers providing service to
customers in high-cost and rural areas, as well as to low-income customers, will
be eligible to collect subsidies from the fund. The fund also will subsidize
service provided to schools, libraries and rural health care providers. The FCC
also completed a proceeding in which it revised the rules governing access
charges imposed by ILECs on interexchange carriers for use of the local network
to complete long-distance calls. The policies adopted in that proceeding are
intended to move the ILECs' charges for access services closer to cost. Appeals
of the FCC's access charge reform and universal service orders are currently
pending.
RBOC ENTRY INTO LONG DISTANCE. The 1996 Telecom Act opens the way for RBOCs
and their affiliates to provide long-distance telecommunications services
between a local access and transport area ("LATA") and points outside that
area. Prior to the 1996 Telecom Act, RBOCs were generally prohibited from
offering such "interLATA" services. Under the 1996 Telecom Act such services
may be offered by a RBOC outside of its local exchange service states
immediately. RBOCs may offer interLATA services from within such states (in-
region) only after receiving FCC approval, and in accordance with regulatory
requirements. On December 31, 1997, a Federal district court judge in Texas
declared portions of the 1996 Telecom Act unconstitutional. If this ruling is
upheld on appeal,
<PAGE>
RBOCs could enter the interLATA market in the very near future. If the Company
decides itself to provide interLATA service, it will likely face vigorous
competition from RBOC entrants, as well as from existing long-distance carriers.
TARIFFS. Pursuant to its forbearance authority, the FCC recently determined
that it will no longer require nondominant interexchange carriers to file
tariffs listing their rates, terms and conditions. This decision has been stayed
by the United States Court of Appeals for the District of Columbia Circuit.
Nondominant providers of exchange access services provided to interexchange
carriers no longer are required to file tariffs at the FCC. Authorization from
the FCC must be obtained, and a carrier must file a tariff at the FCC detailing
the rates, terms and conditions of service, prior to offering international
service.
ADDITIONAL REQUIREMENTS. Federal law imposes a number of additional
obligations on all telecommunications carriers, including the obligations to:
(i) interconnect with other carriers and not to install equipment that cannot be
connected with the facilities of other carriers; (ii) ensure that their services
are accessible and usable by persons with disabilities; (iii) provide
Telecommunications Relay Service ("TRS"), either directly or through
arrangements with other carriers or service providers (TRS enables hearing
impaired individuals to communicate by telephone with hearing individuals
through an operator at a relay center); (iv) comply with verification procedures
in connection with changing the prescribed interexchange carrier of a customer
so as to prevent "slamming," a practice by which a customer's chosen long-
distance carrier is switched without the customer's knowledge; (v) protect the
confidentiality of proprietary information obtained from other carriers,
manufacturers and customers; (vi) pay annual regulatory fees to the FCC; (vii)
contribute to the Telecommunications Relay Services Fund; and (viii) cooperate
with Federal, state and local law enforcement officials in lawful
investigations, while protecting the confidentiality of subscribers'
communications. In addition, the Company will be subject to requirements
potentially affording competitors access to its facilities and rights-of-way and
enabling others to resell the Company's services.
ADDITIONAL REQUIREMENTS IMPOSED ON LECS. Federal law imposes a number of
additional obligations that will apply to the Company to the extent it provides
local exchange and exchange access services, including the duty (i) not to
prohibit or impose unreasonable or discriminatory conditions or limitations on
the resale of its telecommunications services, (ii) to provide, to the extent
technically feasible, number portability in accordance with FCC requirements, to
provide dialing parity to competing providers of telephone exchange service and
telephone toll service and the duty to permit all such providers to have
nondiscriminatory access to telephone numbers, operator services, directory
assistance and directory listing, with no unreasonable dialing delays, (iii) to
afford access to its poles, ducts, conduits and rights-of-way to competing
providers of telecommunications services on rates, terms and conditions that are
consistent with section 224 of the Communications Act and (iv) to establish
reciprocal compensation arrangements for the transport and termination of
telecommunications.
STATE AND LOCAL REGULATION
CABLE TELEVISION REGULATIONS
In June of 1996, the Company and the City of Chicago entered into a franchise
agreement to provide cable services to Area 1 of the City. The franchise remains
in effect for 15 years, until June 2011. Under the franchise, the Company is
obligated to pay to the City a franchise fee of 5 percent of its annual gross
revenues received from operation of its cable television system. The franchise
obligates the Company to meet a number of local regulatory requirements,
including: (i) notices to subscribers of service and fee changes; (ii) system
design, construction, maintenance and technical criteria that, among other
things, require that the system be fully constructed within four years; (iii)
interconnection with other cable operators serving the City for purposes of City
PEG and leased access; (iv) various payments to the CAC for PEG local access
obligations, including (a) payments over ten years aggregating $1,125,000 to
fund CAC's PEG local access capital costs and (b) an annual payment of one
percent of annual gross revenues; (v) preservation of 10 percent of channel
capacity for PEG local access; (vi) equal employment and affirmative action
requirements; and (vii) development and fulfillment of standards for customer
<PAGE>
service and consumer complaints. The Company may not transfer or assign the
franchise until June 1999, and then only with the prior consent of the City.
TELECOMMUNICATIONS REGULATIONS
The 1996 Telecommunications Act contains provisions that prohibit states and
localities from adopting or imposing any legal requirement that may prohibit, or
have the effect of prohibiting, market entry by new providers of intrastate or
interstate telecommunications services. The FCC is required to preempt any state
or local requirements to the extent necessary to enforce the open market entry
requirements. States and localities may continue to regulate the provision of
intrastate telecommunications services and require carriers to obtain
certificates or licenses before providing service. These regulatory agencies are
governed by respective Federal or state legislation and, therefore, any change
or modification to such regulation or legislation can result in positive or
negative effects upon the Company. Moreover, any significant changes in
regulations by Federal or state governmental agencies could significantly
increase the Company's costs or otherwise have an adverse effect on the
Company's activities.
STATE CERTIFICATION PROCEDURES. CLECs desiring to provide service within the
State of Illinois must obtain certificates of exchange and interexchange
telecommunications service authority. On October 27, 1997, the Company applied
to the Illinois Commerce Commission ("ICC") for such certificates. Those
applications are currently pending. To be awarded a certificate, an applicant
must show that it has the requisite technical, financial and managerial
expertise to offer the underlying services. In addition, an application for a
certificate to provide local exchange service must prove that grant of the
certificate would not adversely affect the prices, network design or the
financial viability of the principal provider of local exchange
telecommunications service. In addition to obtaining the requisite certificates,
carriers are required to file tariffs describing the nature of the service,
applicable rates and other charges, terms and conditions of service and the
exchange, exchanges or other geographical area or areas in which the service
shall be offered or provided.
STATE RESALE REQUIREMENTS. Once the Company receives its certification from
the ICC, it will be required to offer for resale all noncompetitive services. A
carrier offering noncompetitive services to any customer must provide that
service pursuant to tariff to all persons, including all telecommunications
carriers and competitors. A service is competitive if it is reasonably available
(or its functional equivalent or substitute is reasonably available) for some
identifiable class or group of customers. A carrier may petition the ICC to
request a ruling that a service be declared competitive, and thus, not subject
to the resale requirements. In addition, noncompetitive services are subject to
additional tariffing requirements and other regulation.
STATE INTERCONNECTION REQUIREMENTS. Illinois statutory law does not
explicitly regulate the terms of interconnection between telecommunications
carriers. The ICC, however, has adopted detailed regulations to implement
interconnection under Section 252 of the Communications Act. Specifically, the
ICC is required to arbitrate interconnection agreements between competitive
local exchange providers, such as the Company, and incumbent local exchange
providers.
STATE UNIVERSAL SERVICE REQUIREMENTS. Similar to the universal service fund
mandated by the FCC, the ICC established a Universal Service Telephone Service
Assistance Program whereby providers of local exchange services pay into a fund
designed to subsidize local service for low-income residents of the state. Such
funds are available to providers that service such customers.
LOCAL FEES AND TAXES. All providers operating in the City of Chicago are
required to remit a fee of 2 percent of all gross charges paid to the provider
for telecommunications received or originated within the City. The fee is for
the use of the public ways within the City. Providers, such as the Company, are
required to pass the fee on to customers, and are permitted to retain up to 2
percent of the total amounts collected to reimburse themselves for expenses
incurred in submitting this fee to the City. In addition, a tax of 5 percent of
all gross charges for all
<PAGE>
telecommunications originated within the City of Chicago must be remitted to the
City. Providers may charge customers directly for this tax, and may keep up to
1.75 percent of the amounts collected to reimburse themselves for the expenses
of collecting such taxes.
LOCAL EMERGENCY SYSTEM REQUIREMENTS. The City of Chicago imposes upon every
network connection within the City's corporate limits a monthly rate of $1.25
per network connection to support the City's Emergency Telephone System. Each
carrier, such as the Company, is required to collect this amount from each
subscriber as a separate billed amount on a monthly basis. Carriers, such as the
Company, can deduct three percent of the gross amount collected to reimburse
themselves for the expenses of collecting and accounting for these charges.
Carriers must remit the amount collected to the Chicago Emergency Telephone
System Board monthly.
To the best of the Company's knowledge, there exist no local or city
regulations which materially affect the Company's planned offerings of
telecommunications services.
FEDERAL AND STATE REGULATION OF INTERNET SERVICES
Internet services, including Internet access, have traditionally been deemed
an "enhanced" or "information" service and, as such, neither Federal nor
state telecommunications regulations apply. As a matter of Federal policy, the
FCC does not regulate the provision of "information" and "enhanced"
services, and preempts certain state regulation of such services that would
frustrate the Federal deregulatory policy. However, it is likely that, in the
next year, the FCC will investigate the status of Internet services to discern,
among other things, whether some or all Internet services should be classified
as "telecommunications" and not as "information" or "enhanced" services.
At this time, the Company cannot estimate whether the FCC's future proceeding
will lead to a change of regulatory treatment of Internet services, or what
impact such a change would have on the Company's business plans for providing
Internet services.
The Communications Decency Act ("CD Act") would make it unlawful to: (i)
knowingly send to a minor or display in a manner available to a minor
"obscene", "indecent" or "patently offensive" communications using a
telecommunications device or on-line service; (ii) send such a communication to
anyone with the intent to annoy, threaten or harass; or (iii) allow a
telecommunications facility under one's control to be used for such purpose. A
preliminary injunction against enforcement of the CD Act with respect to
indecent or patently offensive communications has been affirmed by the United
States Supreme Court, which found the CD Act's provisions to violate the First
Amendment. Although it is unlikely that the enjoined provisions of the CD Act
will ever become effective, there can be no assurance that information content
made available on or through the Company's offerings, by the Company or by users
of those offerings would not violate the CD Act, if it were to become effective,
or similar legislation that Congress might enact in the future, or that attempts
to implement defenses to such legislation would not adversely affect the
Company's business or operations. Federal laws dealing with obscenity and child
pornography as well as various state laws similar to those laws or to the CD Act
may also apply to information content available on or through the Company's
offerings. There is no assurance that those laws will not be applied in a manner
that will adversely affect the Company's business or operations.
Proposals for additional or revised statutory or regulatory requirements are
considered by Congress, the FCC and state and local governments from time to
time, and a number of such proposals are under consideration at this time. It is
possible that certain of the provisions and requirements described herein are
now, and in the future may be, the subject of federal or state legislation,
agency proceedings or court litigation. It is not possible to predict what
legislative, regulatory or judicial changes, if any, may occur or their impact
on the Company's business or operations.
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company are listed below.
Directors of the Company are elected at the annual meeting of shareholders and
officers of the Company are appointed at the first meeting of the Board of
Directors after each annual meeting of shareholders. Directors and executive
officers of the Company are elected to serve until they resign or are removed,
are otherwise disqualified to serve or until their successors are elected and
qualified. The ages of the persons set forth below are as of December 31, 1997.
<TABLE>
<CAPTION>
NAME AGE POSITION(S) WITH COMPANY
- ----------------------------- --- -------------------------------------------
<S> <C> <C>
Glenn W. Milligan........... 50 Chairman of the Board and Chief Executive
Officer
Robert J. Currey............ 52 President, Chief Operating Officer and
Director
Ronald D. Webster........... 48 Chief Financial Officer
Jay E. Carlson.............. 36 Chief Technical Officer
Richard Wiegand-Moss........ 50 Senior Vice President of Customer
Operations
Stephen Lee................. 41 Senior Vice President of Internet and Data
Services
Susan R. Quandt............. 43 Senior Vice President of Corporate
Marketing
John Brouse................. 49 Vice President of Network Operations
Eric D. Kurtz............... 33 Vice President of Corporate Development
and Regulatory Affairs
Roxanne Jackson............. 33 Vice President of Human Resources
Donna Clayburn.............. 40 Vice President of Marketing
Edward T. Joyce............. 55 Director
Dr. Charles E. Kaegi........ 47 Director
James H. Lowry.............. 58 Director
David Kronfeld.............. 50 Director
Thomas Neustaetter.......... 45 Director
</TABLE>
GLENN W. MILLIGAN, the Company's founder, has been Chairman of the Board and
Chief Executive Officer of the Company since its inception in October 1992.
Prior to founding the Company, Mr. Milligan was President and Chief Executive
Officer of 21st Century Technology Group, Inc. from April 1986 to October 1992.
From July 1985 until March 1986, Mr. Milligan served as Regional Director for
the Walt Disney Company, where he was responsible for sales and marketing in
eight midwestern states. From March 1984 to March 1985, Mr. Milligan served as
Area Manager of the Midwest offices of Showtime Networks, Inc. and Regional
Sales Director of their North Central offices from March 1985 to June 1985. From
July 1979 to November 1983, Mr. Milligan was the Chief Executive Officer of
DAEOC, Inc., a diversified government contractor.
ROBERT J. CURREY has served as a Director of the Company since February 1997
and was named President and Chief Operating Officer on March 1, 1998. Mr. Currey
served as Group President of Telecommunications Services for McLeod USA, a
wholly owned subsidiary of McLeod, Inc., from September 1997 through February
1998. Mr. Currey continues to serve on the board of directors of McLeod USA.
From March 1990 until September 1997, he served as President and Chief Executive
Officer of Consolidated Communications. From 1988 to 1990, Mr. Currey served as
Senior Vice President of Operations and Engineering at Citizens Utilities
Company in Stanford, CT. From 1987 to 1988, Mr. Currey served as Executive Vice
President at US Sprint in Kansas City, MO.
RONALD D. WEBSTER joined the Company as Chief Financial Officer in September
1997. He was previously Vice President and Treasurer at Telephone Data Systems,
Inc., where he served from April 1988 until August 1997. Prior thereto, he held
executive positions with Ideal School Supply Corp. and Trans Union Corporation.
JAY E. CARLSON has served as the Company's Chief Technical Officer since March
1997. From October 1989 to March 1997, Mr. Carlson was the Fund Engineering
Director for Jones Intercable, Inc. where he was responsible for
<PAGE>
engineering operations in the Western region. He was also instrumental in the
design and construction of Jones Intercable's Alexandria, Virginia HFC broadband
network, which was one of the first platforms to simultaneously carry
residential and commercial telephony, video and data.
RICHARD WIEGAND-MOSS joined the Company in May 1996 and serves as Senior Vice
President of Customer Operations. Prior to joining the Company, from May 1994 to
April 1996, Mr. Wiegand-Moss was Vice President of Customer Operations for Time
Warner Entertainment Co. L.P. From October 1993 to April 1994, he was Senior
Consultant/Project Manager for International Profit Associates, a management
consulting firm providing turnaround services for companies in financial trouble
and from January 1991 to September 1993, Mr. Wiegand-Moss was General Manager
and Chief Operating Officer of TCI Chicago. From August 1982 until December
1990, Mr. Wiegand-Moss was Vice President and District Manager for Continental
Cablevision.
STEPHEN LEE joined the Company in January 1997 as Senior Vice President of
Internet and Data Services. Mr. Lee was the Director of the Central Region Sales
for MFS Datanet, Inc. from October 1993 to April 1996. From April 1996 to
January 1997, Mr. Lee served as a technical consultant to the Company. From
October 1983 until October 1993, Mr. Lee held various managerial positions at
Graphnet, Inc. From January 1979 to October 1983, Mr. Lee was the Major Account
Manager/Systems Sales Engineer for ITT World Communications, Inc.
SUSAN R. QUANDT has served as the Company's Senior Vice President of Corporate
Marketing since December 1997. From December 1994 to December 1997, Ms. Quandt
served as Executive Vice President of Taylor-Winfield, an information technology
market consulting and executive recruiting firm. From January 1992 to September
1994, Ms. Quandt served as Vice President of Marketing and Product Development
of Call-Net Enterprises Inc., a national long-distance telephone company owned
by Sprint Canada. From January 1989 to December 1991, Ms. Quandt served as Vice
President of Marketing for Schneider Communications, Inc., a regional long-
distance telephone company.
JOHN BROUSE has served as the Company's Vice President of Network Operations
since April 1997. Prior to that time, Mr. Brouse was Operations Engineering
Director for Jones Intercable, Inc. from June 1988 to April 1997. Mr. Brouse
received the cable industry's prestigious Polaris Award in 1996.
ERIC D. KURTZ has served as the Company's Vice President of Corporate
Development and Regulatory Affairs since March 1997. From April 1989 until July
1996, Mr. Kurtz was a General Manager with Time Warner's Milwaukee & Chicago
Divisions. During this time span he also served as a board member of the
Wisconsin Cable Communications Association and as its President from September
1994 to September 1996.
ROXANNE JACKSON has served as the Company's Vice President of Human Resources
since May 1996. Prior to that time, from January 1994 to May 1996, Ms. Jackson
was the Human Resources Director for Metz Baking Group. From August 1992 until
January 1994, Ms. Jackson served as the Director of Human Resources for Fox
Television Stations, Inc.
DONNA CLAYBURN has served as the Company's Vice President of Marketing since
March 1997. Prior to joining the Company, from November 1994 until September
1996, Ms. Clayburn was a Senior Vice President, Affiliate Sales & Marketing and
later a Marketing Consultant for Scholastic, Inc., a book and magazine
publishing company. From March 1993 to November 1994, Ms. Clayburn was the Vice
President, Affiliate Sales & Marketing with World African Network. From April
1989 until February 1993, she was the National Accounts Director for ESPN. From
October 1986 to April 1989, Ms. Clayburn was Account Executive for Turner
Broadcasting. Ms. Clayburn served as HBO Manager, BET Marketing with Time Warner
from December 1982 to October 1986.
EDWARD T. JOYCE has served as a Director of the Company since the Company's
inception in October 1992. Mr. Joyce founded his own firm in 1971, now known as
Edward T. Joyce and Associates, P.C., a law firm dealing with commercial
litigation.
<PAGE>
DR. CHARLES E. KAEGI has served as a Director of the Company since the
Company's inception in October 1992. Dr. Kaegi has been in private practice of
medicine since July 1979. From November 1979 to present, Dr. Kaegi has held the
following positions at Ravenswood Hospital Medical Center: Attending Physician
(November 1979 to present); Medical Director, Alcohol & Drug Abuse Program (July
1994 to present); Medical Director, Community Mental Health Center (November
1994 to present); Medical Education (January 1980 to present); Secretary of the
Department of Psychiatry (January 1993-present); and Consultant to Community
Mental Health Center (March 1980 to August 1985). Dr. Kaegi is the cousin of Mr.
Glenn Milligan.
JAMES H. LOWRY has served as a Director of the Company since February 1997.
Mr. Lowry serves as President and Chief Executive Officer of James H. Lowry &
Associates ("JHLA"), a consulting company established in 1975. Prior to
establishing JHLA, Mr. Lowry served as the Director of Public Service Practice
for McKinsey & Company from 1967 to 1975.
DAVID KRONFELD has served as a Director of the Company since February 1997.
Mr. Kronfield founded JK&B Capital in January 1996 and has been its general
partner since that time. Before founding JK&B Capital, Mr. Kronfield was a
General Partner at Boston Capital Ventures from August 1989 to October 1995,
where he specialized in the telecommunications and software industries. From
October 1984 to August 1989, Mr. Kronfield served as Vice President of
Acquisitions and Venture Investments at Ameritech.
THOMAS NEUSTAETTER has served as a Director of the Company since February
1997. Mr. Neustaetter has been an officer of the Chatterjee Management Group, a
division of Chatterjee Management Company, since January 1996. From January 1995
to January 1996, Mr. Neustaetter was the Managing Director for Bancroft Capital
Corporation in New York City, a company he founded. From August 1986 to December
1994, Mr. Neustaetter was employed at Chemical Banking Corporation in New York
City.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board currently has two committees, the Executive Committee and the
Compensation Committee. The Executive Committee makes recommendations to the
Board of Directors regarding issues such as finance, strategic planning and
long-range goals for the Company. The current members of the Executive Committee
are Glenn Milligan, Edward Joyce and David Kronfeld.
The Compensation Committee reviews and recommends the compensation and bonus
arrangements for executive level management of the Company and administers the
Company's stock option plans. The current members of the Compensation Committee
are Glenn Milligan, Edward Joyce and Thomas Neustaetter.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
As stated above, the current members of the Compensation Committee are Messrs.
Milligan, Joyce and Neustaetter. Mr. Milligan is also the Chief Executive
Officer of the Company.
TRANSACTION WITH 21ST CENTURY TECHNOLOGY GROUP, INC. Messrs. Milligan, Joyce
and Kaegi served as executive officers and directors of 21st Century Technology
Group, Inc. As of March 26, 1996 the Company entered into an Asset Purchase
Agreement with 21st Century Technology Group, Inc. pursuant to which the Company
acquired (i) the contract rights to service 1,734 cable television subscribers,
(ii) contracts pertaining to subscriber lists and (iii) certain electronic
equipment in exchange for the purchase price of $3,381,300. On March 26, 1996
Messrs. Milligan, Joyce and Kaegi beneficially owned approximately 15%, 27% and
24%, respectively, of the common stock of 21st Century Technology Group, Inc.
<PAGE>
PAYMENT OF LEGAL FEES TO EDWARD JOYCE. In January 1997, the Company paid
approximately $459,000 of accrued legal fees to Edward Joyce, either
individually or to entities controlled by him, for legal services rendered by
Mr. Joyce to the Company in connection with the Company's cable service offering
and its obtaining the Chicago franchise. Mr. Joyce continues from time to time
to perform legal services for the Company.
SALE OF CAPITAL STOCK. In June 1996, the Company entered into a loan
agreement with LaSalle Northwest National Bank (the "Bank") pursuant to which
the Bank agreed to make certain loans available to the Company on a revolving
credit basis in the maximum principal amount of $5.0 million. In order to induce
the Bank to enter into this agreement, the Bank required that the loan be
unconditionally guaranteed by certain directors of the Company. Messrs.
Milligan, Kaegi and Joyce agreed to be guarantors in exchange for the right and
option to acquire up to an aggregate of 1,250,000 shares of Common Stock of the
Company at $4 per share for a period of 10 years.
In January 1997, pursuant to the Stock Purchase Agreement dated January 30,
1997, the Company issued an aggregate of 1,380.3 shares of Class A Convertible
8% Cumulative Preferred Stock at a price of $15,793.84 per share, and warrants
to purchase up to 1,161,307.6 shares of Common Stock at a price of $.000001 per
share, of which 19.2 shares of Class A Convertible 8% Cumulative Preferred Stock
and warrants to purchase up to 16,141.1 shares of Common Stock were issued to
Mr. Joyce.
In January 1998, the Company agreed to issue to Messrs. Milligan, Kaegi and
Joyce 4.7, 6.3 and 31.7 shares of Class A Convertible 8% Cumulative Preferred
Stock, respectively, at a price of $15,793.84 per share, and warrants to
purchase up to 3,995.3, 5,327.1 and 26,635.5 shares of Common Stock,
respectively, at a price of $.000001 per share.
See also "Executive Compensation--Employment Agreements" for a description
of employment agreements between the Company and Messrs. Milligan, Wiegand-Moss
and Day.
See also "Certain Transactions--Sale of Capital Stock" for a description of
the issuance of Common Stock and non-voting Common Stock in January 1998 to
Messrs. Neustaetter, Joyce, Kronfeld, Currey, Milligan and Kaegi.
DIRECTOR COMPENSATION
Directors of the Company receive no directors' fees. Directors are reimbursed
for their reasonable out-of-pocket travel expenditures incurred in connection
with their service as directors.
COMPENSATION PLAN
1997 STOCK OPTION PLAN. The Company's Stock Option Plan (the "Stock Option
Plan") provides for the grant of options that are not intended to qualify as
"incentive stock options" under Section 422 of the Internal Revenue Code of
1986, as amended (the "Code"), to key employees. The Compensation Committee of
the Board of Directors administers the Stock Option Plan and grants options to
purchase Common Stock thereunder.
The aggregate number of shares of Common Stock that may be issued under
options under the Stock Option Plan may not exceed 728,667.7 shares. Reserved
shares may be either authorized but unissued shares or treasury shares, and will
be distributed at the discretion of the Board of Directors.
The Compensation Committee has the exclusive authority to establish, amend and
rescind appropriate rules and regulations relating to the Stock Option Plan.
Each participant's option will expire as of the earliest of : (i) the date on
which it is forfeited under the provisions of the Stock Option Plan; (ii) ten
years from the option date; and (iii) the date on which it expires pursuant to
the relevant option agreement. The option price may be greater than, less
<PAGE>
than or equal to the fair market value on the option date as determined in the
sole discretion of the Compensation Committee.
An option participant may not exercise an option or any portion thereof until
such option or such portion thereof has become fully vested. Pursuant to the
Stock Option Plan, options generally vest 1/48th each month and are fully
vested after four years. All options become 100% vested and immediately
exercisable prior to a Change in Control (as such term is defined in the Stock
Option Plan).
On October 14, 1997, the Compensation Committee granted Messrs. Milligan and
Wiegand-Moss options to acquire 131,160.3 and 109,300.0 shares of Common Stock,
respectively. Each of such options vests 1/48th per month from the optionee's
date of employment with the Company, even if such employment precedes the date
of grant. During October and December 1997, the Compensation Committee granted
options to acquire an aggregate of 488,207.4 shares of Common Stock to other
current executive officers of the Company.
As of December 31, 1997, options to acquire 728,667.7 shares of Common Stock
were outstanding pursuant to the Stock Option Plan.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth information for the Company's fiscal year ended
March 31, 1997 concerning compensation of (i) all individuals serving as the
Company's Chief Executive Officer during the fiscal year ended March 31, 1997
and (ii) each other executive officer of the Company whose total annual salary
and bonus equaled or exceeded $100,000 in the fiscal year ended March 31, 1997
(collectively, the "Named Executive Officers"):
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
- ------------------------------------ ------------------------------
SALARY BONUS OTHER(1)
- ------------------------------------ -------- ------ ----------
<S> <C> <C> <C>
Glenn W. Milligan(2)............... $170,833 $6,875 $ 4,000
Chairman of the Board, President
and Chief Executive Officer (as of
March 31, 1997)
Richard Wiegand-Moss(3)............ 117,709 5,729 13,750(4)
Chief Operating Officer (as of
March 31, 1997)
Daniel O. Day(5)................... 116,041 5,208 2,500
Chief Financial Officer (as of
March 31, 1997)
- --------------
</TABLE>
(1) These amounts represent automobile allowances paid to the Named Executive
Officers in the fiscal year ended March 31, 1997.
(2) Mr. Milligan currently serves as the Company's Chairman of the Board and
Chief Executive Officer.
(3) Mr. Wiegand-Moss currently serves as the Company's Senior Vice President of
Customer Operations.
(4) This amount represents automobile allowances and relocation expenses paid in
fiscal year ended March 31, 1997.
(5) Mr. Day's employment with the Company was terminated in February 1998.
EMPLOYMENT AGREEMENTS
GLENN W. MILLIGAN. Mr. Milligan entered into an employment agreement with
the Company as of August 1996 for a five-year term, which will be automatically
renewed for consecutive five-year terms unless either party elects not to renew
the agreement. Pursuant to the employment agreement, Mr. Milligan is entitled to
an initial annual base salary of $165,000 which was increased to $200,000 on
February 1, 1997 upon the consummation of the Company's initial private
preferred stock offering and will increase by ten percent annually. In addition,
if the Company obtains a new franchise and finances its construction, Mr.
Milligan's annual base salary will be increased
<PAGE>
in an amount equal to $.20 times the number of new homes passed by the Company
in the new franchise area. Mr. Milligan is entitled to an annual bonus, based
upon a bonus plan to be developed by management and approved by the Board of
Directors, in a minimum amount of 1/24th of his annual base salary. Mr.
Milligan is also entitled annually to receive shares of the Company's common
stock in an amount equal to 5,000 shares or such other number of shares as is
necessary to provide him with .261% of the outstanding shares of common stock
and to receive stock options covering such number of shares pursuant to a
separate agreement. The agreement provides that Mr. Milligan is entitled to
various fringe benefits, including a monthly automobile allowance in an amount
equal to 1% of his annual base salary. Mr. Milligan has agreed not to disclose
confidential information relating to the Company and has agreed not to compete
with, or solicit employees or customers of, the Company during specified periods
following discontinuance of his employment for any reason. Upon a termination of
the employment agreement, Mr. Milligan is generally entitled to severance
benefits, including continuation of health benefits for Mr. Milligan and his
family for three years, outplacement services, such vested stock and stock
options to which Mr. Milligan would have been entitled during the remaining
contract term had the employment agreement not been terminated and a lump-sum
payment, the amount of which is dependent upon the reason for termination. In
addition, upon a termination of the employment agreement for any reason, Mr.
Milligan has the right to require the Company to repurchase all shares of the
Company's capital stock then beneficially owned by him for their fair market
value.
RICHARD WIEGAND-MOSS. Mr. Wiegand-Moss entered into an employment agreement
with the Company as of August 1996 for a five-year term, which will be
automatically renewed for consecutive four-year terms unless either party elects
not to renew the agreement. Pursuant to the employment agreement, Mr. Wiegand-
Moss is entitled to an initial annual base salary of $137,500 which will
increase by ten percent annually. In addition, if the Company obtains a new
franchise and finances its construction, Mr. Wiegand-Moss's annual base salary
will be increased in an amount equal to $.165 times the number of new homes
passed by the Company in the new franchise area. Mr. Wiegand-Moss is entitled to
an annual bonus, based upon a bonus plan to be developed by management and
approved by the Board of Directors, in a minimum amount of 1/24th of his annual
base salary. Mr. Wiegand-Moss is also entitled annually to receive shares of the
Company's common stock in an amount equal to 4,000 shares or such other number
of shares as is necessary to provide him with .2088% of the outstanding shares
of common stock and to receive stock options covering such number of shares
pursuant to a separate agreement. The agreement provides that Mr. Wiegand-Moss
is entitled to various fringe benefits, including a monthly automobile allowance
in an amount equal to 1% of his annual base salary. Mr. Wiegand-Moss has agreed
not to disclose confidential information relating to the Company and has agreed
not to compete with, or solicit employees or customers of, the Company during
specified periods following discontinuance of his employment for any reason.
Upon a termination of the employment agreement, Mr. Wiegand-Moss is generally
entitled to severance benefits, including continuation of health benefits for
Mr. Wiegand-Moss and his family for three years, outplacement services and a
lump-sum payment, the amount of which is dependent upon the reason for
termination. In addition, upon a termination of the employment agreement for any
reason, Mr. Wiegand-Moss has the right to require the Company to repurchase all
shares of the Company's capital stock then beneficially owned by him for their
fair market value.
DANIEL O. DAY. Mr. Day's employment with the Company was terminated in
February 1998. Mr. Day entered into an employment agreement with the Company as
of August 1996 for a four-year term. Mr. Day has agreed not to disclose
confidential information relating to the Company and has agreed not to compete
with, or solicit employees or customers of, the Company during specified periods
following discontinuance of his employment for any reason. Upon a termination of
the employment agreement, Mr. Day is generally entitled to severance benefits,
including continuation of health benefits for Mr. Day and his family for three
years, outplacement services and a lump-sum payment, the amount of which is
dependent upon the reason for termination. In addition, upon a termination of
the employment agreement for any reason, Mr. Day has the right to require the
Company to repurchase all shares of the Company's capital stock then
beneficially owned by him for their fair market value.
<PAGE>
CERTAIN TRANSACTIONS
TRANSACTION WITH JAMES LOWRY & ASSOCIATES
On December 9, 1997 the Board of Directors of the Company authorized the
Company to enter into a contract whereby James Lowry & Associates would assist
the Company in the development of a plan to meet Chicago's Minority Business
Enterprise/Women Business Enterprise certification requirements. The contract
calls for payment for services rendered on an hourly basis, but not to exceed
$200,000 per annum. Mr. Lowry, who became a Director of the Company in February
1997, is the President and Chief Executive Officer and the sole beneficial owner
of James Lowry & Associates.
SALE OF CAPITAL STOCK
In September 1997, pursuant to a Purchase, Joinder and Waiver Agreement (the
"Purchase Agreement"), the Company issued 63.3 shares of Class A Convertible
8% Cumulative Preferred Stock at a price of $15,793.84 per share, and warrants
to purchase up to 53,271 shares of Common Stock at a price of $.000001 per share
to Consolidated Communications, whose President and Chief Executive Officer at
such time was Mr. Currey, a Director of the Company at that time and currently
the Company's President and Chief Operating Officer.
In November 1997, pursuant to a Purchase, Joinder and Waiver Agreement, the
Company issued 9.5 shares of Class A Convertible 8% Cumulative Preferred Stock
at a price of $15,793.84 per share, and warrants to purchase up to 7,990.6
shares of Common Stock at a price of $.000001 per share to Mr. Webster, the
Company's Chief Financial Officer.
In January 1998, the Company agreed to issue an aggregate of 550,362.2 shares
of Common Stock and an equal number of shares of non-voting Common Stock, for a
total of 1,100,724.3 shares, 450,069.6 of which will be beneficially owned by
Purnendu Chatterjee, 225,034.8 of which will be beneficially owned by JK&B
Capital, 180,027.6 of which will be beneficially owned by William Farley,
90,014.0 of which will be beneficially owned by Boston Capital Ventures III,
L.P., 450,069.6 of which will be beneficially owned by Thomas Neustaetter,
36,140.4 of which will be beneficially owned by Edward T. Joyce, 315,048.8 of
which will be beneficially owned by David Kronfeld, 45,007.0 of which will be
beneficially owned by Robert Currey, 3,375.6 of which will be beneficially owned
by Glenn W. Milligan and 4,500.8 of which will be beneficially owned by Charles
E. Kaegi, M.D.
The Company believes that all transactions set forth above were made on terms
no less favorable to the Company than would have been obtained from unaffiliated
third parties. The Company has adopted a policy whereby all future transactions
between the Company and its officers, directors and affiliates will be on terms
no less favorable to the Company than could be obtained from unrelated third
parties and will be approved by a majority of the disinterested members of the
Board of Directors.
See also "Management--Compensation Committee Interlocks and Insider
Participation" for a description of certain other transactions with officers
and directors of the Company.
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information at January 15, 1998,
regarding beneficial ownership of the capital stock of the Company by (i) each
person known by the Company to beneficially own more than 5% of the outstanding
capital stock of the Company, (ii) each director of the Company, (iii) each
Named Executive Officer of the Company and (iv) all directors and executive
officers as a group.
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
---------------------
CLASS A CONVERTIBLE
---------------------
NUMBER OF SHARES OF 8% CUMULATIVE
--------------------- ---------------------
COMMON STOCK PREFERRED STOCK PERCENT OF AGGREGATE
--------------------- --------------------- -----------------------
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED(1) BENEFICIALLY OWNED(2) VOTING RIGHTS(3)
- ---------------------------------------- --------------------- --------------------- -----------------------
<S> <C> <C> <C>
Purnendu Chatterjee(4).................. 757,744.7 633.2 31.1%
JK&B Capital(5)......................... 378,872.4 316.6 16.5
William Farley(6)....................... 303,097.7 249.3 13.3
Myron M. Cherry(7)...................... 274,066.6 12.7 7.1
Boston Capital Ventures III, L.P.(8).... 151,549.0 126.6 6.9
Elske Bolitho(9)........................ 305,000.0 -- 7.7
Thomas Neustaetter(4)(10)............... 757,744.7 633.2 31.1
Charles E. Kaegi, M.D.(11)(18).......... 934,700.7 6.3 14.3
Edward T. Joyce(12)(18)................. 768,714.4 50.8 19.1
David Kronfeld(13)...................... 530,421.4 443.2 22.6
Glenn W. Milligan(14)(18)............... 661,925.1 4.7 15.4
James H. Lowry(18)...................... 19,000.0 -- *
Robert J. Currey(15).................... 75,774.5 63.3 3.5
Richard Wiegand-Moss(16)(18)............ 52,813.6 -- 1.2
Daniel O. Day(17)(18)................... 16,673.6 -- *
All executive officers and directors as
a group (17 persons)(19)............... 3,493,703.7 1,211.1 73.5
- --------------
</TABLE>
* Less than 1%.
(1) The persons named in this table have sole voting power with respect to all
shares of Common Stock shown as beneficially owned by them, subject to
community property laws where applicable and except as indicated in the
other footnotes to this table. Beneficial ownership is determined in
accordance with the rules of the SEC. In computing the number of shares
beneficially owned by a person and the percentage ownership of that person,
shares of Common Stock subject to options and warrants held by that person
that are currently exercisable or exercisable within 60 days after January
15, 1998, are deemed outstanding. Such shares, however, are not deemed
outstanding for the purpose of computing the percentage ownership of any
other person.
(2) Each share of Class A Convertible 8% Cumulative Preferred Stock converts
into one thousand shares of Common Stock at the option of the shareholder.
(3) Percent of Aggregate Voting Rights, for each beneficial owner, was
determined based upon a fraction. The numerator of such fraction is the sum
of (a) the number of outstanding shares of Common Stock beneficially owned
by such owner, plus (b) the number of shares of Common Stock into which the
number of shares of Class A Convertible 8% Cumulative Preferred Stock
beneficially owned by such owner are convertible, plus (c) the number of
shares of Common Stock issuable upon exercise of options and warrants
beneficially owned by such owner and which are exercisable within 60 days of
January 15, 1998. The denominator of such fraction is the sum of (a) the
aggregate number of shares of Common Stock outstanding on January 15, 1998,
<PAGE>
plus (b) the number of shares of Common Stock into which the aggregate
number of shares of Class A Convertible 8% Cumulative Preferred Stock
outstanding on January 15, 1998 are convertible, plus (c) the aggregate
number of shares of Common Stock issuable upon exercise of options and
warrants beneficially owned by such owner and which are exercisable within
60 days of January 15, 1998.
(4) Represents 112,517.4 shares of Common Stock, 266,354.9 shares of Common
Stock issuable upon exercise of warrants and 316.6 shares of Class A
Convertible 8% Cumulative Preferred Stock held by Quantum Industrial
Partners LDC ("QIP"). The address of QIP is c/o Curacao Corporation Company,
Kaya Flamboyan 9, Willemstad, Curacao, Netherlands Antilles. Also includes
65,260.1 shares of Common Stock, 154,485.9 shares of Common Stock issuable
upon exercise of warrants and 183.6 shares of Class A Convertible 8%
Cumulative Preferred Stock held by S-C Phoenix Holdings, L.L.C. ("S-C
Phoenix"). The address of S-C Phoenix is c/o Chatterjee Management Company,
888 Seventh Avenue, New York, New York 10106. This total also includes 45.2
shares of Class A Convertible 8% Cumulative Preferred Stock, 16,067.5 shares
of Common Stock and 38,035.5 shares of Common Stock issuable upon exercise
of warrants held by Winston Partners II, LLC and 87.8 shares of Class A
Convertible 8% Cumulative Preferred Stock, 31,189.8 shares of Common Stock
and 73,833.6 shares of Common Stock issuable upon exercise of warrants held
by Winston Partners II, LDC (Winston Partners II, LLC and Winston Partners
II, LDC, collectively "Winston Partners"). The address of Winston Partners
II, LLC is c/o Chatterjee Management Company, 888 Seventh Avenue, New York,
New York 10106. The address of Winston Partners II, LDC is c/o Curacao
Corporation Company, Kaya Flamboyan 9, Willemstad, Curacao, Netherlands
Antilles. QIP, S-C Phoenix and Winston Partners are associated with
Chatterjee Management Company. Chatterjee Management Company is managed and
controlled by Purnendu Chatterjee. Dr. Chatterjee may be deemed to have the
power to direct the voting and disposition of the shares owned by QIP, S-C
Phoenix and Winston Partners. Dr. Chatterjee and Mr. George Soros may each
be deemed to have the power to direct the voting and disposition of the
shares owned by S-C Phoenix. In addition, Mr. Soros, Mr. Stanley F.
Druckenmiller and Soros Fund Management LLC may be deemed to have the power
to direct the voting and disposition of the shares owned by QIP. The Percent
of Aggregate Voting Rights excludes 225,034.8 shares of non-voting Common
Stock beneficially owned by Purnendu Chatterjee which the Company has agreed
to issue.
(5) Represents 221.6 shares of Class A Convertible 8% Cumulative Preferred
Stock, 78,762.2 shares of Common Stock and 186,448.5 shares of Common Stock
issuable upon exercise of warrants held by JK&B Capital, L.P. and 95.0
shares of Class A Convertible 8% Cumulative Preferred Stock, 33,755.2 shares
of Common Stock and 79,906.5 shares of Common Stock issuable upon exercise
of warrants held by JK&B Capital II, L.P. (JK&B Capital, L.P. and JK&B
Capital II, L.P., collectively "JK&B Capital"). The address of JK&B Capital
is 205 North Michigan, Suite 800, Chicago, IL 60601. The Percent of
Aggregate Voting Rights excludes 112,517.4 shares of non-voting Common Stock
beneficially owned by JK&B Capital which the Company has agreed to issue.
(6) Represents the following securities held by the following entities, all of
which are beneficially owned by Mr. Farley: 73.9 shares of Class A
Convertible 8% Cumulative Preferred Stock, 26,254.0 shares of Common Stock
and 62,149.4 shares of Common Stock issuable upon exercise of warrants held
by Farley, Inc. of which Mr. Farley is the sole owner, and 105.5 shares of
Class A Convertible 8% Cumulative Preferred Stock, 37,505.8 shares of Common
Stock and 88,785.0 shares of Common Stock issuable upon exercise of warrants
held by The Retirement Program of Farley, Inc. of which Mr. Farley is the
sole member of the Pension Investment Committee of the Retirement Program of
Farley, Inc. Also includes 42.2 shares of Class A Convertible 8% Cumulative
Preferred Stock, 15,002.3 shares of Common Stock and 35,514 shares of Common
Stock issuable upon exercise of warrants held by FTL Investments Inc. of
which Mr. Farley is Chairman and Chief Executive Officer, and 31.7 shares of
Class A Convertible 8% Cumulative Preferred Stock, 11,251.7 shares of Common
Stock and 26,635.5 shares of Common Stock issuable upon exercise of warrants
held by Union Underwear Pension Plan of which Mr. Farley is the sole member
of the Pension Investment Committee of the Fruit of the Loom Board of
Directors. The address of Mr. Farley is 233 South
<PAGE>
Wacker Drive, Chicago, Illinois, 60606. The Percent of Aggregate Voting
Rights excludes 90,013.8 shares of non-voting Common Stock beneficially
owned by Mr. Farley which the Company has agreed to issue.
(7) Includes 72,223.3 shares of Common Stock issuable upon exercise of options.
The address of Mr. Cherry is 30 North LaSalle, #2300, Chicago, Illinois
60602. The Percent of Aggregate Voting Rights excludes 4,500.7 shares of
non-voting Common Stock beneficially owned by Mr. Cherry which the Company
has agreed to issue.
(8) Includes 106,542.0 shares of Common Stock issuable upon exercise of
warrants. The address of Boston Capital Ventures III, L.P. is Old City
Hall, 45 School Street, Boston, MA 02108. The Percent of Aggregate Voting
Rights excludes 45,007.0 shares of non-voting Common Stock beneficially
owned by Boston Capital Ventures III, L.P. which the Company has agreed to
issue.
(9) Represents 153,000 shares of Common Stock held by Elske Bolitho, Trustee of
Robert W. Bolitho Trust, and 152,000 shares of Common Stock held by Elske
Bolitho, Trustee of Elske Bolitho Trust. The address of Ms. Bolitho is
13376 185th Place N, Jupiter, Florida 33478.
(10) All of such shares are beneficially owned by Purnendu Chatterjee. Mr.
Neustaetter is an officer of the Chatterjee Management Group, a division of
Chatterjee Management Company. Mr. Neustaetter is an officer of Chatterjee
Management Company. Mr. Neustaetter disclaims beneficial ownership of these
shares, over which he does not have dispositive or voting control. The
business address of Mr. Neustaetter is c/o Chatterjee Management Company,
888 Seventh Avenue, New York, NY 10106.
(11) Includes 172,202.2 shares of Common Stock and 376,721.8 shares of Common
Stock issuable upon exercise of options held by Charles E. Kaegi, M.D.,
S.C., Defined Contribution Pension Plan and Trust, 26,990.0 shares of
Common Stock held by Charles E. Kaegi, M.D., S.C., Defined Benefit Pension
Plan and Trust, 1,700.0 shares of Common Stock held by Charles E. Kaegi,
M.D., S.C. Profit Sharing Pension Plan and Trust, 321,240.0 shares of
Common Stock held jointly with Mr. Kaegi's wife, and 17,470.0 shares of
non-voting Common Stock owned by Mr. Kaegi's wife. The Percent of Aggregate
Voting Rights excludes 2,250.4 shares of non-voting Common Stock held by
Mr. Kaegi which the Company has agreed to issue.
(12) Includes 269,516.5 shares of Common Stock issuable upon exercise of options
held by Mr. Joyce, 96,620.0 shares of Common Stock and 52,291.5 shares of
Common Stock issuable upon exercise of options held by Mr. Joyce's wife,
1.864.5 shares of Common Stock issuable upon exercise of warrants held by
Mr. Joyce, 12.9 shares of Class A Convertible 8% Cumulative Preferred Stock
and 10,867.3 shares of Common Stock issuable upon exercise of warrants held
by Edward T. Joyce, as Trustee of the Edward T. Joyce Ltd. Employees'
Profit Sharing Plan, and 4.1 shares of Convertible Class A Preferred Stock
and 3,409.3 shares of Common Stock issuable upon exercise of warrants held
by Edward T. Joyce, as Trustee of the Individual Retirement Account for
Edward T. Joyce. The Percent of Aggregate Voting Rights excludes 18,070.2
shares of non-voting Common Stock beneficially owned by Mr. Joyce which the
Company has agreed to issue.
(13) All such shares are held of record by JK&B Capital and Boston Capital
Ventures III, L.P. Mr. Kronfeld is a Manager of JK&B Management, L.L.C. and
General Partner of JK&B Capital, L.P. and JK&B Capital II, L.P. The
business address of Mr. Kronfeld is c/o JK&B Capital, 205 North Michigan,
Suite 800, Chicago, IL 60601.
(14) Includes 316,060.3 shares of Common Stock issuable upon exercise of options
held by Mr. Milligan, and 93,750.0 shares of Common Stock and 61,225.5
shares of Common Stock issuable upon exercise of options held by Mr.
Milligan's wife. The Percent of Aggregate Voting Rights excludes 1,687.8
shares of non-voting Common Stock beneficially owned by Mr. Milligan which
the Company has agreed to issue.
<PAGE>
(15) All of such Shares are held of record by Consolidated Communications. Mr.
Currey, a Director of the Company and its current President and Chief
Operating Officer, was formerly Group President of Telecommunications
Services for McLeod USA. Consolidated Communication and McLeod USA are both
wholly owned subsidiaries of McLeod, Inc. The Percent of Aggregate Voting
Rights excludes 22,503.5 shares of non-voting Common Stock beneficially
owned by Consolidated Communications which the Company has agreed to issue.
(16) Includes 47,818.7 shares of Common Stock issuable upon exercise of options.
(17) Includes 3,527.2 shares of Common Stock issuable upon exercise of options.
(18) The address of each such person is c/o the Company, 350 N. Orleans Street,
Suite 600, Chicago, IL 60654.
(19) Includes the aggregate of 1,216,271.6 shares of Common Stock issuable upon
exercise of options and 1,018,967.5 shares of Common Stock issuable upon
exercise of warrants. See notes 10, 11, 12, 13, 14, 15, 16 and 17 above.
The Percent of Aggregate Voting Rights excludes 428,758.8 shares of non-
voting Common Stock which the Company has agreed to issue.
DESCRIPTION OF CERTAIN INDEBTEDNESS
BANK CREDIT FACILITY
The Company has received a commitment letter (the "Commitment Letter") from
BankBoston, N.A. and Bank of America National Trust and Savings Association
(collectively, the "Senior Lenders") pursuant to which the Senior Lenders have
agreed, subject to the terms and conditions set forth in the Commitment Letter
(including the negotiation of definitive loan documents and satisfactory
completion by the Senior Lenders of their due diligence review), to provide a
senior secured revolving credit facility (the "Bank Credit Facility") of up to
$50.0 million to a subsidiary of the Company that will own the assets used in
Chicago's Area 1 (the "Borrower"), which will be guaranteed by the Company, to
be used for working capital and other general corporate purposes, except that
prior to the time that the Borrower has at least 30,000 total subscribers and
has expended at least $75 million of proceeds from the Company to expand network
operations, all borrowings under the Bank Credit Facility will be required to be
fully cash collateralized in accounts maintained by the Senior Lenders. The
Borrower will be permitted to make available to the Company a portion of the
Bank Credit Facility to finance the Company's expansion of its operations to
markets outside of Chicago's Area 1.
The following summary of the material provisions of the Commitment Letter does
not purport to be complete and is subject to, and is qualified in its entirety
by reference to, the Commitment Letter, a copy of which is available from the
Company upon request. Defined terms that are used but not defined in this
section have the meanings given to such terms in the Commitment Letter. Because
the terms, conditions and covenants of the Bank Credit Facility are subject to
the negotiation, execution and delivery of the definitive loan documents,
certain of the actual terms, conditions and covenants thereof may differ from
those described below.
The Bank Credit Facility will mature in 2003. Borrowings under the Bank Credit
Facility will be subject to a borrowing base determined on the basis of 7.5
times the prior three months' collected revenues. Amounts drawn under the Bank
Credit Facility will bear interest, at the Borrower's option, at either (i) a
base rate equal to the higher of (x) BankBoston, N.A.'s prime rate and (y) .50%
plus the Federal funds rate or (ii) the LIBOR rate, plus, in each case, an
Applicable Margin. The Applicable Margin will be an annual rate which will
fluctuate based on the Borrower's Total Leverage Ratio (as defined below) and
which will be between .50% and 2.00% for base rate borrowings and between 2.00%
and 3.50% for LIBOR rate borrowings.
<PAGE>
The Bank Credit Facility will begin amortizing by equal quarterly installments
of $3,125,000 beginning on the last day of the first quarter after the second
anniversary of its closing plus a final payment of $12,500,000. The Commitment
Letter contemplates that the Borrower will be required to repay indebtedness
outstanding under the Bank Credit Facility with (i) the net cash proceeds in
excess of $1 million from sales of assets, (ii) the net cash proceeds from
certain issuances of debt (iii) the net cash proceeds from certain issuances of
equity, (iv) the net cash proceeds in excess of $1 million from insurance
recoveries and (v) 50% of annual Excess Cash Flow (as defined below) beginning
on the third anniversary of the closing of the Bank Credit Facility if the
leverage is greater than 4.5 to 1.0.
The Commitment Letter contemplates that, subject to customary exceptions, the
Borrowers' obligations under the Bank Credit Facility will be secured by a first
priority security interest in all tangible and intangible assets of the Borrower
and any of its subsidiaries, including the Area 1 franchise, the CTA attachment
agreement and the pole attachment agreements with Commonwealth Edison and
Ameritech and that the Company's obligations under its guarantee will be secured
by a pledge of the stock of the Borrower.
The Commitment Letter contemplates that the Bank Credit Facility will contain
a number of negative covenants, including, among others, covenants limiting the
ability of the Borrower, subject to customary exceptions, to incur debt, create
liens, pay dividends, make distributions, make guarantees, sell assets and
engage in mergers. In addition, the Commitment Letter contemplates that the Bank
Credit Facility will contain usual and customary affirmative covenants,
including the delivery of financial and other information.
The Commitment Letter contemplates that the Borrower will be required to
comply with certain financial tests and to maintain certain financial ratios on
a consolidated basis. The Borrower must maintain (i) a Total Leverage Ratio, as
of the end of any fiscal quarter beginning with the fiscal quarter ending
December 31, 2000, no greater than 10.0 to 1.0 initially, with subsequent step-
downs, (ii) a Senior Leverage Ratio, as of the end of any fiscal quarter
beginning with the fiscal quarter ending December 31, 2000, no greater than 4.25
to 1.0 initially, with subsequent step-downs, (iii) a Fixed Charge Coverage
Ratio, as of the end of each fiscal quarter beginning with the fiscal quarter
ending December 31, 2001, no less than 1.0 to 1.0, (iv) an Interest Coverage
Ratio, as of the end of any fiscal quarter beginning with the fiscal quarter
ending December 21, 2000, no less than 2.0 to 1.0 and (v) a minimum number of
subscribers to be agreed upon and a maximum level of EBITDA losses to be agreed
upon, as of the end of each fiscal quarter beginning after the closing.
Total Leverage Ratio means the ratio of total funded debt consisting of senior
funded debt (including amounts outstanding under the Bank Credit Facility,
capitalized leases and the Notes to Annualized EBITDA. Annualized EBITDA means
EBITDA for the two most recent fiscal quarters multiplied by two. EBITDA means
consolidated net income, plus depreciation, amortization, any non-cash charges,
interest expense and tax expense deducted in calculating net income. Senior
Leverage Ratio means the ratio of total funded debt consisting of senior funded
debt (including amounts outstanding under the Bank Credit Facility and
capitalized leases to Annualized EBITDA. Fixed Charge Coverage Ratio means the
ratio of EBITDA to the sum of interest expense which is paid or payable in cash,
distributions made to the Company for payment of cash interest on the Notes,
income taxes paid or payable in cash, capital expenditures, required principal
payments and required capital lease payments. Excess Cash Flow means EBITDA
minus the sum of cash taxes, capital expenditures, required principal
repayments, interest expense paid or payable in cash, distributions made to the
Company for payment of cash interest on the Notes and the increase in working
capital calculated quarterly (net of cash or cash equivalents). Interest
Coverage Ratio means the ratio of EBITDA to the sum of interest expense on total
debt and dividends which is paid or payable in cash for the succeeding four
fiscal quarters.
The Commitment Letter contemplates that the Bank Credit Facility will include
usual and customary events of default.
<PAGE>
DESCRIPTION OF THE NEW NOTES
GENERAL
The Old Notes have been, and the New Notes will be, issued under an Indenture,
dated as of February 15, 1998 (the "Indenture"), between the Company and State
Street Bank and Trust Company, as Trustee (the "Trustee"). The following is a
summary of certain provisions of the Indenture and the New Notes, a copy of
which Indenture and the form of New Notes is available upon request to the
Company at the address set forth under "Available Information". The following
summary of certain provisions of the Indenture does not purport to be complete
and is subject to, and is qualified in its entirety by reference to, all the
provisions of the Indenture, including the definitions of certain terms therein
and those terms made a part thereof by the Trust Indenture Act of 1939, as
amended. For the definition of certain capitalized terms used in the following
summary, see "--Certain Definitions."
The New Notes will be issued only in fully registered form, without coupons,
in denominations of principal amount at maturity of $1,000 and any integral
multiple of $1,000. No service charge shall be made for any registration of
transfer or exchange of New Notes, but the Company may require payment of a sum
sufficient to cover any transfer tax or other similar governmental charge
payable in connection therewith.
TERMS OF THE NEW NOTES
The New Notes will be unsecured senior obligations of the Company, initially
limited to $363,135,000 aggregate principal amount at maturity, and will mature
on February 15, 2008. Except as described under "Exchange Offer--Acceptance of
Old Securities for Exchange; Delivery of New Securities", no cash interest will
accrue on the Notes prior to February 15, 2003, although for U.S. Federal income
tax purposes a significant amount of OID will be recognized by a Holder as such
discount accrues. See "Certain United States Federal Income Tax Consequences"
for a discussion regarding the taxation of such OID. Cash interest will accrue
on the Notes at the rate per annum shown on the front cover of this Prospectus
from February 15, 2003, or from the most recent date to which interest has been
paid or provided for, payable semiannually on February 15 and August 15 of each
year, commencing August 15, 2003 to holders of record at the close of business
on the February 1 or August 1 immediately preceding the interest payment date.
The Company will pay interest on overdue principal at 1% per annum in excess of
such rate, and it will pay interest on overdue installments of interest at such
higher rate applicable to overdue principal to the extent lawful. Interest will
be computed on the basis of a 360-day year of twelve 30-day months.
The interest rate on the New Notes is subject to increase in certain
circumstances if the Company does not file a registration statement relating to
the Exchange Offer or if the registration statement is not declared effective on
a timely basis or if certain other conditions are not satisfied, all as further
described under "Exchange Offer."
Subject to the covenants described below under "--Certain Covenants" and
applicable law, the Company may issue additional Notes under the Indenture in an
unlimited principal amount at maturity. The Old Notes, the New Notes offered
pursuant to the Exchange Offer and any additional Notes subsequently issued
would be treated as a single class for all purposes under the Indenture.
OPTIONAL REDEMPTION
Except as set forth in the following paragraph the New Notes will not be
redeemable at the option of the Company prior to February 15, 2003. Thereafter,
the New Notes will be redeemable, at the Company's option, in whole or in part,
at any time or from time to time, upon not less than 30 nor more than 60 days'
prior notice mailed by first-class mail to each Holder's registered address, at
the following redemption prices (expressed in percentages of Accreted Value),
plus accrued interest to the redemption date (subject to the right of Holders of
record on the
<PAGE>
relevant record date to receive interest due on the relevant interest payment
date), if redeemed during the 12-month period commencing on February 15 of the
years set forth below:
<TABLE>
<CAPTION>
REDEMPTION
-----------
PERIOD PRICE
- ------------ -----------
<S> <C>
2003.................... 106.1250%
2004.................... 104.0833
2005.................... 102.0417
2006 and thereafter..... 100.0000
</TABLE>
In addition, at any time and from time to time prior to February 15, 2001, the
Company may redeem in the aggregate up to 35% of the original principal amount
at maturity of the New Notes with the proceeds (to the extent received by the
Company) of one or more Equity Offerings following which there is a Public
Market at a redemption price (expressed as a percentage of Accreted Value) of
112 1/4% plus accrued interest to the redemption date (subject to the right of
Holders of record on the relevant record date to receive interest due on the
relevant interest payment date); provided, however, that at least $236.0 million
aggregate principal amount at maturity of the Notes must remain outstanding
after each such redemption.
In the case of any partial redemption, selection of the New Notes for
redemption will be made by the Trustee on a pro rata basis, by lot or by such
other method as the Trustee in its sole discretion shall deem to be fair and
appropriate, although no New Note of $1,000 in principal amount at maturity or
less shall be redeemed in part. If any New Note is to be redeemed in part only,
the notice of redemption relating to such New Note shall state the portion of
the principal amount thereof to be redeemed. A different New Note in principal
amount at maturity equal to the unredeemed portion thereof will be issued in the
name of the Holder thereof upon cancellation of the original New Note.
RANKING
The indebtedness evidenced by the New Notes will be senior unsecured
obligations of the Company, will rank pari passu in right of payment with all
existing and future senior indebtedness of the Company and will be senior in
right of payment to all future subordinated indebtedness of the Company. As of
December 31, 1997, after giving effect to the Private Placement and the
application of the proceeds therefrom, the Company's total indebtedness
outstanding would have been approximately $200.2 million.
Substantially all the operations of the Company are or will be conducted
through one or more of its subsidiaries. The Company intends to transfer
substantially all its assets to newly formed Restricted Subsidiaries, and
thereafter the Company will be a holding company with no assets other than the
capital stock of its subsidiaries. Claims of creditors of such subsidiaries,
including trade creditors, secured creditors and creditors holding indebtedness
and guarantees issued by such subsidiaries, and claims of preferred stockholders
(if any) of such subsidiaries generally will have priority with respect to the
assets and earnings of such subsidiaries over the claims of creditors of the
Company, including holders of the New Notes. The New Notes, therefore, will be
effectively subordinated to creditors (including trade creditors) and preferred
stockholders (if any) of subsidiaries of the Company. Although the Indenture
limits the incurrence of Indebtedness and preferred stock of certain of the
Company's subsidiaries, such limitation is subject to a number of significant
qualifications. Moreover, the Indenture does not impose any limitation on the
incurrence by such subsidiaries of liabilities that are not considered
Indebtedness or Preferred Stock under the Indenture. See "--Certain Covenants--
Limitation on Indebtedness."
CHANGE OF CONTROL
<PAGE>
Upon the occurrence of any of the following events (each a "Change of
Control"), each Holder shall have the right to require that the Company
repurchase such Holder's New Notes at a purchase price in cash equal to 101% of
the Accreted Value thereof on the date of purchase, plus accrued and unpaid
interest, if any, to the date of purchase (subject to the right of holders of
record on the relevant record date to receive interest due on the relevant
interest payment date):
(i) Prior to the earlier to occur of (A) the first public offering of
common stock of Parent or (B) the first public offering of common stock of the
Company, the Permitted Holders cease to be the "beneficial owner" (as
defined in Rules 13d-3 and 13d-5 under the Exchange Act), directly or
indirectly, of a majority in the aggregate of the total voting power of the
Voting Stock of the Company, whether as a result of issuance of securities of
the Parent or the Company, any merger, consolidation, liquidation or
dissolution of the Parent or the Company, any direct or indirect transfer of
securities by Parent or otherwise (for purposes of this clause (i) and clause
(ii) below, the Permitted Holders shall be deemed to beneficially own any
Voting Stock of a corporation (the "specified corporation") held by any
other corporation (the "parent corporation") so long as the Permitted
Holders beneficially own (as so defined), directly or indirectly, in the
aggregate a majority of the voting power of the Voting Stock of the parent
corporation);
(ii) Any "person" (as such term is used in Sections 13(d) and 14(d) of
the Exchange Act), other than one or more Permitted Holders, is or becomes the
beneficial owner (as defined in clause (i) above, except that for purposes of
this clause (ii) such person shall be deemed to have "beneficial ownership"
of all shares that any such person has the right to acquire, whether such
right is exercisable immediately or only after the passage of time), directly
or indirectly, of more than 35% of the total voting power of the Voting Stock
of the Company; provided, however, that the Permitted Holders beneficially own
(as defined in clause (i) above), directly or indirectly, in the aggregate a
lesser percentage of the total voting power of the Voting Stock of the Company
than such other person and do not have the right or ability by voting power,
contract or otherwise to elect or designate for election a majority of the
Board of Directors (for the purposes of this clause (ii), such other person
shall be deemed to beneficially own any Voting Stock of a specified
corporation held by a parent corporation, if such other person is the
beneficial owner (as defined in this clause (ii)), directly or indirectly, of
more than 35% of the voting power of the Voting Stock of such parent
corporation and the Permitted Holders beneficially own (as defined in clause
(i) above), directly or indirectly, in the aggregate a lesser percentage of
the voting power of the Voting Stock of such parent corporation and do not
have the right or ability by voting power, contract or otherwise to elect or
designate for election a majority of the board of directors of such parent
corporation);
(iii) during any period of two consecutive years, individuals who at the
beginning of such period constituted the Board of Directors (together with any
new directors whose election or appointment by such Board of Directors or
whose nomination for election by the shareholders of the Company was approved
by a vote of 66 2/3% of the directors of the Company then still in office who
were either directors at the beginning of such period or whose election or
nomination for election was previously so approved) cease for any reason to
constitute a majority of the Board of Directors then in office; or
(iv) the merger or consolidation of the Company with or into another Person
or the merger of another Person with or into the Company, or the sale of all
or substantially all the assets of the Company to another Person (other than a
Person that is controlled by the Permitted Holders), and, in the case of any
such merger or consolidation, the securities of the Company that are
outstanding immediately prior to such transaction and which represent 100% of
the aggregate voting power of the Voting Stock of the Company are changed into
or exchanged for cash, securities or property, unless pursuant to such
transaction such securities are changed into or exchanged for, in addition to
any other consideration, securities of the surviving corporation that
represent immediately after such transaction, at least a majority of the
aggregate voting power of the Voting Stock of the surviving corporation.
<PAGE>
Within 30 days following any Change of Control, the Company shall mail a
notice to each Holder with a copy to the Trustee stating: (1) that a Change of
Control has occurred and that such Holder has the right to require the Company
to purchase such Holder's New Notes at a purchase price in cash equal to 101% of
the Accreted Value thereof on the date of purchase plus accrued and unpaid
interest, if any, to the date of purchase (subject to the right of holders of
record on the relevant record date to receive interest on the relevant interest
payment date); (2) the circumstances and relevant facts regarding such Change of
Control (including information with respect to pro forma historical income, cash
flow and capitalization after giving effect to such Change of Control); (3) the
purchase date (which shall be no earlier than 30 days nor later than 60 days
from the date such notice is mailed); and (4) the instructions determined by the
Company, consistent with the covenant described hereunder, that a Holder must
follow in order to have its New Notes purchased.
The Company shall comply, to the extent applicable, with the requirements of
Section 14(e) of the Exchange Act and any other securities laws or regulations
in connection with the repurchase of New Notes pursuant to the covenant
described hereunder. To the extent that the provisions of any securities laws or
regulations conflict with the provisions of the covenant described hereunder,
the Company shall comply with the applicable securities laws and regulations and
shall not be deemed to have breached its obligations under the covenant
described hereunder by virtue thereof.
The Change of Control purchase feature is a result of negotiations between the
Company and the Initial Purchasers. Management has no present intention to
engage in a transaction involving a Change of Control, although it is possible
that the Company would decide to do so in the future. Subject to the limitations
discussed below, the Company could, in the future, enter into certain
transactions, including acquisitions, refinancings or other recapitalizations,
that would not constitute a Change of Control under the Indenture, but that
could increase the amount of indebtedness outstanding at such time or otherwise
affect the Company's capital structure or credit ratings. Restrictions on the
ability of the Company to incur additional Indebtedness are contained in the
covenants described under "--Certain Covenants--Limitation on Indebtedness,"
"--Limitation on Liens" and "--Limitation on Sale/Leaseback Transactions."
Such restrictions can only be waived with the consent of the holders of a
majority in principal amount at maturity of the Notes (including both Old Notes
and New Notes) then outstanding. Except for the limitations contained in such
covenants, however, the Indenture will not contain any covenants or provisions
that may afford holders of the New Notes protection in the event of a highly
leveraged transaction.
Future indebtedness of the Company may contain prohibitions on the occurrence
of certain events that would constitute a Change of Control or require such
indebtedness to be repurchased upon a Change of Control. Moreover, the exercise
by the holders of their right to require the Company to repurchase the New Notes
could cause a default under such indebtedness, even if the Change of Control
itself does not, due to the financial effect of such repurchase on the Company.
Finally, the Company's ability to pay cash to the holders of New Notes following
the occurrence of a Change of Control may be limited by the Company's then
existing financial resources. There can be no assurance that sufficient funds
will be available when necessary to make any required repurchases. The
provisions under the Indenture relative to the Company's obligation to make an
offer to repurchase the New Notes as a result of a Change of Control may be
waived or modified with the written consent of the holders of a majority in
principal amount at maturity of the outstanding Notes.
CERTAIN COVENANTS
The Indenture contains covenants including, among others, the following:
Limitation on Indebtedness. (a) The Company shall not Incur, and shall not
permit any of its Restricted Subsidiaries to Incur, directly or indirectly, any
Indebtedness, except that the Company may Incur Indebtedness if, on the date of
such Incurrence and after giving effect thereto, the Consolidated Leverage Ratio
would be less than 6.0 to 1.0, for Indebtedness Incurred prior to or on December
31, 1999, and less than 5.0 to 1.0 for Indebtedness Incurred thereafter.
<PAGE>
(b) Notwithstanding the foregoing paragraph (a), the Company and (except as
specified below) any Restricted Subsidiary may Incur any or all of the following
Indebtedness:
(1) Indebtedness Incurred pursuant to the Credit Agreement; provided,
however, that the aggregate amount of such Indebtedness, when taken together
with all other Indebtedness Incurred pursuant to this clause (1) and then
outstanding, does not exceed the remainder of (x) $50 million minus (y) the
sum of all principal payments with respect to the permanent retirement of such
Indebtedness pursuant to paragraph (a)(ii)(A) of the covenant described under
"--Limitation on Sales of Assets and Subsidiary Stock;"
(2) Indebtedness owed to and held by the Company or a Restricted
Subsidiary; provided, however, that any subsequent issuance or transfer of any
Capital Stock which results in any such Restricted Subsidiary ceasing to be a
Restricted Subsidiary or any subsequent transfer of such Indebtedness (other
than to the Company or another Restricted Subsidiary) shall be deemed, in each
case, to constitute the Incurrence of such Indebtedness by the issuer thereof;
(3) the Notes;
(4) Indebtedness outstanding on the Issue Date (other than Indebtedness
described in clause (1), (2) or (3) of this covenant);
(5) Refinancing Indebtedness in respect of Indebtedness Incurred pursuant
to paragraph (a) or pursuant to clause (3) or (4) above, this clause (5) or
clauses (7), (8) or (11) below; provided, however, that to the extent such
Refinancing Indebtedness directly or indirectly Refinances Indebtedness of a
Restricted Subsidiary described in clause (11), such Refinancing Indebtedness
shall be Incurred only by such Restricted Subsidiary;
(6) Hedging Obligations consisting of Interest Rate Agreements directly
related to Indebtedness permitted to be Incurred by the Company or any
Restricted Subsidiary pursuant to paragraphs (a) or (b) hereof;
(7) Indebtedness, including Indebtedness of a Restricted Subsidiary
Incurred and outstanding on or prior to the date on which such Subsidiary was
acquired by the Company, Incurred to finance the cost (including the cost of
design, development, acquisition, construction, installation, improvement,
transportation or integration) to acquire equipment, inventory or network
assets (including real estate) (including acquisitions by way of capital lease
and acquisitions of the Capital Stock of a Person that becomes a Restricted
Subsidiary to the extent of the fair market value of the equipment, inventory
or networks assets so acquired) by the Company or a Restricted Subsidiary
after the Issue Date for use in a Related Business;
(8) Indebtedness of the Company in an amount which, when taken together
with the amount of Indebtedness Incurred pursuant to this clause (8) and then
outstanding, does not exceed two times the Net Cash Proceeds received by the
Company after the Issue Date as a capital contribution from, or from the
issuance and sale of its Capital Stock (other than Disqualified Stock) to, a
Person that is not a Subsidiary of the Company, to the extent such Net Cash
Proceeds have not been used pursuant to paragraph (a)(3)(B) or paragraph
(b)(i) of the covenant described under "--Limitation on Restricted Payments"
to make a Restricted Payment; provided, however, that such Indebtedness does
not mature prior to the Stated Maturity of the Notes and has an Average Life
longer than the Average Life of the Notes;
(9) Indebtedness in respect of performance, surety or appeal bonds or
similar obligations, in each case Incurred in the ordinary course of business
of the Company and its Restricted Subsidiaries and Indebtedness due and owing
to governmental entities in connection with any licenses and franchises issued
by a governmental entity and necessary or desirable to conduct a Related
Business;
(10) Guarantees of the Notes issued by any Restricted Subsidiary;
<PAGE>
(11) Indebtedness of a Restricted Subsidiary Incurred and outstanding on or
prior to the date on which such Subsidiary was acquired by the Company (other
than Indebtedness Incurred in connection with, or to provide all or any
portion of the funds or credit support utilized to consummate, the transaction
or series of related transactions pursuant to which such Subsidiary became a
Subsidiary or was acquired by the Company); provided, however, that on the
date of such acquisition and after giving effect thereto, the Company would
have been able to Incur at least $1.00 of additional Indebtedness pursuant to
paragraph (a) hereof; and
(12) Indebtedness Incurred in an aggregate amount which, when taken
together with the aggregate amount of all other Indebtedness of the Company
and its Restricted Subsidiaries outstanding on the date of such Incurrence
(other than Indebtedness permitted by clauses (1) through (11) above or
paragraph (a)) does not exceed the greater of (a) $10 million and (b) an
amount equal to 5% of the Company's Consolidated Net Tangible Assets as of
such date.
(c) Notwithstanding the foregoing, the Company shall not Incur any
Indebtedness pursuant to the foregoing paragraph (b) if the proceeds thereof are
used, directly or indirectly, to Refinance any Subordinated Obligations unless
such Indebtedness shall be subordinated to the Notes to at least the same extent
as such Subordinated Obligations.
(d) For purposes of determining compliance with the foregoing covenant, (i) in
the event that an item of Indebtedness meets the criteria of more than one of
the types of Indebtedness described above, the Company, in its sole discretion,
will classify such item of Indebtedness and only be required to include the
amount and type of such Indebtedness in one of the above clauses and (ii) an
item of Indebtedness may be divided and classified in more than one of the types
of Indebtedness described above.
(e) For the purposes of determining the amount of Indebtedness outstanding at
any time, Guarantees with respect to Indebtedness otherwise included in the
determination of such amount shall not be included.
Limitation on Restricted Payments. (a) The Company shall not, and shall not
permit any Restricted Subsidiary to, directly or indirectly, make a Restricted
Payment if at the time the Company or such Restricted Subsidiary makes such
Restricted Payment: (1) a Default shall have occurred and be continuing (or
would result therefrom); (2) the Company is not able to Incur an additional
$1.00 of Indebtedness pursuant to paragraph (a) of the covenant described under
"--Limitation on Indebtedness;" or (3) the aggregate amount of such Restricted
Payment and all other Restricted Payments (the amount of any Restricted Payment,
if other than in cash, to be determined in good faith by the Board of Directors
and to be evidenced by a resolution of such Board set forth in an Officer's
Certificate delivered to the Trustee) since the Issue Date would exceed the sum
of, without duplication:
(A) the remainder of (x) cumulative EBITDA during the period (taken as a
single accounting period) beginning on the first day of the fiscal quarter of
the Company beginning after the Issue Date and ending on the last day of the
most recent fiscal quarter for which financial statements have been made
publicly available but in no event ending more than 135 days prior to the date
of such determination minus (y) the product of 1.5 times cumulative
Consolidated Interest Expense during such period;
(B) the aggregate Net Cash Proceeds received by the Company from the
issuance or sale of its Capital Stock (other than Disqualified Stock)
subsequent to the Issue Date (other than an issuance or sale to a Subsidiary
of the Company and other than an issuance or sale to an employee stock
ownership plan or to a trust established by the Company or any of its
Subsidiaries for the benefit of their employees);
(C) the amount by which Indebtedness of the Company is reduced on the
Company's balance sheet upon the conversion or exchange (other than by a
Subsidiary of the Company) subsequent to the Issue Date of any Indebtedness of
the Company convertible or exchangeable for Capital Stock (other than
Disqualified Stock) of
<PAGE>
the Company (less the amount of any cash, or the fair value of any other
property, distributed by the Company upon such conversion or exchange); and
(D) an amount equal to the sum of (i) the net reduction in Investments in
Unrestricted Subsidiaries resulting from payments of interest, dividends,
repayments of loans or advances or other transfers of assets, in each case to
the Company or any Restricted Subsidiary from Unrestricted Subsidiaries, and
(ii) the portion (proportionate to the Company's equity interest in such
Subsidiary) of the fair market value of the net assets of an Unrestricted
Subsidiary at the time such Unrestricted Subsidiary is designated a Restricted
Subsidiary; provided, however, that the foregoing sum shall not exceed, in the
case of any Unrestricted Subsidiary, the amount of Investments previously made
(and treated as a Restricted Payment) by the Company or any Restricted
Subsidiary in such Unrestricted Subsidiary.
(b) The provisions of the foregoing paragraph (a) shall not prohibit:
(i) any acquisition of any Capital Stock of the Company or any Restricted
Subsidiary or any purchase, repurchase, redemption, defeasance or other
acquisition or retirement for value of Subordinated Obligations made out of
the proceeds of the substantially concurrent sale of, or made by exchange for,
Capital Stock of the Company (other than Disqualified Stock and other than
Capital Stock issued or sold to a Subsidiary of the Company or an employee
stock ownership plan or to a trust established by the Company or any of its
Subsidiaries for the benefit of their employees); provided, however, that (A)
such acquisition of Capital Stock or of Subordinated Obligations shall be
excluded in the calculation of the amount of Restricted Payments pursuant to
clause (3) of paragraph (a) above and (B) the Net Cash Proceeds from such sale
shall be excluded from the calculation of amounts under clause (3)(B) of
paragraph (a) above;
(ii) any purchase, repurchase, redemption, defeasance or other acquisition
or retirement for value of Subordinated Obligations in whole or in part
(including premium, if any, and accrued and unpaid interest) made by exchange
for, or out of the proceeds of the substantially concurrent sale of,
Indebtedness of the Company which is permitted to be Incurred pursuant to the
covenant described under "--Limitation on Indebtedness;" provided, however,
that such purchase, repurchase, redemption, defeasance or other acquisition or
retirement for value shall be excluded in the calculation of the amount of
Restricted Payments pursuant to clause (3) of paragraph (a) above;
(iii) dividends paid within 60 days after the date of declaration thereof
if at such date of declaration such dividend would have complied with this
covenant; provided, however, that at the time of payment of such dividend, no
other Default shall have occurred and be continuing (or result therefrom);
provided further, however, that such dividend shall be included in the
calculation of the amount of Restricted Payments pursuant to clause (3) of
paragraph (a) above;
(iv) the purchase, redemption, retirement, repurchase or other acquisition
of shares of, or options to purchase shares of, Capital Stock (other than
Disqualified Stock) of the Company or Capital Stock (other than Preferred
Stock) of any of its Subsidiaries from employees, former employees, directors
or former directors of the Company or any of its Subsidiaries (or permitted
transferees of such employees, former employees, directors or former directors
including their estates or beneficiaries under their estates), (a) upon their
death, disability, retirement or termination of employment or (b) otherwise
pursuant to the terms of agreements (including employment agreements) or plans
(or amendments thereto) approved by the Board of Directors under which such
individuals received such Capital Stock; provided, however, that the aggregate
amount of consideration paid for such purchases, redemptions, retirements,
repurchases and other acquisitions made pursuant to this clause (iv) shall not
exceed $500,000 in any calendar year; provided further, however, that such
purchases, redemptions, retirements, repurchases and other acquisitions
pursuant to this clause shall be excluded in the calculation of the amount of
Restricted Payments pursuant to clause (3) of paragraph (a) above;
<PAGE>
(v) any purchase or redemption of Subordinated Obligations in whole or in
part (including premium, if any, and accrued and unpaid interest) from Net
Available Cash to the extent permitted by the covenant described under "--
Limitation on Sales of Assets and Subsidiary Stock;" provided, however, that
such purchase or redemption shall be excluded in the calculation of the amount
of Restricted Payments pursuant to clause (3) of paragraph (a) above;
(vi) the purchase, redemption, acquisition, cancelation or other retirement
for value of shares of Capital Stock of the Company or any of its Restricted
Subsidiaries to the extent necessary, as determined in good faith by a
majority of the disinterested members of the Board of Directors, to prevent
the loss or to secure the renewal or reinstatement of any license or franchise
held by the Company or any Restricted Subsidiary from any governmental entity;
provided, however, that such purchase or redemption shall be included in the
calculation of the amount of Restricted Payments pursuant to clause (3) of
paragraph (a) above;
(vii) any purchase or redemption of Subordinated Obligations or Preferred
Stock following a Change of Control pursuant to an obligation in the
instruments governing such Subordinated Obligations or Preferred Stock to
purchase or redeem such Subordinated Obligations or Preferred Stock as a
result of such Change of Control; provided, however, that no such purchase or
redemption shall be permitted until the Company has completely discharged its
obligations described under "--Change of Control" (including the purchase of
all Notes tendered for purchase by holders) arising as a result of such Change
of Control; provided further, however, that such purchase or redemption shall
be included in the calculation of the amount of Restricted Payments pursuant
to clause (3) of paragraph (a) above; or
(viii) cash dividends paid after February 15, 2003 in respect of the
Exchangeable Preferred Stock in an aggregate amount in any twelve month period
not to exceed 13 3/4% of the aggregate liquidation preference outstanding at
the beginning of such twelve month period; provided, however, that at the time
of payment of any such dividends, no Default shall have occurred and be
continuing; provided further, however, that all such dividends shall be
included in the calculation of the amount of Restricted Payments pursuant to
clause (3) of paragraph (a) above.
Limitation on Restrictions on Distributions from Restricted Subsidiaries.
The Company shall not, and shall not permit any Restricted Subsidiary to, create
or otherwise cause or permit to exist or become effective any consensual
encumbrance or restriction on the ability of any Restricted Subsidiary to (a)
pay dividends or make any other distributions on its Capital Stock to the
Company or a Restricted Subsidiary, (b) pay any Indebtedness owed to the
Company, (c) make any loans or advances to the Company or (d) transfer any of
its property or assets to the Company, except:
(i) any encumbrance or restriction pursuant to the Indenture, the
Exchangeable Preferred Stock or any other agreement in effect at or entered
into on the Issue Date;
(ii) any encumbrance or restriction with respect to a Restricted Subsidiary
pursuant to an agreement relating to any Indebtedness Incurred by such
Restricted Subsidiary on or prior to the date on which such Restricted
Subsidiary was acquired by the Company (other than Indebtedness Incurred as
consideration in, or to provide all or any portion of the funds or credit
support utilized to consummate, the transaction or series of related
transactions pursuant to which such Restricted Subsidiary became a Restricted
Subsidiary or was acquired by the Company) and outstanding on such date;
(iii) any encumbrance or restriction pursuant to an agreement effecting a
Refinancing of Indebtedness Incurred pursuant to an agreement or instrument
referred to in clause (i) or (ii) of this covenant or this clause (iii) or
contained in any amendment to an agreement or instrument referred to in clause
(i) or (ii) of this covenant or this clause (iii); provided, however, that the
encumbrances and restrictions with respect to such Restricted Subsidiary
contained in any such refinancing agreement or amendment are no less favorable
to the
<PAGE>
Noteholders than encumbrances and restrictions with respect to such Restricted
Subsidiary contained in such predecessor agreements;
(iv) any such encumbrance or restriction consisting of customary non-
assignment or anti-alienation provisions in (a) leases governing leasehold
interests to the extent such provisions restrict the transfer of the lease or
the property leased thereunder or subletting and (b) licenses or franchises to
the extent such provisions restrict the transfer of the license or franchise;
(v) in the case of clause (d) above, restrictions contained in security
agreements or mortgages securing Indebtedness of a Restricted Subsidiary to
the extent such restrictions restrict the transfer of the property subject to
such security agreements or mortgages;
(vi) any restriction with respect to a Restricted Subsidiary imposed
pursuant to an agreement entered into for the sale or disposition of all or
substantially all the Capital Stock or assets of such Restricted Subsidiary
pending the closing of such sale or disposition; and
(vii) any encumbrance or restriction contained in the terms of any
Indebtedness or any agreement pursuant to which such Indebtedness was Incurred
if the Board of Directors determines in good faith that any such encumbrance
or restriction will not materially affect the Company's ability to pay
principal or interest on the Notes when due and such encumbrance or
restriction by its terms expressly permits such Restricted Subsidiary, (A) in
the absence of a payment default in respect of such Indebtedness or other
agreement, to make cash payments to the Company (in any form) sufficient to
pay when due all amounts of principal and interest on the Notes and (B)
following the occurrence and during the continuance of a payment default in
respect of such Indebtedness or other agreement, to resume making cash
payments to the Company (in any form) sufficient to pay when due all amounts
of principal and interest on the Notes upon the earlier of the cure of such
payment default and the lapse of 179 consecutive days following the date when
such encumbrance or restriction became operative to prohibit or limit such
Restricted Subsidiary from making such payments to the Company; provided,
however, that no Restricted Subsidiary shall be affected by the operation of
any such encumbrances or restrictions following the occurrence of a payment
default on more than one occasion in any consecutive 360-day period.
Limitation on Sales of Assets and Subsidiary Stock. (a) The Company shall
not, and shall not permit any Restricted Subsidiary to, directly or indirectly,
consummate any Asset Disposition unless (i) the Company or such Restricted
Subsidiary receives consideration at the time of such Asset Disposition at least
equal to the fair market value (including the value of all non-cash
consideration), as determined in good faith by the Board of Directors, of the
shares and assets subject to such Asset Disposition and at least 75% of the
consideration thereof received by the Company or such Restricted Subsidiary is
in the form of cash or cash equivalents and (ii) an amount equal to 100% of the
Net Available Cash from such Asset Disposition is applied by the Company (or
such Restricted Subsidiary, as the case may be):
(A) first, to the extent the Company elects in its sole discretion (or is
required by the terms of any Indebtedness), to prepay, repay, redeem or
purchase Senior Indebtedness or Indebtedness (other than any Disqualified
Stock) of a Restricted Subsidiary (in each case other than Indebtedness owed
to the Company or an Affiliate of the Company) within one year from the later
of the date of such Asset Disposition or the receipt of such Net Available
Cash;
(B) second, to the extent of the balance of such Net Available Cash after
application in accordance with clause (A), to the extent the Company elects in
its sole discretion, to acquire Additional Assets within one year after the
receipt of such Net Available Cash;
(C) third, to the extent of the balance of such Net Available Cash after
application in accordance with clauses (A) and (B), to make an offer to the
holders of the Notes (and to holders of other Senior Indebtedness
<PAGE>
designated by the Company) to purchase Notes (and such other Senior
Indebtedness) pursuant to and subject to the conditions contained in the
Indenture; and
(D) fourth, to the extent of the balance of such Net Available Cash after
application in accordance with clauses (A), (B) and (C), for the general
corporate and working capital purposes of the Company and its Restricted
Subsidiaries;
provided, however, that in connection with any prepayment, repayment or purchase
of Indebtedness pursuant to clause (A) or (C) above, the Company or such
Restricted Subsidiary shall permanently retire such Indebtedness and shall cause
the related loan commitment (if any) to be permanently reduced in an amount
equal to the principal amount so prepaid, repaid or purchased. Notwithstanding
the foregoing provisions of this paragraph, the Company and the Restricted
Subsidiaries shall not be required to apply any Net Available Cash in accordance
with this paragraph except to the extent that the aggregate Net Available Cash
from all Asset Dispositions occurring after the Issue Date which are not applied
in accordance with this paragraph exceeds $5 million. Pending application of Net
Available Cash pursuant to this covenant, such Net Available Cash shall be
invested in Permitted Investments.
For the purposes of this covenant, the following are deemed to be cash or cash
equivalents: (x) the assumption of Indebtedness of the Company or any Restricted
Subsidiary and the release of the Company or such Restricted Subsidiary from all
liability on such Indebtedness in connection with such Asset Disposition, (y)
securities received by the Company or any Restricted Subsidiary from the
transferee that are promptly converted by the Company or such Restricted
Subsidiary into cash; and (z) Temporary Cash Investments.
(b) In the event of an Asset Disposition that requires the purchase of the
Notes (and other Senior Indebtedness) pursuant to clause (a) (ii) (C) above, the
Company will be required to purchase Notes tendered pursuant to an offer by the
Company for the Notes (and other Senior Indebtedness) at a purchase price of
100% of their Accreted Value (in the case of Notes) or 100% of their principal
amount (in the case of other Senior Indebtedness) plus accrued but unpaid
interest, if any, to the date of purchase (or, in respect of such other Senior
Indebtedness, such lesser price, if any, as may be provided for by the terms of
such Senior Indebtedness) in accordance with the procedures (including prorating
in the event of oversubscription) set forth in the Indenture. If the aggregate
purchase price of Notes (and any other Senior Indebtedness) tendered pursuant to
such offer is less than the Net Available Cash allotted to the purchase thereof,
the Company will be required to apply the remaining Net Available Cash in
accordance with clause (a) (ii) (D) above. The Company shall not be required to
make such an offer to purchase Notes (and other Senior Indebtedness) pursuant to
this covenant if the Net Available Cash available therefor is less than $5.0
million (which lesser amount shall be carried forward for purposes of
determining whether such an offer is required with respect to the Net Available
Cash from any subsequent Asset Disposition).
(c) The Company shall comply, to the extent applicable, with the requirements
of Section 14(e) of the Exchange Act and any other securities laws or
regulations in connection with the repurchase of Notes pursuant to this
covenant. To the extent that the provisions of any securities laws or
regulations conflict with provisions of this covenant, the Company shall comply
with the applicable securities laws and regulations and shall not be deemed to
have breached its obligations under this clause by virtue thereof.
Limitation on Affiliate Transactions. (a) The Company shall not, and shall
not permit any Restricted Subsidiary to, enter into or permit to exist any
transaction (including the purchase, sale, license, lease or exchange of any
property, employee compensation arrangements or the rendering of any service)
with any Affiliate of the Company (an "Affiliate Transaction") unless the
terms thereof (1) are no less favorable to the Company or such Restricted
Subsidiary than those that could be obtained at the time of such transaction in
arm's-length dealings with a Person who is not such an Affiliate, (2) if such
Affiliate Transaction involves an amount in excess of $1.0 million, (i) are set
forth in writing and (ii) have been approved by a majority of the members of the
Board of Directors having no personal stake in such Affiliate Transaction and
(3) if such Affiliate Transaction involves an amount in excess of $5.0 million,
have been determined by a nationally recognized investment banking firm or other
qualified
<PAGE>
appraiser under the relevant circumstances to be fair, from a
financial standpoint, to the Company and its Restricted Subsidiaries.
(b) The provisions of the foregoing paragraph (a) shall not prohibit (i) any
Permitted Investment or any Restricted Payment permitted to be paid pursuant to
the covenant described under "--Limitation on Restricted Payments," (ii) any
issuance of securities, or other payments, awards or grants in cash, securities
or otherwise pursuant to, or the funding of, employment arrangements, stock
options and stock ownership plans approved by the Board of Directors, (iii) the
grant of stock options or similar rights to employees and directors of the
Company pursuant to plans approved by the Board of Directors, (iv) loans or
advances to employees in the ordinary course of business in accordance with the
past practices of the Company or its Restricted Subsidiaries, but in any event
not to exceed $500,000 in the aggregate outstanding at any one time, (v) the
payment of reasonable fees to directors of the Company and its Restricted
Subsidiaries who are not employees of the Company or its Restricted
Subsidiaries, (vi) any Affiliate Transaction between the Company and a
Restricted Subsidiary or between Restricted Subsidiaries; provided, however,
that no beneficial owner (as defined in Rule 13d-1 and 13d-5 of the Exchange
Act) of 5% or more of the Capital Stock of the Company holds, directly or
indirectly, any Investments in any such Restricted Subsidiary (other than
indirectly through the Company), (vii) the issuance or sale of any Capital Stock
(other than Disqualified Stock) of the Company and (viii) any transaction
pursuant to an agreement or arrangement in effect on the Issue Date.
Limitation on the Sale or Issuance of Capital Stock of Certain Restricted
Subsidiaries. The Company shall not sell or otherwise dispose of any Capital
Stock (other than Qualified Preferred Stock) of an Existing Restricted
Subsidiary, and shall not permit any Existing Restricted Subsidiary, directly or
indirectly, to issue or sell or otherwise dispose of any of its Capital Stock
(other than Qualified Preferred Stock), except (i) to the Company or a Wholly
Owned Subsidiary, (ii) if, immediately after giving effect to such issuance,
sale or other disposition, neither the Company nor any of its Subsidiaries own
any Capital Stock of such Restricted Subsidiary, (iii) if, immediately after
giving effect to such issuance, sale or other disposition, such Existing
Restricted Subsidiary would no longer constitute a Restricted Subsidiary and any
Investment in such Person remaining after giving effect thereto would have been
permitted to be made under the covenant described under "--Limitation on
Restricted Payments" if made on the date of such issuance, sale or other
disposition, (iv) to directors of directors' qualifying shares of common stock
of any Restricted Subsidiary, to the extent mandated by applicable law, or (v)
the issuance or sale of Capital Stock of a Restricted Subsidiary that has a
class of equity security registered under Section 12 of the Exchange Act
pursuant to an employee stock option plan approved by the Board of Directors.
Limitation on Liens. The Company shall not, and shall not permit any
Restricted Subsidiary to, directly or indirectly, Incur or permit to exist any
Lien of any nature whatsoever on any of its properties (including Capital Stock
of a Restricted Subsidiary), whether owned at the Issue Date or thereafter
acquired, other than Permitted Liens, without effectively providing that the
Notes shall be secured equally and ratably with (or, if the obligation or
liability to be secured by such Lien is subordinated in respect of payment to
the Notes, prior to) the obligations so secured for so long as such obligations
are so secured; provided, however, that the Company and its Restricted
Subsidiaries may Incur other Liens to secure Indebtedness as long as the amount
of outstanding Indebtedness secured by Liens Incurred pursuant to this proviso
at any time does not exceed $5.0 million.
Limitation on Sale/Leaseback Transactions. The Company shall not, and shall
not permit any Restricted Subsidiary to, enter into any Sale/Leaseback
Transaction with respect to any property unless (i) the Company or such
Subsidiary would be entitled to (A) Incur Indebtedness in an amount equal to the
Attributable Debt with respect to such Sale/Leaseback Transaction pursuant to
the covenant described under "--Limitation on Indebtedness" and (B) create a
Lien on such property securing such Attributable Debt without equally and
ratably securing the Notes pursuant to the covenant described under "--
Limitation on Liens," (ii) the net proceeds received by the Company or any
Restricted Subsidiary in connection with such Sale/Leaseback Transaction are at
least equal to the fair value (as determined by the Board of Directors) of such
property and (iii) the Company applies the proceeds of such transaction in
compliance with the covenant described under "--Limitation on Sale of Assets
and Subsidiary Stock."
<PAGE>
Limitation on Market Swaps. The Company will not, and will not permit any
Restricted Subsidiary to, engage in any Market Swaps, unless:
(i) at the time of entering into the agreement to swap markets and
immediately after giving effect to the proposed Market Swap, no Default shall
have occurred and be continuing;
(ii) the respective fair market values of the markets and other assets (to
be determined in good faith by the Board of Directors and to be evidenced by a
resolution of such Board set forth in an Officer's Certificate delivered to
the Trustee) being purchased and sold by the Company or any of its Restricted
Subsidiaries are substantially the same at the time of entering into the
agreement to swap markets; and
(iii) the cash payments, if any, received by the Company or such Restricted
Subsidiary in connection with such Market Swap are treated as Net Available
Cash received from an Asset Disposition.
Limitation on Lines of Business. The Company shall not, and shall not permit
any Restricted Subsidiary to, engage in any trade or business other than a
Related Business.
Merger and Consolidation. The Company shall not consolidate with or merge
with or into, or convey, transfer or lease, in one transaction or a series of
transactions, all or substantially all its assets to, any Person, unless:
(i) the resulting, surviving or transferee Person (the "Successor
Company") shall be a Person organized and existing under the laws of the
United States of America, any State thereof or the District of Columbia and
the Successor Company (if not the Company) shall expressly assume, by an
indenture supplemental thereto, executed and delivered to the Trustee, in form
satisfactory to the Trustee, all the obligations of the Company under the
Notes and the Indenture;
(ii) immediately after giving effect to such transaction (and treating any
Indebtedness which becomes an obligation of the Successor Company or any
Subsidiary as a result of such transaction as having been Incurred by such
Successor Company or such Subsidiary at the time of such transaction), no
Default shall have occurred and be continuing,
(iii) immediately after giving effect to such transaction, the Successor
Company would be able to Incur an additional $1.00 of Indebtedness pursuant to
paragraph (a) of the covenant described under "--Limitation on
Indebtedness;"
(iv) immediately after giving effect to such transaction, the Successor
Company shall have Consolidated Net Worth in an amount that is not less than
the Consolidated Net Worth of the Company immediately prior to such
transaction;
(v) the Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that such consolidation,
merger or transfer and such supplemental indenture (if any) comply with the
Indenture; and
(vi) the Company shall have delivered to the Trustee an Opinion of Counsel
to the effect that the holders of the Notes will not recognize income, gain or
loss for Federal income tax purposes as a result of such transaction and will
be subject to Federal income tax on the same amounts, in the same manner and
at the same times as would have been the case if such transaction had not
occurred.
The Successor Company shall be the successor to the Company and shall succeed
to, and be substituted for, and may exercise every right and power of, the
Company under the Indenture, but the predecessor Company in the
<PAGE>
case of a conveyance, transfer or lease shall not be released from the
obligation to pay the principal of and interest on the Notes.
SEC Reports. Notwithstanding that the Company may not be subject to the
reporting requirements of Section 13 or 15(d) of the Exchange Act, the Company
shall file with the SEC and provide the Trustee and Noteholders with such annual
reports and such information, documents and other reports as are specified in
Sections 13 and 15(d) of the Exchange Act and applicable to a U.S. corporation
subject to such Sections, such information, documents and other reports to be so
filed and provided at the times specified for the filing of such information,
documents and reports under such Sections if it were subject thereto (unless the
Commission will not accept such a filing, in which case the Company shall
provide such documents to the Trustee). In addition, for so long as any of the
Notes are outstanding, the Company will make available to any prospective
purchaser of the Notes or beneficial owner thereof (upon written request to the
Company) in connection with any sales thereof the information required by Rule
144A(d) (4) under the Securities Act.
DEFAULTS
An Event of Default is defined in the Indenture as (i) a default in the
payment of interest on the Notes when due, continued for 30 days, (ii) a default
in the payment of principal of any Note when due at its Stated Maturity, upon
optional redemption, upon required repurchase, upon declaration or otherwise,
(iii) the failure by the Company to comply with its obligations under "--
Certain Covenants--Merger and Consolidation" above, (iv) the failure by the
Company to comply for 30 days after the notice described below with any of its
obligations in the covenants described above under "--Change of Control"
(other than a failure to purchase Notes) or under "--Certain Covenants" under
"--Limitation on Indebtedness," "--Limitation on Restricted Payments," "--
Limitation on Restrictions on Distributions from Restricted Subsidiaries," "--
Limitation on Sales of Assets and Subsidiary Stock" (other than a failure to
purchase Notes), "--Limitation on Affiliate Transactions," "--Limitation on
the Sale or Issuance of Capital Stock of Certain Restricted Subsidiaries," "--
Limitation on Liens," "--Limitation on Sale/Leaseback Transactions,"
"Limitation on Market Swaps," "Limitation on Lines of Business" or "--SEC
Reports," (v) the failure by the Company to comply for 60 days after the notice
described below with its other agreements contained in the Indenture, (vi)
Indebtedness of the Company or any Significant Subsidiary is not paid within any
applicable grace period after final maturity or is accelerated by the holders
thereof because of a default and the total amount of such Indebtedness unpaid or
accelerated exceeds $10 million and such non-payment continues, or such
acceleration is not rescinded, within 10 days after notice (the "cross
acceleration provision"), (vii) certain events of bankruptcy, insolvency or
reorganization of the Company or a Significant Subsidiary (the "bankruptcy
provisions") or (viii) any judgment or decree (not covered by insurance or
indemnification by a Person other than the Company or a Restricted Subsidiary,
which indemnity party is solvent and has acknowledged responsibility) for the
payment of money in excess of $10 million is entered against the Company or a
Significant Subsidiary, remains outstanding for a period of 60 days following
such judgment and is not discharged, waived, bonded over or stayed within 10
days after notice (the "judgment default provision") . However, a default
under clauses (iv), (v), (vi) and (viii) will not constitute an Event of Default
until the Trustee or the holders of 25% in principal amount at maturity of the
outstanding Notes notify the Company of the default and the Company does not
cure such default within the time specified herein after receipt of such notice.
If an Event of Default occurs and is continuing, the Trustee or the holders of
at least 25% in principal amount at maturity of the outstanding Notes may
declare the Accreted Value of and accrued but unpaid interest on all the Notes
to be due and payable (collectively, the "Default Amount"). Upon such a
declaration, the Default Amount shall be due and payable immediately. If an
Event of Default relating to certain events of bankruptcy, insolvency or
reorganization of the Company occurs and is continuing, the Default Amount on
all the Notes will ipso facto become and be immediately due and payable without
any declaration or other act on the part of the Trustee or any holders of the
Notes. Under certain circumstances, the holders of a majority in principal
amount at maturity of the outstanding Notes may rescind any such acceleration
with respect to the Notes and its consequences. Subject to the provisions of the
Indenture relating to the duties of the Trustee, in case an Event of Default
occurs and is continuing,
<PAGE>
the Trustee will be under no obligation to exercise any of the rights or powers
under the Indenture at the request or direction of any of the holders of the
Notes unless such holders have offered to the Trustee reasonable indemnity or
security against any loss, liability or expense. Except to enforce the right to
receive payment of principal, premium (if any) or interest when due, no holder
of a Note may pursue any remedy with respect to the Indenture or the Notes
unless (i) such holder has previously given the Trustee notice that an Event of
Default is continuing, (ii) holders of at least 25% in principal amount at
maturity of the outstanding Notes have requested the Trustee to pursue the
remedy, (iii) such holders have offered the Trustee reasonable security or
indemnity against any loss, liability or expense, (iv) the Trustee has not
complied with such request within 60 days after the receipt thereof and the
offer of security or indemnity and (v) the holders of a majority in principal
amount at maturity of the outstanding Notes have not given the Trustee a
direction inconsistent with such request within such 60-day period. Subject to
certain restrictions, the holders of a majority in principal amount at maturity
of the outstanding Notes are given the right to direct the time, method and
place of conducting any proceeding for any remedy available to the Trustee or of
exercising any trust or power conferred on the Trustee. The Trustee, however,
may refuse to follow any direction that conflicts with law or the Indenture or
that the Trustee determines is unduly prejudicial to the rights of any other
holder of a Note or that would involve the Trustee in personal liability.
The Indenture provides that if a Default occurs and is continuing and is known
to the Trustee, the Trustee must mail to each holder of the Notes notice of the
Default within 90 days after it occurs. Except in the case of a Default in the
payment of principal of or interest on any Note, the Trustee may withhold notice
if and so long as a committee of its trust officers determines that withholding
notice is not opposed to the interest of the holders of the Notes. In addition,
the Company is required to deliver to the Trustee, within 120 days after the end
of each fiscal year, a certificate indicating whether the signers thereof know
of any Default that occurred during the previous year. The Company also is
required to deliver to the Trustee, within 30 days after the Company becomes
aware of the occurrence thereof, written notice of any event which would
constitute certain Defaults, their status and what action the Company is taking
or proposes to take in respect thereof.
AMENDMENTS AND WAIVERS
Subject to certain exceptions, the Indenture may be amended with the consent
of the holders of a majority in principal amount at maturity of the Notes then
outstanding (including consents obtained in connection with a tender offer or
exchange for the Notes) and any past default or compliance with any provisions
may also be waived with the consent of the holders of a majority in principal
amount at maturity of the Notes then outstanding. However, without the consent
of each holder of an outstanding Note affected thereby, no amendment may, among
other things, (i) reduce the amount of Notes whose holders must consent to an
amendment, (ii) reduce the rate of or extend the time for payment of interest on
any Note, (iii) reduce the principal of or extend the Stated Maturity of any
Note, (iv) reduce the amount payable upon the redemption of any Note or change
the time at which any Note may be redeemed as described under "--Optional
Redemption," (v) make any Note payable in money other than that stated in the
Note, (vi) impair the right of any holder of the Notes to receive payment of
principal of and interest on such holder's Notes on or after the due dates
therefor or to institute suit for the enforcement of any payment on or with
respect to such holder's Notes or (vii) make any change in the amendment
provisions which require each holder's consent or in the waiver provisions.
Without the consent of any holder of the Notes, the Company and Trustee may
amend the Indenture to cure any ambiguity, omission, defect or inconsistency, to
provide for the assumption by a successor corporation of the obligations of the
Company under the Indenture, to provide for uncertificated Notes in addition to
or in place of certificated Notes (provided that the uncertificated Notes are
issued in registered form for purposes of Section 163(f) of the Code, or in a
manner such that the uncertificated Notes are described in Section 163(f)(2)(B)
of the Code), to add guarantees with respect to the Notes, to secure the Notes,
to add to the covenants of the Company for the benefit of the holders of the
Notes or to surrender any right or power conferred upon the Company, to make any
change that does not adversely affect the rights of any holder of the Notes or
to comply with any requirement of the SEC in connection with the qualification
of the Indenture under the Trust Indenture Act.
<PAGE>
The consent of the holders of the Notes is not necessary under the Indenture
to approve the particular form of any proposed amendment. It is sufficient if
such consent approves the substance of the proposed amendment.
After an amendment under the Indenture becomes effective, the Company is
required to mail to holders of the Notes a notice briefly describing such
amendment. However, the failure to give such notice to all holders of the Notes,
or any defect therein, will not impair or affect the validity of the amendment.
TRANSFER AND EXCHANGE
A holder may transfer or exchange the New Notes in accordance with the
Exchange Offer and the Indenture. The Company, the Registrar and the Trustee
may require a holder, among other things, to furnish appropriate endorsements
and transfer documents and the Company may require a holder to pay any taxes and
fees required by law or permitted by the Indenture.
DEFEASANCE
The Company at any time may terminate all its obligations under the Notes and
the Indenture ("legal defeasance"), except for certain obligations, including
those respecting the defeasance trust and obligations to register the transfer
or exchange of the Notes, to replace mutilated, destroyed, lost or stolen Notes
and to maintain a registrar and paying agent in respect of the Notes. The
Company at any time may terminate its obligations under "--Change of Control"
and under the covenants described under "--Certain Covenants" (other than the
covenant described under "--Merger and Consolidation"), the operation of the
cross acceleration provision, the bankruptcy provisions with respect to
Significant Subsidiaries and the judgment default provision described under "--
Defaults" above and the limitations contained in clauses (iii) and (iv) under
"--Certain Covenants--Merger and Consolidation" above ("covenant defeasance").
The Company may exercise its legal defeasance option notwithstanding its prior
exercise of its covenant defeasance option. If the Company exercises its legal
defeasance option, payment of the Notes may not be accelerated because of an
Event of Default with respect thereto. If the Company exercises its covenant
defeasance option, payment of the Notes may not be accelerated because of an
Event of Default specified in clause (iv), (vi), (vii) (with respect only to
Significant Subsidiaries) or (viii) under "--Defaults" above or because of the
failure of the Company to comply with clause (iii) or (iv) under "--Certain
Covenants--Merger and Consolidation" above.
In order to exercise either defeasance option, the Company must irrevocably
deposit in trust (the "defeasance trust") with the Trustee money or U.S.
Government Obligations that through the payment of interest and principal in
respect thereof in accordance with their terms will provide money in an amount
sufficient to pay principal and interest on the Notes when due (whether at
scheduled maturity or upon redemption as to which irrevocable instructions have
been given to the Trustee) in accordance with the terms of the Indenture and the
Notes (the value of such money or U.S. Government Obligations may not be
sufficient to pay the Default Amount at any particular point in time) and must
comply with certain other conditions, including delivery to the Trustee of an
Opinion of Counsel to the effect that holders of the Notes will not recognize
income, gain or loss for Federal income tax purposes as a result of such deposit
and defeasance and will be subject to Federal income tax on the same amounts and
in the same manner and at the same times as would have been the case if such
deposit and defeasance had not occurred (and, in the case of legal defeasance
only, such Opinion of Counsel must be based on a ruling of the Internal Revenue
Service or other change in applicable Federal income tax law).
CONCERNING THE TRUSTEE
<PAGE>
State Street Bank and Trust Company is the Trustee under the Indenture and has
been appointed by the Company as Registrar and Paying Agent with regard to the
Notes.
The Holders of a majority in principal amount at maturity of the outstanding
Notes will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions, including furnishing the Trustee with indemnity satisfactory
to it. The Indenture provides that if an Event of Default occurs (and is not
cured), the Trustee will be required, in the exercise of its power, to use the
degree of care of a prudent man in the conduct of his own affairs. Subject to
such provisions, the Trustee will be under no obligation to exercise any of its
rights or powers under the Indenture at the request of any Holder of Notes,
unless such Holder shall have offered to the Trustee security and indemnity
satisfactory to it against any loss, liability or expense and then only to the
extent required by the terms of the Indenture.
GOVERNING LAW
The Indenture provides that it and the Notes will be governed by, and
construed in accordance with, the laws of the State of New York without giving
effect to applicable principles of conflicts of law to the extent that the
application of the law of another jurisdiction would be required thereby.
CERTAIN DEFINITIONS
"Accreted Value" means, as of any date (the "Specified Date"), the amount
provided below for each $1,000 principal amount at maturity of Notes:
(i) if the Specified Date occurs on one of the following dates (each, a
"Semi-Annual Accrual Date"), the Accreted Value will equal the amount set
forth below for such Semi-Annual Accrual Date:
<TABLE>
<CAPTION>
SEMI-ANNUAL
- -------------------------
ACCRUAL DATE ACCRETED VALUE
- ------------------------- --------------
<S> <C>
Issue Date............. $ 550.76
August 15, 1998........ 585.69
February 15, 1999...... 621.56
August 15, 1999........ 659.63
February 15, 2000...... 700.03
August 15, 2000........ 742.91
February 15, 2001...... 788.41
August 15, 2001........ 836.70
February 15, 2002...... 887.95
August 15, 2002........ 942.34
February 15, 2003...... 1,000.00
</TABLE>
(ii) if the Specified Date occurs between two Semi-Annual Accrual Dates,
the Accreted Value will equal the sum of (a) the Accreted Value for the Semi-
Annual Accrual Date immediately preceding such Specified Date and (b) an
amount equal to the product of (1) the Accreted Value for the immediately
following Semi-Annual Accrual Date less the Accreted Value for the immediately
preceding Semi-Annual Accrual Date multiplied by (2) a fraction, the numerator
of which is the number of days elapsed from the immediately preceding Semi-
Annual Accrual Date to the Specified Date, using a 360-day year of 12 30-day
months, and the denominator of which is 180 (or, if the Semi-Annual Accrual
Date immediately preceding the Specified Date is the Issue Date, the
denominator of which is 186); or
<PAGE>
(iii) if the Specified Date occurs after the last Semi-Annual Accrual Date,
the Accreted Value will equal $1,000.
"Additional Assets" means (i) any property or assets (other than
Indebtedness and Capital Stock) in a Related Business; (ii) the Capital Stock of
a Person that becomes a Restricted Subsidiary as a result of the acquisition of
such Capital Stock by the Company or another Restricted Subsidiary; or (iii)
Capital Stock constituting a minority interest in any Person that at such time
is or becomes a Restricted Subsidiary; provided, however, that any such
Restricted Subsidiary described in clauses (ii) or (iii) above is primarily
engaged in a Related Business.
"Affiliate" of any specified Person means any other Person, directly or
indirectly, controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
For purposes of the provisions described under "--Certain Covenants--Limitation
on Restricted Payments," "--Certain Covenants--Limitation on Affiliate
Transactions" and "--Certain Covenants--Limitation on Sales of Assets and
Subsidiary Stock" only, "Affiliate" shall also mean any beneficial owner of
Capital Stock representing 5% or more of the total voting power of the Voting
Stock (on a fully diluted basis) of the Company or of rights or warrants to
purchase such Capital Stock (whether or not currently exercisable) and any
Person who would be an Affiliate of any such beneficial owner pursuant to the
first sentence hereof.
"Annualized EBITDA" as of any date of determination means EBITDA for the
most recent two consecutive fiscal quarters for which financial statements have
been made publicly available but in no event ending more than 135 days prior to
the date of such determination multiplied by two.
"Area 1 Franchise" means the Company's cable television franchise pursuant
to a Franchise Agreement between the Company and the City of Chicago in effect
on the Issue Date.
"Asset Disposition" means any sale, lease, transfer or other disposition (or
series of related sales, leases, transfers or dispositions) (that is not for
security purposes) by the Company or any Restricted Subsidiary, including any
disposition by means of a merger, consolidation or similar transaction (each
referred to for the purposes of this definition as a "disposition"), of (i) any
shares of Capital Stock (other than Qualified Preferred Stock) of a Restricted
Subsidiary (other than directors' qualifying shares or shares required by
applicable law to be held by a Person other than the Company or a Restricted
Subsidiary), (ii) all or substantially all the assets of any division or line of
business of the Company or any Restricted Subsidiary or (iii) any other assets
(other than Capital Stock or other Investments in an Unrestricted Subsidiary) of
the Company or any Restricted Subsidiary outside of the ordinary course of
business of the Company or such Restricted Subsidiary (other than, in the case
of (i), (ii) and (iii) above, (a) a disposition by a Restricted Subsidiary to
the Company or by the Company or a Restricted Subsidiary to another Restricted
Subsidiary, (b) for purposes of the covenant described under "--Certain
Covenants--Limitation on Sales of Assets and Subsidiary Stock" only, a
disposition that (x) constitutes a Permitted Investment or a Restricted Payment
permitted by the covenant described under "--Certain Covenants--Limitation on
Restricted Payments," (y) complies with the covenant described under "--Certain
Covenants--Merger and Consolidation" or (z) constitutes a Market Swap permitted
by the covenant described under "--Certain Covenants--Limitation on Market
Swaps" and (c) a disposition of assets with a fair market value of less than
$250,000).
"Attributable Debt" in respect of a Sale/Leaseback Transaction means, as at
the time of determination, the present value (discounted at the interest rate
borne by the Notes, compounded annually) of the total obligations of the lessee
for rental payments during the remaining term of the lease included in such
Sale/Leaseback Transaction (including any period for which such lease has been
extended).
<PAGE>
"Average Life" means, as of the date of determination, with respect to any
Indebtedness or Preferred Stock, the quotient obtained by dividing (i) the sum
of the products of numbers of years (calculated to the nearest one-twelfth) from
the date of determination to the dates of each successive scheduled principal
payment of such Indebtedness or redemption or similar payment with respect to
such Preferred Stock multiplied by the amount of each such principal payment by
(ii) the sum of all such principal payments.
"Board of Directors" means the Board of Directors of the Company or any
committee thereof duly authorized to act on behalf of such Board.
"Business Day" means any day other than a Saturday, Sunday or day on which
banking institutions are not required to be open in the States of New York,
Illinois and Massachusetts.
"Capital Lease Obligation" means an obligation that is required to be
classified and accounted for as a capital lease for financial reporting purposes
in accordance with GAAP, and the amount of Indebtedness represented by such
obligation shall be the capitalized amount of such obligation determined in
accordance with GAAP; and the Stated Maturity thereof shall be the date of the
last payment of rent or any other amount due under such lease prior to the first
date upon which such lease may be terminated by the lessee without payment of a
penalty.
"Capital Stock" of any Person means any and all shares, interests, rights to
purchase, warrants, options, participations or other equivalents of or interests
in (however designated, whether voting or nonvoting) equity of such Person,
including any common stock and Preferred Stock, whether outstanding on the Issue
Date or issued after the Issue Date, but excluding any debt securities
convertible into such equity.
"Code" means the Internal Revenue Code of 1986, as amended.
"consolidated" means the consolidation of accounts of the Company and its
Subsidiaries in accordance with GAAP.
"Consolidated Current Liabilities" as of the date of determination means the
aggregate amount of liabilities of the Company and its Restricted Subsidiaries
which may properly be classified as current liabilities (including taxes accrued
as estimated), on a consolidated basis, after eliminating (i) all intercompany
items between the Company and any Restricted Subsidiary and (ii) all current
maturities of long-term Indebtedness, all as determined in accordance with GAAP
consistently applied.
"Consolidated Interest Expense" means, for any period, the total interest
expense of the Company and its consolidated Restricted Subsidiaries, plus, to
the extent not included in such total interest expense, and to the extent
incurred in such period by the Company or its Restricted Subsidiaries, without
duplication, (i) interest expense attributable to capital leases and the
interest expense attributable to leases constituting part of a Sale/Leaseback
Transaction, (ii) amortization of debt discount and debt issuance cost, (iii)
capitalized interest, (iv) non-cash interest expense, (v) commissions, discounts
and other fees and charges owed with respect to letters of credit and bankers'
acceptance financing, (vi) net costs associated with Hedging Obligations
(including amortization of fees), (vii) Preferred Stock dividends in respect of
all Preferred Stock held by Persons other than the Company or a Restricted
Subsidiary, (viii) interest incurred in connection with Investments in
discontinued operations, (ix) interest accruing on any Indebtedness of any other
Person to the extent such Indebtedness is Guaranteed by (or secured by the
assets of) the Company or any Restricted Subsidiary and (x) the cash
contributions to any employee stock ownership plan or similar trust to the
extent such contributions are used by such plan or trust to pay interest or fees
to any Person (other than the Company) in connection with Indebtedness Incurred
by such plan or trust; excluding, however, (y) a proportional amount of any of
the foregoing items or other interest expense incurred by a Restricted
Subsidiary in such period to the extent the net income of such Restricted
Subsidiary is excluded in the calculation of Consolidated Net Income pursuant to
clause (iii) of the definition thereof and (z) any fees or debt issuance costs
(and any amortization thereof) payable in connection with the sale of the Notes
and Units on the Issue Date.
<PAGE>
"Consolidated Leverage Ratio" as of any date of determination means the
ratio of (i) the aggregate amount of Indebtedness of the Company and its
Restricted Subsidiaries calculated on a consolidated basis as of the end of the
most recent fiscal quarter for which financial statements have been made
publicly available but in no event ending more than 135 days prior to the date
of such determination to (ii) Annualized EBITDA as of such date of
determination; provided, however, that
(1) if the transaction giving rise to the need to calculate the
Consolidated Leverage Ratio is an Incurrence of Indebtedness, the amount of
Indebtedness outstanding at the end of such fiscal quarter shall be calculated
after giving effect on a pro forma basis to the Incurrence of such
Indebtedness as if such Indebtedness had been outstanding as of the end of
such fiscal quarter and to the discharge of any other Indebtedness to the
extent it was outstanding as of the end of such fiscal quarter and is to be
repaid, repurchased, defeased or otherwise discharged with the proceeds of
such new Indebtedness as if such Indebtedness had been discharged as of the
end of such fiscal quarter,
(2) if the Company or any Restricted Subsidiary has repaid, repurchased,
defeased or otherwise discharged any Indebtedness that was outstanding as of
the end of such fiscal quarter or if any Indebtedness that was outstanding as
of the end of such fiscal quarter is to be repaid, repurchased, defeased or
otherwise discharged on the date of the transaction giving rise to the need to
calculate the Consolidated Leverage Ratio, the aggregate amount of
Indebtedness outstanding as of the end of such fiscal quarter shall be
calculated on a pro forma basis as if such discharge had occurred as of the
end of such fiscal quarter and EBITDA shall be calculated as if the Company or
such Restricted Subsidiary had not earned the interest income, if any,
actually earned during the period of the most recent two consecutive fiscal
quarters for which financial statements have been made publicly available but
in no event ending more than 135 days prior to the date of such determination
(the "Reference Period") in respect of cash or Temporary Cash Investments
used to repay, repurchase, defease or otherwise discharge such Indebtedness,
(3) if since the beginning of the Reference Period the Company or any
Restricted Subsidiary shall have made any Asset Disposition, the EBITDA for
the Reference Period shall be reduced by an amount equal to the EBITDA (if
positive) directly attributable to the assets which are the subject of such
Asset Disposition for the Reference Period, or increased by an amount equal to
the EBITDA (if negative), directly attributable thereto for the Reference
Period,
(4) if since the beginning of the Reference Period the Company or any
Restricted Subsidiary (by merger or otherwise) shall have made an Investment
in any Restricted Subsidiary (or any person which becomes a Restricted
Subsidiary) or an acquisition of assets, including any acquisition of assets
occurring in connection with a transaction requiring a calculation to be made
hereunder, which constitutes all or substantially all an operating unit of a
business, EBITDA for the Reference Period shall be calculated after giving pro
forma effect thereto (including the Incurrence of any Indebtedness) as if such
Investment or acquisition occurred on the first day of the Reference Period,
(5) if since the beginning of the Reference Period any Person (that
subsequently became a Restricted Subsidiary or was merged with or into the
Company or any Restricted Subsidiary since the beginning of such Reference
Period) shall have made any Asset Disposition, any Investment or acquisition
of assets that would have required an adjustment pursuant to clause (3) or (4)
above if made by the Company or a Restricted Subsidiary during the Reference
Period, EBITDA for the Reference Period shall be calculated after giving pro
forma effect thereto as if such Asset Disposition, Investment or acquisition
occurred on the first day of the Reference Period; and
(6) the aggregate amount of Indebtedness outstanding at the end of such
most recent fiscal quarter will be deemed to include the total principal
amount of funds outstanding or available to be borrowed on the date of
determination under any revolving credit or similar facilities of the Company
or its Restricted Subsidiaries.
<PAGE>
For purposes of this definition, whenever pro forma effect is to be given to an
acquisition of assets or the amount of income or earnings relating thereto, the
pro forma calculations shall be determined in good faith by a responsible
financial or accounting Officer of the Company.
"Consolidated Net Income" means, for any period, the aggregate net income of
the Company and its consolidated Subsidiaries for such period; provided,
however, that the following shall not be included in such Consolidated Net
Income:
(i) any net income (or loss) of any Person (other than the Company) if such
Person is not a Restricted Subsidiary, except that subject to the exclusion
contained in clause (iv) below, the Company's equity in the net income of any
such Person for such period shall be included in such Consolidated Net Income
up to the aggregate amount of cash actually distributed by such Person during
such period to the Company or a Restricted Subsidiary as a dividend or other
distribution (subject, in the case of a dividend or other distribution paid to
a Restricted Subsidiary, to the limitations contained in clause (iii) below);
(ii) any net income (or loss) of any Person acquired by the Company or a
Subsidiary in a pooling of interests transaction for any period prior to the
date of such acquisition;
(iii) any net income of any Restricted Subsidiary if such Restricted
Subsidiary is subject to restrictions, directly or indirectly, on the payment
of dividends or the making of distributions by such Restricted Subsidiary,
directly or indirectly, to the Company, except that (A) subject to the
exclusion contained in clause (iv) below, the Company's equity in the net
income of any such Restricted Subsidiary for such period shall be included in
such Consolidated Net Income up to the aggregate amount of cash actually
distributed by such Restricted Subsidiary during such period to the Company or
another Restricted Subsidiary as a dividend or other distribution (subject, in
the case of a dividend or other distribution paid to another Restricted
Subsidiary, to the limitation contained in this clause) and (B) the Company's
equity in a net loss of any such Restricted Subsidiary for such period shall
be included in determining such Consolidated Net Income;
(iv) the after-tax gain or loss realized upon the sale or other disposition
of any assets of the Company, its consolidated Subsidiaries or any other
Person (including pursuant to any sale-and-leaseback arrangement) which is not
sold or otherwise disposed of in the ordinary course of business and the
after-tax gain or loss realized upon the sale or other disposition of any
Capital Stock of any Person;
(v) extraordinary gains or losses; and
(vi) the cumulative effect of a change in accounting principles.
Notwithstanding the foregoing, for the purposes of the covenant described under
"Certain Covenants--Limitation on Restricted Payments" only, there shall be
excluded from Consolidated Net Income any payments of interest, dividends,
repayments of loans or advances or other transfers of assets from Unrestricted
Subsidiaries to the Company or a Restricted Subsidiary to the extent such
interest, dividends, repayments or transfers increase the amount of Restricted
Payments permitted under such covenant pursuant to clause (a)(3)(D) thereof.
"Consolidated Net Tangible Assets" as of any date of determination, means
the total amount of assets (less accumulated depreciation and amortization,
allowances for doubtful receivables, other applicable reserves and other
properly deductible items) which would appear on a balance sheet of the Company
and its Restricted Subsidiaries, determined on a consolidated basis in
accordance with GAAP, and after giving effect to purchase accounting and after
deducting therefrom Consolidated Current Liabilities and, to the extent
otherwise included, the amounts of: (i) minority interests in consolidated
Subsidiaries held by Persons other than the Company or a Restricted Subsidiary;
(ii) excess of cost over fair value of assets of businesses acquired, as
determined in good faith by the Board of Directors; (iii) any revaluation or
other write-up in book value of assets subsequent to the Issue Date as a result
of a change in the method of valuation in accordance with GAAP consistently
applied; (iv) unamortized debt discount
<PAGE>
and expenses and other unamortized deferred charges, goodwill, patents,
trademarks, service marks, trade names, copyrights, licenses, organization or
developmental expenses and other intangible items; (v) treasury stock; (vi) cash
set apart and held in a sinking or other analogous fund established for the
purpose of redemption or other retirement of Capital Stock to the extent such
obligation is not reflected in Consolidated Current Liabilities; and (vii)
Investments in and assets of Unrestricted Subsidiaries.
"Consolidated Net Worth" means, at any date of determination, the total of
the amounts shown on the balance sheet of the Company and its consolidated
Subsidiaries, determined on a consolidated basis in accordance with GAAP, as of
the end of the most recent fiscal quarter of the Company for which financial
statements have been made publicly available but in no event ending more than
135 days prior to the taking of any action for the purpose of which the
determination is being made, as (i) the par or stated value of all outstanding
Capital Stock of the Company plus (ii) paid-in capital or capital surplus
relating to such Capital Stock plus (iii) any retained earnings or earned
surplus less (A) any accumulated deficit and (B) any amounts attributable to
Disqualified Stock.
"Credit Agreement" means one or more term loans or revolving credit or
working capital facilities (including any letter of credit subfacility) with one
or more banks or other institutional lenders in favor of the Company or any
Restricted Subsidiary.
"Currency Agreement" means in respect of a Person any foreign exchange
contract, currency swap agreement or other similar agreement designed to protect
such Person against fluctuations in currency values.
"Default" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
"Disqualified Stock" means, with respect to any Person, any Capital Stock
which by its terms (or by the terms of any security into which it is convertible
or for which it is exchangeable) or upon the happening of any event (i) matures
or is mandatorily redeemable pursuant to a sinking fund obligation or otherwise,
(ii) is convertible or exchangeable for Indebtedness or Disqualified Stock or
(iii) is redeemable or must be purchased, upon the occurrence of certain events
or otherwise, by such Person at the option of the holder thereof, in whole or in
part, in each case on or prior to the first anniversary of the Stated Maturity
of the Notes; provided, however, that any Capital Stock that would not
constitute Disqualified Stock but for provisions thereof giving holders thereof
the right to require such Person to purchase or redeem such Capital Stock upon
the occurrence of an "asset sale" or "change of control" occurring prior to
the first anniversary of the Stated Maturity of the Notes shall not constitute
Disqualified Stock if (x) the "asset sale" or "change of control" provisions
applicable to such Capital Stock are not more favorable to the holders of such
Capital Stock than the terms applicable to the Notes and described under "--
Certain Covenants--Limitation on Sales of Assets and Subsidiary Stock" and "--
Change of Control" and (y) any such requirement only becomes operative after
compliance with such terms applicable to the Notes, including the purchase of
any Notes tendered pursuant thereto.
"EBITDA" for any period means the sum of Consolidated Net Income, plus the
following to the extent deducted in calculating such Consolidated Net Income:
(a) Consolidated Interest Expense, (b) all income tax expense of the Company and
its consolidated Restricted Subsidiaries, (c) depreciation expense of the
Company and its consolidated Restricted Subsidiaries, (d) amortization expense
of the Company and its consolidated Restricted Subsidiaries (excluding
amortization expense attributable to a prepaid cash item that was paid in a
prior period) and (e) all other non-cash charges of the Company and its
consolidated Restricted Subsidiaries (excluding any such non-cash charge to the
extent that it represents an accrual of or reserve for cash expenditures in any
future period), in each case for such period, all as determined on a
consolidated basis for the Company and its Restricted Subsidiaries.
Notwithstanding the foregoing, the provision for taxes based on the income or
profits of, and the depreciation and amortization and non-cash charges of, a
Restricted Subsidiary shall be added to Consolidated Net Income to compute
EBITDA only to the extent (and in the same proportion) that the net income of
such Restricted Subsidiary was included in calculating Consolidated Net Income
and only if a corresponding amount would be permitted at the date of
determination to be dividended to the Company by such Restricted Subsidiary
without prior approval (that
<PAGE>
has not been obtained), pursuant to the terms of its charter and all agreements,
instruments, judgments, decrees, orders, statutes, rules and governmental
regulations applicable to such Restricted Subsidiary or its stockholders.
"Equity Offering" means either (a) an underwritten primary public offering
of common stock of Parent or the Company pursuant to an effective registration
statement under the Securities Act or (b) a primary offering of Capital Stock
(other than Disqualified Stock) of the Company to one or more Persons primarily
engaged in a Related Business.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Existing Restricted Subsidiary" means any Restricted Subsidiary in
existence on the Issue Date and any Restricted Subsidiary formed after the Issue
Date which thereafter conducts all or any portion of the Company's business
pertaining to its Area 1 Franchise in Chicago, as in effect on the Issue Date.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect as of the Issue Date, including those set forth in (i)
the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants, (ii) statements and
pronouncements of the Financial Accounting Standards Board, (iii) such other
statements by such other entity as approved by a significant segment of the
accounting profession and (iv) the rules and regulations of the SEC governing
the inclusion of financial statements (including pro forma financial statements)
in periodic reports required to be filed pursuant to Section 13 of the Exchange
Act, including opinions and pronouncements in staff accounting bulletins and
similar written statements from the accounting staff of the SEC.
"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness of any Person and any
obligation, direct or indirect, contingent or otherwise, of such Person (i) to
purchase or pay (or advance or supply funds for the purchase or payment of) such
Indebtedness or other obligation of such Person (whether arising by virtue of
partnership arrangements, or by agreements to keep-well, to purchase assets,
goods, securities or services, to take-or-pay or to maintain financial statement
conditions or otherwise) or (ii) entered into for the purpose of assuring in any
other manner the obligee of such Indebtedness of the payment thereof or to
protect such obligee against loss in respect thereof (in whole or in part);
provided, however, that the term "Guarantee" shall not include endorsements
for collection or deposit in the ordinary course of business. The term
"Guarantee" used as a verb has a corresponding meaning. The term "Guarantor"
shall mean any Person Guaranteeing any obligation.
"Hedging Obligations" of any Person means the obligations of such Person
pursuant to any Interest Rate Agreement or Currency Agreement.
"Holder" or "Noteholder" means the Person in whose name a Note is
registered on the Registrar's books.
"Incur" means issue, assume, Guarantee, incur or otherwise become liable
for; provided, however, that any Indebtedness or Capital Stock of a Person
existing at the time such Person becomes a Subsidiary (whether by merger,
consolidation, acquisition or otherwise) shall be deemed to be Incurred by such
Subsidiary at the time it becomes a Subsidiary. The term "Incurrence" when
used as a noun shall have a correlative meaning. The accretion of principal of a
non-interest bearing or other discount security shall be deemed the Incurrence
of Indebtedness.
"Indebtedness" means, with respect to any Person on any date of
determination (without duplication):
(i) the principal in respect of (A) indebtedness of such Person for money
borrowed and (B) indebtedness evidenced by notes, debentures, bonds or other
similar instruments for the payment of which such Person is responsible or
liable, including, in each case, any premium on such indebtedness to the
extent such premium has become due and payable;
<PAGE>
(ii) all Capital Lease Obligations of such Person and all Attributable Debt
in respect of Sale/Leaseback Transactions entered into by such Person;
(iii) all obligations of such Person issued or assumed as the deferred
purchase price of property, all conditional sale obligations of such Person
and all obligations of such Person under any title retention agreement (but
excluding trade accounts payable arising in the ordinary course of business);
(iv) all obligations of such Person for the reimbursement of any obligor on
any letter of credit, banker's acceptance or similar credit transaction (other
than obligations with respect to letters of credit securing obligations (other
than obligations described in clauses (i) through (iii) above) entered into in
the ordinary course of business of such Person to the extent such letters of
credit are not drawn upon or, if and to the extent drawn upon, such drawing is
reimbursed no later than the tenth Business Day following payment on the
letter of credit);
(v) the amount of all obligations of such Person with respect to the
redemption, repayment or other repurchase of any Disqualified Stock or, with
respect to any Subsidiary of such Person (including any Restricted
Subsidiary), the liquidation preference with respect to, any Preferred Stock
(but excluding, in each case, any accrued dividends);
(vi) all obligations of the type referred to in clauses (i) through (v) of
other Persons and all dividends of other Persons for the payment of which, in
either case, such Person is responsible or liable, directly or indirectly, as
obligor, guarantor or otherwise, including by means of any Guarantee;
(vii) all obligations of the type referred to in clauses (i) through (vi)
of other Persons secured by any Lien on any property or asset of such Person
(whether or not such obligation is assumed by such Person), the amount of such
obligation being deemed to be the lesser of the fair value of such property or
assets or the amount of the obligation so secured, in each case as of the date
of determination; and
(viii) to the extent not otherwise included in this definition, Hedging
Obligations of such Person.
The amount of Indebtedness of any Person at any date shall be the outstanding
balance at such date of all unconditional obligations as described above and the
maximum liability, upon the occurrence of the contingency giving rise to the
obligation, of any contingent obligations at such date.
"Interest Rate Agreement" means in respect of a Person any interest rate
swap agreement, interest rate cap, floor, collar or forward interest rate
agreement or other financial agreement or arrangement designed to protect such
Person against fluctuations in interest rates.
"Investment" in any Person means any direct or indirect advance, loan (other
than advances to customers in the ordinary course of business that are recorded
as accounts receivable on the balance sheet of the lender) or other extensions
of credit (including by way of Guarantee or similar arrangement) or capital
contribution to (by means of any transfer of cash or other property to others or
any payment for property or services for the account or use of others), or any
purchase or acquisition of Capital Stock, Indebtedness or other similar
instruments issued by such Person. For purposes of the definition of
"Unrestricted Subsidiary," the definition of "Restricted Payment" and the
covenant described under "--Certain Covenants--Limitation on Restricted
Payments," (i) "Investment" shall include the portion (proportionate to the
Company's equity interest in such Subsidiary) of the fair market value of the
net assets of any Subsidiary of the Company at the time that such Subsidiary is
designated an Unrestricted Subsidiary; provided, however, that upon a
redesignation of such Subsidiary as a Restricted Subsidiary, the Company shall
be deemed to continue to have a permanent "Investment" in an Unrestricted
Subsidiary
<PAGE>
shall be valued at its fair market value at the time of such transfer, in each
case as determined in good faith by the Board of Directors.
"Issue Date" means the date on which the Old Notes were issued under the
Indenture.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind (including any conditional sale or other title retention
agreement or lease in the nature thereof).
"Market Assets" means assets used or useful in the ownership or operation of
a Related Business, including any and all licenses, franchises and assets
related thereto.
"Market Swap" means the execution of a definitive agreement, subject only to
governmental approval and other customary closing conditions, that the Company
in good faith believes will be satisfied, for a substantially concurrent
purchase and sale, or exchange, of Market Assets between the Company or any of
its Restricted Subsidiaries and another Person or group of Persons; provided
that any amendment to or waiver of any closing condition which individually or
in the aggregate is material to the Market Swap will be deemed to be a new
Market Swap; provided, however, that the Market Assets to be sold by the Company
or its Restricted Subsidiaries in connection with a Market Swap do not include
assets used in or necessary for the ownership or operation of the Company's
business pertaining to its Area 1 franchise in Chicago; provided further,
however, that the cash and other assets to be received by the Company or its
Restricted Subsidiaries which do not constitute Market Assets do not constitute
more than 15% of the total consideration to be received by the Company or its
Restricted Subsidiaries in such Market Swap.
"Net Available Cash" from an Asset Disposition means cash payments received
therefrom (including any cash payments received by way of deferred payment of
principal pursuant to a note or installment receivable or otherwise and proceeds
from the sale or other disposition of any securities received as consideration,
but only as and when received, but excluding any other consideration received in
the form of assumption by the acquiring Person of Indebtedness or other
obligations relating to such properties or assets or received in any other
noncash form), in each case net of (i) all legal, title and recording tax
expenses, commissions and other fees and expenses incurred, and all Federal,
state, provincial, foreign and local taxes required to be accrued as a liability
under GAAP, as a consequence of such Asset Disposition, (ii) all payments made
on any Indebtedness which is secured by any assets subject to such Asset
Disposition, in accordance with the terms of any Lien upon or other security
agreement of any kind with respect to such assets, or which must by its terms,
or in order to obtain a necessary consent to such Asset Disposition, or by
applicable law, be repaid out of the proceeds from such Asset Disposition, (iii)
all distributions and other payments required to be made to minority interest
holders in Restricted Subsidiaries as a result of such Asset Disposition and
(iv) the deduction of appropriate amounts provided by the seller as a reserve,
in accordance with GAAP, against any liabilities associated with the property or
other assets disposed in such Asset Disposition and retained by the Company or
any Restricted Subsidiary after such Asset Disposition.
"Net Cash Proceeds", with respect to any issuance or sale of Capital Stock,
means the proceeds of such issuance or sale in the form of cash or cash
equivalents including payments in respect of deferred payment obligations (to
the extent corresponding to the principal, but not interest, component thereof)
when received in such form of cash or cash equivalents and the conversion of
other property received when converted to such form of cash or cash equivalents,
net of any and all issuance costs, including attorneys' fees, accountants' fees,
underwriters' or placement agents' fees, discounts or commissions and brokerage,
consultant and other fees actually incurred in connection with such issuance or
sale and net of taxes paid or payable as a result thereof.
"Parent" means any Person that owns directly or indirectly all the Voting
Stock of the Company.
"Permitted Holders" means Purnendu Chatterjee, JK&B Capital, William Farley,
Boston Capital Ventures II, L.P., Glenn W. Milligan, Edward T. Joyce and each of
their affiliates.
105
<PAGE>
"Permitted Investment" means an Investment by the Company or any Restricted
Subsidiary in (i) the Company, a Restricted Subsidiary or a Person that will,
upon the making of such Investment, become a Restricted Subsidiary; provided,
however, that the primary business of such Restricted Subsidiary is a Related
Business; (ii) another Person if as a result of such Investment such other
Person is merged or consolidated with or into, or transfers or conveys all or
substantially all its assets to, the Company or a Restricted Subsidiary;
provided, however, that such Person's primary business is a Related Business;
(iii) Temporary Cash Investments; (iv) receivables owing to the Company or any
Restricted Subsidiary if created or acquired in the ordinary course of business
and payable or dischargeable in accordance with customary trade terms; provided,
however, that such trade terms may include such concessionary trade terms as the
Company or any such Restricted Subsidiary deems reasonable under the
circumstances; (v) commissions, payroll, travel and similar advances to cover
matters that are expected at the time of such advances ultimately to be treated
as expenses for accounting purposes and that are made in the ordinary course of
business; (vi) loans or advances to employees made in the ordinary course of
business consistent with past practices of the Company or such Restricted
Subsidiary; (vii) stock, obligations or securities received in settlement of
debts created in the ordinary course of business and owing to the Company or any
Restricted Subsidiary or in satisfaction of judgments; (viii) any Person to the
extent such Investment represents either the non-cash portion of the
consideration received for an Asset Disposition as permitted pursuant to the
covenant described under "--Certain Covenants--Limitation on Sales of Assets
and Subsidiary Stock" or the consideration not constituting Market Assets
received in a Market Swap as permitted pursuant to the covenant described under
"--Certain Covenants--Limitation on Market Swaps;" and (ix) any Person
principally engaged in a Related Business if (a) the Company or a Restricted
Subsidiary, after giving effect to such Investment, will own at least 20% of the
Voting Stock of such Person and (b) the amount of such Investment, when taken
together with the aggregate amount of all Investments made pursuant to this
clause (ix) and then outstanding, does not exceed $10.0 million.
"Permitted Liens" means, with respect to any Person,
(a) pledges or deposits by such Person under worker's compensation laws,
unemployment insurance laws or similar legislation and other types of social
security, or good faith deposits in connection with bids, tenders, contracts
(other than for the payment of Indebtedness) or leases to which such Person is
a party, or deposits to secure public or statutory or regulatory obligations
of such Person or deposits of cash, cash equivalents or United States
government bonds to secure surety or appeal bonds to which such Person is a
party, or deposits as security for contested taxes or import duties or for the
payment of rent, in each case Incurred in the ordinary course of business;
(b) Liens imposed by law, such as carriers', landlords', warehousemen's and
mechanics', suppliers', repairmen's or other similar Liens, in each case for
sums not yet due or being contested in good faith by appropriate proceedings
or other Liens arising out of judgments or awards against such Person with
respect to which such Person shall then be proceeding with an appeal or other
proceedings for review and Liens in favor of customs and revenue authorities
to secure payment of customs duties;
(c) Liens for taxes, assessments, governmental charges or claims subject to
penalties for non-payment or which are being contested in good faith and by
appropriate proceedings;
(d) Liens in favor of issuers of surety or payment and performance bonds or
letters of credit and bankers' acceptances issued pursuant to the request of
and for the account of such Person in the ordinary course of its business;
provided, however, that such letters of credit and bankers' acceptances do not
constitute Indebtedness;
(e) survey exceptions, encumbrances, easements or reservations of, or
rights of others for, licenses, rights-of-way, pole attachment, use of
conduit, use of trenches, or similar rights, sewers, electric lines, telegraph
and telephone lines and other similar purposes, or zoning or other
restrictions as to the use of real property or Liens incidental to the conduct
of the business of such Person or to the ownership of its properties or other
municipal and zoning ordinances, title defects or other irregularities which
were not Incurred in connection with
<PAGE>
Indebtedness and which do not in the aggregate materially adversely affect the
value of said properties or materially impair their use in the operation of
the business of such Person;
(f) Liens securing Indebtedness Incurred after the Issue Date pursuant to
clause (b) (7) of the covenant described under "--Limitation on
Indebtedness" or otherwise Incurred to finance the construction, purchase or
lease of, or repairs, improvements or additions to, property of such Person;
provided, however, that the Liens securing such Indebtedness may not extend to
any property owned by such Person or any of its Subsidiaries at the time the
Lien is Incurred other than the property financed with the proceeds of such
Indebtedness and the proceeds thereof, and the Indebtedness (other than any
interest thereon) secured by the Lien may not be Incurred more than 180 days
after the later of the acquisition, completion of construction, repair,
improvement, addition or commencement of full operation of the property
subject to the Lien;
(g) Liens to secure Indebtedness permitted under the provisions described
in clause (b)(1) under "--Certain Covenants--Limitation on Indebtedness;"
(h) Liens existing on the Issue Date;
(i) Liens on property or shares of Capital Stock of another Person at the
time such other Person becomes a Subsidiary of such Person; provided, however,
that such Liens are not created, incurred or assumed in connection with, or in
contemplation of, such other Person becoming such a Subsidiary; provided
further, however, that such Lien may not extend to any other property owned by
such Person or any of its Subsidiaries;
(j) Liens on property at the time such Person or any of its Subsidiaries
acquires the property, including any acquisition by means of a merger or
consolidation with or into such Person or a Subsidiary of such Person;
provided, however, that such Liens are not created, incurred or assumed in
connection with, or in contemplation of, such acquisition; provided further,
however, that the Liens may not extend to any other property owned by such
Person or any of its Subsidiaries;
(k) Liens securing Indebtedness or other obligations of a Subsidiary of
such Person owing to such Person or a Subsidiary of such Person;
(l) Liens securing Hedging Obligations so long as such Hedging Obligations
relate to Indebtedness that is, and is permitted to be under the Indenture,
secured by a Lien on the same property securing such Hedging Obligations; and
(m) Liens arising from filing Uniform Commercial Code financing statements
regarding leases;
(n) Liens arising out of conditional sale, title retention, consignment or
similar arrangements for the sale of goods entered into by the Company or any
of its Restricted Subsidiaries in the ordinary course of business; and
(o) Liens to secure any Refinancing (or successive Refinancings) as a
whole, or in part, of any Indebtedness secured by any Lien referred to in the
foregoing clauses (f), (h), (i) and (j); provided, however, that (I) such new
Lien shall be limited to all or part of the same property that secured the
original Lien (plus improvements to or on such property) and (II) the
Indebtedness secured by such Lien at such time is not increased to any amount
greater than the sum of (A) the outstanding principal amount or, if greater,
committed amount of the Indebtedness described under clauses (f), (h), (i) or
(j) at the time the original Lien became a Permitted Lien and (B) an amount
necessary to pay any accrued and unpaid interest, fees and expenses, including
premiums, related to such refinancing, refunding, extension, renewal or
replacement.
Notwithstanding the foregoing, "Permitted Liens" will not include any Lien
described in clauses (f), (i) or (j) above to the extent such Lien applies to
any Additional Assets acquired directly or indirectly from Net Available Cash
<PAGE>
pursuant to the covenant described under "--Certain Covenants--Limitation on
Sales of Assets and Subsidiary Stock." For purposes of this definition, the
term "Indebtedness" shall be deemed to include interest on such Indebtedness.
"Person" means any individual, corporation, partnership, limited liability
company, joint venture, association, joint-stock company, trust, unincorporated
organization, government or any agency or political subdivision thereof or any
other entity.
"Preferred Stock", as applied to the Capital Stock of any Person, means
Capital Stock of any class or classes (however designated, whether voting or
nonvoting) which is preferred as to the payment of dividends or distributions,
or as to the distribution of assets upon any voluntary or involuntary
liquidation or dissolution of such Person, over shares of Capital Stock of any
other class of such Person.
"principal" of a Note means the Accreted Value of the Note plus the premium,
if any, payable on the Note which is due or overdue or is to become due at the
relevant time.
"principal amount at maturity" of a Note means the amount specified as such
on the face of such Note.
"Public Market" means any time after (x) a Public Offering has been
consummated and (y) at least 15% of the total issued and outstanding common
stock of Parent or the Company has been distributed by means of an effective
registration statement under the Securities Act or sales pursuant to Rule 144
under the Securities Act.
"Public Offering" means an underwritten primary public offering of common
stock of the Company pursuant to an effective registration statement under the
Securities Act.
"Qualified Preferred Stock" of a Restricted Subsidiary means a series of
Preferred Stock of such Restricted Subsidiary which (i) has a fixed liquidation
preference that is no greater in the aggregate than the sum of (x) the fair
market value (as determined in good faith by the Board of Directors at the time
of the issuance of such series of Preferred Stock) of the consideration received
by such Restricted Subsidiary for the issuance of such series of Preferred Stock
and (y) accrued and unpaid dividends to the date of liquidation, (ii) has a
fixed annual dividend and has no right to share in any dividend or other
distributions based on the financial or other similar performance of such
Restricted Subsidiary and (iii) does not entitle the holders thereof to vote in
the election of directors, managers or trustees of such Restricted Subsidiary
unless such Restricted Subsidiary has failed to pay dividends on such series of
Preferred Stock for a period of at least 12 consecutive calendar months.
"Refinance" means, in respect of any Indebtedness, to refinance, extend,
renew, refund, repay, prepay, redeem, defease or retire, or to issue other
Indebtedness in exchange or replacement for, such indebtedness. "Refinanced"
and "Refinancing" shall have correlative meanings.
"Refinancing Indebtedness" means Indebtedness that Refinances any
Indebtedness of the Company or any Restricted Subsidiary existing on the Issue
Date or Incurred in compliance with the Indenture, including Indebtedness that
Refinances Refinancing Indebtedness; provided, however, that (i) such
Refinancing Indebtedness has a Stated Maturity no earlier than the Stated
Maturity of the Indebtedness being Refinanced, (ii) such Refinancing
Indebtedness has an Average Life at the time such Refinancing Indebtedness is
Incurred that is equal to or greater than the Average Life of the Indebtedness
being Refinanced and (iii) such Refinancing Indebtedness has an aggregate
principal amount (or if Incurred with original issue discount, an aggregate
issue price) that is equal to or less than the aggregate principal amount (or if
Incurred with original issue discount, the aggregate accreted value) then
outstanding or committed (plus accrued and unpaid interest, fees and expenses,
including any premium and defeasance costs) under the Indebtedness being
Refinanced; provided further, however, that Refinancing Indebtedness shall not
include (x) Indebtedness of a Subsidiary that Refinances Indebtedness of the
Company or (y) Indebtedness of the Company or a Restricted Subsidiary that
Refinances Indebtedness of an Unrestricted Subsidiary.
<PAGE>
"Related Business" means the businesses of the Company and the Restricted
Subsidiaries on the Issue Date and any business related, ancillary or
complementary to the businesses of the Company and the Restricted Subsidiaries
on the Issue Date.
"Restricted Payment" with respect to any Person means
(i) the declaration or payment of any dividends or any other distributions
of any sort (including any payment in connection with any merger or
consolidation involving such Person) in respect of its Capital Stock held by
Persons other than the Company or any Restricted Subsidiary or similar payment
to the direct or indirect holders (other than the Company or a Restricted
Subsidiary) of its Capital Stock (other than dividends or distributions
payable solely in its Capital Stock (other than Disqualified Stock), and other
than pro rata dividends or other distributions made by a Subsidiary that is
not a Wholly Owned Subsidiary to minority stockholders (or owners of an
equivalent interest in the case of a Subsidiary that is an entity other than a
corporation)),
(ii) the purchase, redemption or other acquisition or retirement for value
of any Capital Stock of the Company held by any Person or of any Capital Stock
of a Restricted Subsidiary held by any Affiliate of the Company (other than a
Restricted Subsidiary), including the exercise of any option to exchange any
Capital Stock (other than into Capital Stock of the Company that is not
Disqualified Stock),
(iii) the purchase, repurchase, redemption, defeasance or other acquisition
or retirement for value, prior to scheduled maturity, scheduled repayment or
scheduled sinking fund payment of any Subordinated Obligations (other than the
purchase, repurchase, redemption or other acquisition of Subordinated
Obligations purchased in anticipation of satisfying a sinking fund obligation,
principal installment or final maturity, in each case due within one year of
the date of such purchase, repurchase, redemption or acquisition) or
(iv) the making of any Investment (other than a Permitted Investment) in
any Person.
"Restricted Subsidiary" means any Subsidiary of the Company that is not an
Unrestricted Subsidiary.
"Sale/Leaseback Transaction" means an arrangement relating to property now
owned or hereafter acquired whereby the Company or a Restricted Subsidiary
transfers such property to a Person and the Company or a Restricted Subsidiary
leases it from such Person.
"SEC" means the Securities and Exchange Commission.
"Senior Indebtedness" means Indebtedness (including interest on such
Indebtedness) of the Company, whether outstanding on the Issue Date or
thereafter Incurred, unless in the instrument creating or evidencing the same or
pursuant to which the same is outstanding, it is provided that such obligations
are subordinate in right of payment to the Notes; provided, however, that Senior
Indebtedness shall not include (1) any obligation of the Company to any
Subsidiary, (2) any liability for Federal, state, local or other taxes owed or
owing by the Company, (3) any accounts payable or other liability to trade
creditors arising in the ordinary course of business (including guarantees
thereof or instruments evidencing such liabilities), (4) any Indebtedness of the
Company (and any accrued and unpaid interest in respect thereof) which is
subordinate or junior in any respect to any other Indebtedness or other
obligation of the Company or (5) that portion of any Indebtedness which at the
time of Incurrence is Incurred in violation of the Indenture.
"Significant Subsidiary" means any Restricted Subsidiary that would be a
"Significant Subsidiary" of the Company within the meaning of Rule 1-02 under
Regulation S-X promulgated by the SEC.
"Stated Maturity" means, with respect to any security, the date specified in
such security as the fixed date on which the final payment of principal of such
security is due and payable, including pursuant to any mandatory
<PAGE>
redemption provision (but excluding any provision providing for the repurchase
of such security at the option of the holder thereof upon the happening of any
contingency unless such contingency has occurred).
"Subordinated Obligation" means any Indebtedness of the Company (whether
outstanding on the Issue Date or thereafter Incurred) which is expressly
subordinate or junior in right of payment to the Notes pursuant to a written
agreement to that effect.
"Subsidiary" means, in respect of any Person, any corporation, association,
partnership or other business entity of which more than 50% of the total voting
power of shares of Voting Stock is at the time owned or controlled, directly or
indirectly, by (i) such Person, (ii) such Person and one or more Subsidiaries of
such Person or (iii) one or more Subsidiaries of such Person.
"Temporary Cash Investments" means any of the following:
(i) any investment in direct obligations of the United States of America or
any agency thereof or obligations guaranteed by the United States of America
or any agency thereof,
(ii) investments in time deposit accounts, certificates of deposit and
money market deposits maturing within 365 days of the date of acquisition
thereof issued by a bank or trust company which is organized under the laws of
the United States of America, any state thereof or any foreign country
recognized by the United States, and which bank or trust company has capital,
surplus and undivided profits aggregating in excess of $50,000,000 (or the
foreign currency equivalent thereof) and has outstanding debt which is rated
"A" (or such similar equivalent rating) or higher by at least one nationally
recognized statistical rating organization (as defined in Rule 436 under the
Securities Act) or any money-market fund sponsored by a registered broker
dealer or mutual fund distributor,
(iii) repurchase obligations with a term of not more than 30 days for
underlying securities of the types described in clause (i) above entered into
with a bank meeting the qualifications described in clause (ii) above,
(iv) investments in commercial paper, maturing not more than 270 days after
the date of acquisition, issued by a corporation (other than an Affiliate of
the Company) organized and in existence under the laws of the United States of
America or any foreign country recognized by the United States of America with
a rating at the time as of which any investment therein is made of "P-1" (or
higher) according to Moody's Investors Service, Inc. or "A-1" (or higher)
according to Standard and Poor's Ratings Group,
(v) investments in securities with maturities of six months or less from
the date of acquisition issued or fully guaranteed by any state, commonwealth
or territory of the United States of America, or by any political subdivision
or taxing authority thereof, and rated at least "A" by Standard & Poor's
Ratings Group or "A" by Moody's Investors Service, Inc., and
(vi) investments in money-market funds (other than single-state funds) that
make investments in instruments of the type described in clause (i)-(v) above
in accordance with the regulations of the Securities and Exchange Commission
under the Investment Company Act of 1940, as amended.
"Unrestricted Subsidiary" means (i) any Subsidiary of the Company that at
the time of determination shall be designated an Unrestricted Subsidiary by the
Board of Directors in the manner provided below and (ii) any Subsidiary of an
Unrestricted Subsidiary. The Board of Directors may designate any Subsidiary of
the Company (including any newly acquired or newly formed Subsidiary) to be an
Unrestricted Subsidiary unless such Subsidiary or any of its Subsidiaries owns
any Capital Stock or Indebtedness of, or holds any Lien on any property of, the
Company or any other Subsidiary of the Company that is not a Subsidiary of the
Subsidiary to be so designated; provided, however, that either (A) the
Subsidiary to be so designated has total assets of $1,000 or less or (B) if such
Subsidiary has assets greater than $1,000, such designation would be permitted
under the covenant described under
<PAGE>
"--Certain Covenants--Limitation on Restricted Payments." The Board of Directors
may designate any Unrestricted Subsidiary to be a Restricted Subsidiary;
provided, however, that immediately after giving effect to such designation (x)
the Company could Incur $1.00 of additional Indebtedness under paragraph (a) of
the covenant described under "--Certain Covenants--Limitation on Indebtedness"
and (y) no Default shall have occurred and be continuing. Any such designation
by the Board of Directors shall be evidenced to the Trustee by promptly filing
with the Trustee a copy of the resolution of the Board of Directors giving
effect to such designation and an Officers' Certificate certifying that such
designation complied with the foregoing provisions.
"U.S. Government Obligations" means direct obligations (or certificates
representing an ownership interest in such obligations) of the United States of
America (including any agency or instrumentality thereof) for the payment of
which the full faith and credit of the United States of America is pledged and
which are not callable at the issuer's option.
"Voting Stock" of a Person means all classes of Capital Stock or other
interests (including partnership interests) of such Person then outstanding and
normally entitled (without regard to the occurrence of any contingency) to vote
in the election of directors, managers or trustees thereof.
"Wholly Owned Subsidiary" means a Restricted Subsidiary all the Capital
Stock of which (other than directors' qualifying shares) is owned by the Company
or one or more Wholly Owned Subsidiaries.
DESCRIPTION OF THE NEW EXCHANGEABLE PREFERRED STOCK
The following is a summary of certain provisions of the New Exchangeable
Preferred Stock and the Amendment to the Articles of Incorporation (the
"Amended Articles") setting forth the rights and privileges of the New
Exchangeable Preferred Stock. A copy of the Amended Articles and the form of New
Exchangeable Preferred Stock is available upon request to the Company at the
address set forth under "Available Information." The following summary of
certain provisions of the Amended Articles does not purport to be complete and
is subject to, and is qualified in its entirety by reference to, all the
provisions of the Amended Articles. The definitions of certain capitalized terms
used but not defined in the following summary are set forth under "Description
of the Exchange Debentures--Certain Definitions." Other capitalized terms used
but not defined herein and not otherwise defined under "Description of the
Exchange Debentures--Certain Definitions" are defined in the Amended Articles.
GENERAL
At the consummation of the Exchange Offer, the Company will issue up to 50,000
shares of its registered 13 3/4% Senior Cumulative Exchangeable Preferred Stock
Due 2010, $0.01 par value per share, designated as "13 3/4% Senior Cumulative
Exchangeable Preferred Stock Due 2010," in exchange for an equal number shares
of its outstanding 13 3/4% Senior Cumulative Exchangeable Preferred Stock Due
2010, $0.01 par value per share. Subject to certain conditions, the New
Exchangeable Preferred Stock will be exchangeable for the Exchange Debentures at
the option of the Company on any scheduled dividend payment date on or after the
date of issuance of the New Exchangeable Preferred Stock. When issued, the New
Exchangeable Preferred Stock will be validly issued, fully paid and
nonassessable. The holders of the New Exchangeable Preferred Stock will have no
preemptive or preferential right to purchase or subscribe for stock,
obligations, warrants, or other securities of the Company of any class.
RANKING
<PAGE>
The Exchangeable Preferred Stock will, with respect to dividend rights and
rights on liquidation, winding-up and dissolution, rank (i) senior to all
classes of common stock and to each other class of Capital Stock or series of
Preferred Stock outstanding on the Issue Date (including the Class A Preferred
Stock and the Class B Preferred Stock) and each other class or series
established hereafter by the Board of Directors the terms of which do not
expressly provide that it ranks senior to, or on a parity with, the Exchangeable
Preferred Stock as to dividend rights and rights on liquidation, winding-up and
dissolution of the Company (collectively referred to, together with all classes
of common stock of the Company, as "Junior Stock"); (ii) subject to certain
conditions, on a parity with each class of Capital Stock or series of Preferred
Stock established hereafter by the Board of Directors, the terms of which
expressly provide that such class or series will rank on a parity with the
Exchangeable Preferred Stock as to dividend rights and rights on liquidation,
winding-up and dissolution (collectively referred to as "Parity Stock"); and
(iii) subject to certain conditions, junior to each class of Capital Stock or
series of Preferred Stock established hereafter by the Board of Directors, the
terms of which expressly provide that such class or series will rank senior to
the Exchangeable Preferred Stock as to dividend rights and rights upon
liquidation, winding-up and dissolution of the Company (collectively referred to
as "Senior Stock").
While any shares of Exchangeable Preferred Stock are outstanding, the Company
may not authorize, create or increase the authorized amount of any class or
series of stock that ranks senior to or on parity with the Exchangeable
Preferred Stock with respect to the payment of dividends or amounts upon
liquidation, dissolution or winding up without the consent of the holders of a
majority of the outstanding shares of Exchangeable Preferred Stock. However,
without the consent of any holder of Exchangeable Preferred Stock, the Company
may create additional classes of stock, increase the authorized number of shares
of preferred stock or issue series of a stock that ranks junior to the
Exchangeable Preferred Stock with respect, in each case, to the payment of
dividends and amounts upon liquidation, dissolution and winding up. See "--
Voting Rights."
Substantially all the operations of the Company are or will be conducted
through one or more of its subsidiaries. The Company intends to transfer
substantially all its assets to newly formed Restricted Subsidiaries, and
thereafter the Company will be a holding company with no assets other than the
capital stock of its subsidiaries. Claims of creditors of such subsidiaries,
including trade creditors, secured creditors and creditors holding indebtedness
and guarantees issued by such subsidiaries, and claims of preferred stockholders
(if any) of such subsidiaries generally will have priority with respect to the
assets and earnings of such subsidiaries over the claims of creditors of the
Company, including holders of the Exchangeable Preferred Stock. The Exchangeable
Preferred Stock, therefore, will be effectively subordinated to creditors
(including trade creditors) and preferred stockholders (if any) of subsidiaries
of the Company. Although the Amended Articles limit the incurrence of
Indebtedness and preferred stock of certain of the Company's subsidiaries, such
limitation is subject to a number of significant qualifications. Moreover, the
Amended Articles does not impose any limitation on the incurrence by such
subsidiaries of liabilities that are not considered Indebtedness or Preferred
Stock under the Amended Articles. See "--Certain Covenants--Limitation on
Indebtedness."
DIVIDENDS
The holders of shares of New Exchangeable Preferred Stock will be entitled to
receive, when, as and if dividends are declared by the Board of Directors out of
funds of the Company legally available therefor, cumulative preferential
dividends from the Issue Date accruing at the rate per share of 13 3/4% per
annum, payable quarterly in arrears on each of February 15, May 15, August 15
and November 15 or, if any such date is not a Business Day, on the next
succeeding Business Day, to the holders of record as of the next preceding
February 1, May 1, August 1 and November 1. Dividends will be payable in cash,
except that on each dividend payment date occurring on or prior to the fifth
anniversary of the Issue Date, dividends may be paid, at the Company's option,
by the issuance of additional shares of New Exchangeable Preferred Stock
(including fractional shares) having an aggregate liquidation preference equal
to the amount of such dividends. The issuance of such additional shares of New
Exchangeable Preferred Stock will constitute "payment" of the related dividend
for all purposes of the Amended Articles. The first dividend payment of New
Exchangeable Preferred Stock will be payable on May 15, 1998.
<PAGE>
Dividends payable on the New Exchangeable Preferred Stock will be computed on a
basis of the 360-day year consisting of twelve 30-day months and will be deemed
to accrue on a daily basis. For a discussion of certain Federal income tax
considerations relevant to the payment of dividends on the New Exchangeable
Preferred Stock, see "Certain United States Federal Income Tax Consequences."
Dividends on the New Exchangeable Preferred Stock will accrue whether or not
the Company has earnings or profits, whether or not there are funds legally
available for the payment of such dividends and whether or not dividends are
declared. Dividends will accumulate to the extent they are not paid on the
Dividend Payment Date for the period to which they relate. The Amended Articles
will provide that the Company will take all actions required or permitted under
the Illinois Business Corporation Act (the "IBCA") to permit the payment of
dividends on the Exchangeable Preferred Stock, including through the revaluation
of its assets in accordance with the IBCA.
No dividend whatsoever shall be declared or paid upon, or any sum set apart
for the payment of dividends upon, any outstanding share of the New Exchangeable
Preferred Stock with respect to any dividend period unless all dividends for all
preceding dividend periods have been declared and paid or declared and a
sufficient sum set apart (or, on or prior to February 15, 2003, shares of New
Exchangeable Preferred Stock for which have been issued and are held for holders
by the Transfer Agent) for the payment of such dividend, upon all outstanding
shares of New Exchangeable Preferred Stock.
Except as provided in the next sentence, no dividend will be declared or paid
on any Parity Stock unless full cumulative dividends have been paid on the New
Exchangeable Preferred Stock for all prior dividend periods. If accrued
dividends on the New Exchangeable Preferred Stock for all prior dividend periods
have not been paid in full then any dividend declared on the New Exchangeable
Preferred Stock for any dividend period and on any Parity Stock will be declared
ratably in proportion to accrued and unpaid dividends on the New Exchangeable
Preferred Stock and such Parity Stock.
The Company will not (i) declare, pay or set apart funds for the payment of
any dividend or other distribution with respect to any Junior Stock or (ii)
redeem, purchase or otherwise acquire for consideration any Junior Stock through
a sinking fund or otherwise, unless (A) all accrued and unpaid dividends with
respect to the New Exchangeable Preferred Stock and any Parity Stock at the time
such dividends are payable have been paid or funds have been set apart (or, on
or prior to February 15, 2003, shares of New Exchangeable Preferred Stock for
which have been issued and are held for holders by the Transfer Agent) for
payment of such dividends and (B) sufficient funds have been paid or set apart
(or, on or prior to February 15, 2003, shares of New Exchangeable Preferred
Stock for which have been issued and are held for holders by the Transfer Agent)
for the payment of the dividend for the current dividend period with respect to
the New Exchangeable Preferred Stock and any Parity Stock.
OPTIONAL REDEMPTION
Except as set forth in the following paragraph, the Exchangeable Preferred
Stock will not be redeemable at the option of the Company prior to February 15,
2003. Thereafter, the Exchangeable Preferred Stock will be redeemable, at the
Company's option, in whole or in part, at any time or from time to time, upon
not less than 30 nor more than 60 days' prior notice mailed by first-class mail
to each Holder's registered address, at the following redemption prices
(expressed in percentages of the liquidation preference thereof), plus
accumulated and unpaid dividends (including an amount in cash equal to a
prorated dividend for any partial dividend period) (subject to the rights of
holders of record on the relevant record date to receive dividends due on the
relevant dividend payment date), if redeemed during the 12-month period
commencing on February 15 of the years set forth below:
<TABLE>
<CAPTION>
REDEMPTION
----------
PERIOD PRICE
- ---------- -----
<S> <C>
2003..................... 106.8750%
2004..................... 104.5833
</TABLE>
<PAGE>
<TABLE>
<S> <C>
2005..................... 102.2917
2006 and thereafter...... 100.0000
</TABLE>
In the case of any partial redemption, selection of the Exchangeable Preferred
Stock for redemption will be made on a pro rata basis.
In addition, at any time prior to February 15, 2001, the Company may redeem
the Exchangeable Preferred Stock, in whole, but not in part, with the proceeds
(to the extent received by the Company) of an Equity Offering, at a redemption
price of 113 3/4% of the liquidation preference thereof, plus accumulated and
unpaid dividends (including an amount in cash equal to a prorated dividend for
any partial dividend period) (subject to the rights of holders of record on the
relevant record date to receive dividends due on the relevant dividend payment
date).
MANDATORY REDEMPTION
On February 15, 2010, the Company will be required to redeem (subject to the
legal availability of funds therefor) all outstanding shares of Exchangeable
Preferred Stock at a price in cash equal to the liquidation preference thereof,
plus accumulated and unpaid dividends (including an amount in cash equal to a
prorated dividend for any partial dividend period), if any, to the date of
redemption (subject to the rights of holders of record on the relevant record
date to receive dividends on the relevant dividend payment date). The Company
will not be required to make sinking fund payments with respect to the
Exchangeable Preferred Stock. The Amended Articles will provide that the Company
will take all actions required or permitted under the IBCA to permit such
redemption.
EXCHANGE
The Company may, at its option, subject to certain conditions, on any
scheduled dividend payment date, exchange the Exchangeable Preferred Stock, in
whole, but not in part, for the Exchange Debentures; provided, however, that (i)
on the date of such exchange there are no accumulated and unpaid dividends on
the Exchangeable Preferred Stock (including the dividend payable on such date)
or other contractual impediments to such exchange; (ii) there shall be funds
legally available sufficient therefor; (iii) immediately after giving effect to
such exchange, no Default (as defined in the Exchange Indenture) shall have
occurred and be continuing; and (iv) the Company shall have delivered to the
Trustee under the Exchange Indenture an opinion of counsel with respect to the
due authorization and issuance of the Exchange Debentures.
Upon any exchange pursuant to the preceding paragraph, holders of outstanding
shares of Exchangeable Preferred Stock will be entitled to receive, subject to
the second succeeding sentence, $1.00 principal amount of Exchange Debentures
for each $1.00 liquidation preference of Exchangeable Preferred Stock held by
them. The Exchange Debentures will be issued in registered form, without
coupons. Exchange Debentures issued in exchange for Exchangeable Preferred Stock
will be issued in principal amounts of $1,000 and integral multiples thereof to
the extent possible, and will also be issued in principal amounts less than
$1,000 so that each holder of Exchangeable Preferred Stock will receive
certificates representing the entire amount of Exchange Debentures to which such
holder's shares of Exchangeable Preferred Stock entitle such holder; provided,
however, that the Company may pay cash in lieu of issuing an Exchange Debenture
in a principal amount less than $1,000. The Company will send a written notice
of exchange by mail to each holder of record of shares of Exchangeable Preferred
Stock not fewer than 30 days nor more than 60 days before the date fixed for
such exchange. On and after the Exchange Date, dividends will cease to accrue on
the outstanding shares of Exchangeable Preferred Stock, and all rights of the
holders of Exchangeable Preferred Stock (except the right to receive the
Exchange Debentures, an amount in cash (or, prior to February 15, 2003, at the
option of the Company, in Exchange Debentures), in each case, to the extent
applicable, equal to the accumulated and unpaid dividends to the exchange date
and, if the Company so elects, cash in lieu of any Exchange Debenture that is in
a principal amount that is not an integral multiple of $1,000) will
<PAGE>
terminate. The person entitled to receive the Exchange Debentures issuable upon
such exchange will be treated for all purposes as the registered holder of such
Exchange Debentures. See "Description of the Exchange Debentures."
LIQUIDATION PREFERENCE
Upon any voluntary or involuntary liquidation, dissolution or winding-up of
the Company, each holder of Exchangeable Preferred Stock will be entitled to be
paid, out of the assets of the Company available for distribution to
stockholders, an amount equal to the liquidation preference per share of
Exchangeable Preferred Stock held by such holder, plus accumulated and unpaid
dividends thereon to the date fixed for liquidation, dissolution or winding-up
before any distribution is made on any Junior Stock, including the Class A
Preferred Stock, the Class B Preferred Stock and the common stock of the
Company. If, upon any voluntary or involuntary liquidation, dissolution or
winding-up of the Company, the amounts payable with respect to the Exchangeable
Preferred Stock and all other Parity Stock are not paid in full, the holders of
the Exchangeable Preferred Stock and the Parity Stock will share equally and
ratably in any distribution of assets of the Company in proportion to the full
liquidation preference and accumulated and unpaid dividends to which each is
entitled. After payment of the full amount of the liquidation preference and
accumulated and unpaid dividends to which they are entitled, the holders of
shares of Exchangeable Preferred Stock will not be entitled to any further
participation in any distribution of assets of the Company. However, neither the
sale, conveyance, exchange or transfer (for cash, shares of stock, securities or
other consideration) of all or substantially all the property or assets of the
Company nor the consolidation or merger of the Company with one or more entities
shall be deemed to be a liquidation, dissolution or winding-up of the Company.
The Amended Articles will not contain any provision requiring funds to be set
aside to protect the liquidation preference of the Exchangeable Preferred Stock,
although such liquidation preference will be substantially in excess of the par
value of such shares of Exchangeable Preferred Stock.
VOTING RIGHTS
The holders of Exchangeable Preferred Stock, except as otherwise required
under Illinois law or as provided in the Amended Articles, shall not be entitled
or permitted to vote on any matter required or permitted to be voted upon by the
stockholders of the Company.
The Amended Articles will provide that if (i) dividends on the Exchangeable
Preferred Stock are in arrears and unpaid for six or more dividend periods
(whether or not consecutive); (ii) the Company fails to redeem the Exchangeable
Preferred Stock on February 15, 2010, or fails to otherwise discharge any
redemption obligation with respect to the Exchangeable Preferred Stock; (iii) a
breach or violation of any of the provisions described under the captions "--
Change of Control" or "--Certain Covenants" occurs and the breach or
violation continues for a period of 30 days or more after the Company receives
notice thereof specifying the default from the holders of at least 25% of the
shares of Exchangeable Preferred Stock then outstanding; or (iv) the Company
fails to pay at final maturity (giving effect to any applicable grace period)
the principal amount of any Indebtedness of the Company or any Significant
Subsidiary or the final maturity of any such Indebtedness is accelerated because
of a default and the total amount of such Indebtedness unpaid or accelerated
exceeds $10 million and such nonpayment continues, or such acceleration is not
rescinded, within 10 days, then the holders of the outstanding shares of
Exchangeable Preferred Stock, voting together as a single class, will be
entitled to elect to serve on the Board of Directors the lesser of (x) two
additional members to the Board of Directors or (y) that number of directors
constituting 25% of the members of the Board of Directors, and the number of
members of the Board of Directors will be immediately and automatically
increased by such number. Such voting rights of the Exchangeable Preferred Stock
will continue until such time as, in the case of a dividend default, all
dividends in arrears on the Exchangeable Preferred Stock are paid in full in
cash (or, if prior to February 15, 2003, in shares of Exchangeable Preferred
Stock) and, in all other cases, any failure, breach or default giving rise to
such voting rights is remedied or waived by the holders of a majority of the
shares of Exchangeable Preferred Stock then outstanding, at which time the term
of any directors elected
<PAGE>
pursuant to the provisions of this paragraph (subject to the rights of holders
of any other preferred stock to elect such directors) shall terminate. Each such
event described in clauses (i) through (iv) above is referred to herein as a
"Voting Rights Triggering Event."
The Amended Articles will also provide that the Company will not authorize,
create or increase the authorized amount of any class of Senior Stock or Parity
Stock without the affirmative vote or consent of holders of a majority of the
shares of Exchangeable Preferred Stock then outstanding, voting or consenting,
as the case may be, as one class. In addition, the Amended Articles will provide
that the Company may not authorize the issuance of any additional shares of
Exchangeable Preferred Stock without the affirmative vote or consent of the
holders of a majority of the then outstanding shares of Exchangeable Preferred
Stock, voting or consenting, as the case may be, as one class. The Amended
Articles will also provide that, except as set forth above, (a) the creation,
authorization or issuance of any shares of Junior Stock, or (b) the increase or
decrease in the amount of authorized Capital Stock of any class, including any
preferred stock, shall not require the consent of the holders of Exchangeable
Preferred Stock and shall not be deemed to affect adversely the rights,
preferences, privileges or voting rights of shares of Exchangeable Preferred
Stock.
CHANGE OF CONTROL
The Amended Articles will provide that upon the occurrence of a Change of
Control, the Company shall offer to repurchase the Exchangeable Preferred Stock
at a purchase price in cash equal to 101% of the liquidation preference thereof
plus accumulated and unpaid dividends, if any, to the date of purchase (subject
to the rights of holders of record on the relevant record date to receive
dividends due on the relevant dividend payment date), as described below.
A Change of Control will be deemed to have occurred upon the occurrence of any
of the following events (each a "Change of Control"):
(i) Prior to the earlier to occur of (A) the first public offering of
common stock of Parent or (B) the first public offering of common stock of the
Company, the Permitted Holders cease to be the "beneficial owner" (as
defined in Rules 13d-3 and 13d-5 under the Exchange Act), directly or
indirectly, of a majority in the aggregate of the total voting power of the
Voting Stock of the Company, whether as a result of issuance of securities of
the Parent or the Company, any merger, consolidation, liquidation or
dissolution of the Parent or the Company, any direct or indirect transfer of
securities by Parent or otherwise (for purposes of this clause (i) and clause
(ii) below, the Permitted Holders shall be deemed to beneficially own any
Voting Stock of a corporation (the "specified corporation") held by any
other corporation (the "parent corporation") so long as the Permitted
Holders beneficially own (as so defined), directly or indirectly, in the
aggregate a majority of the voting power of the Voting Stock of the parent
corporation);
(ii) Any "person" (as such term is used in Sections 13(d) and 14(d) of
the Exchange Act), other than one or more Permitted Holders, is or becomes the
beneficial owner (as defined in clause (i) above, except that for purposes of
this clause (ii) such person shall be deemed to have "beneficial ownership"
of all shares that any such person has the right to acquire, whether such
right is exercisable immediately or only after the passage of time), directly
or indirectly, of more than 35% of the total voting power of the Voting Stock
of the Company; provided, however, that the Permitted Holders beneficially own
(as defined in clause (i) above), directly or indirectly, in the aggregate a
lesser percentage of the total voting power of the Voting Stock of the Company
than such other person and do not have the right or ability by voting power,
contract or otherwise to elect or designate for election a majority of the
Board of Directors (for the purposes of this clause (ii), such other person
shall be deemed to beneficially own any Voting Stock of a specified
corporation held by a parent corporation, if such other person is the
beneficial owner (as defined in this clause (ii)), directly or indirectly, of
more than 35% of the voting power of the Voting Stock of such parent
corporation and the Permitted Holders beneficially own (as defined in clause
(i) above), directly or indirectly, in the aggregate a lesser percentage of
<PAGE>
the voting power of the Voting Stock of such parent corporation and do not
have the right or ability by voting power, contract or otherwise to elect or
designate for election a majority of the board of directors of such parent
corporation);
(iii) during any period of two consecutive years, individuals who at the
beginning of such period constituted the Board of Directors (together with any
new directors whose election or appointment by such Board of Directors or
whose nomination for election by the shareholders of the Company was approved
by a vote of 66 2/3% of the directors of the Company then still in office who
were either directors at the beginning of such period or whose election or
nomination for election was previously so approved) cease for any reason to
constitute a majority of the Board of Directors then in office; or
(iv) the merger or consolidation of the Company with or into another Person
or the merger of another Person with or into the Company, or the sale of all
or substantially all the assets of the Company to another Person (other than a
Person that is controlled by the Permitted Holders), and, in the case of any
such merger or consolidation, the securities of the Company that are
outstanding immediately prior to such transaction and which represent 100% of
the aggregate voting power of the Voting Stock of the Company are changed into
or exchanged for cash, securities or property, unless pursuant to such
transaction such securities are changed into or exchanged for, in addition to
any other consideration, securities of the surviving corporation that
represent immediately after such transaction, at least a majority of the
aggregate voting power of the Voting Stock of the surviving Person.
Within 30 days following any Change of Control, the Company shall mail a
notice to each Holder stating: (1) that a Change of Control has occurred and
that such Holder has the right to require the Company to purchase such Holder's
Exchangeable Preferred Stock at a purchase price in cash equal to 101% of the
aggregate liquidation preference thereof plus accumulated and unpaid dividends,
if any, thereon to the date of purchase; (2) the circumstances and relevant
facts regarding such Change of Control (including information with respect to
pro forma historical income, cash flow and capitalization after giving effect to
such Change of Control); (3) the purchase date (which shall be no earlier than
30 days nor later than 60 days from the date such notice is mailed); and (4) the
instructions determined by the Company, consistent with the covenant described
hereunder, that a Holder must follow in order to have its Exchangeable Preferred
Stock purchased.
In the event the Company is prohibited by applicable law or by the terms of
Indebtedness of the Company from making the offer described above or from
purchasing Exchangeable Preferred Stock pursuant to such offer then, within 60
days of the occurrence of the Change of Control, holders of a majority of the
Exchangeable Preferred Stock may designate an Independent Financial Advisor to
determine, within 20 days of such designation, in the opinion of such firm, the
appropriate dividend rate (the "reset rate") that the Exchangeable Preferred
Stock should bear so that, after the dividend rate on the shares of Exchangeable
Preferred Stock is reset to such reset rate, the Exchangeable Preferred Stock
would have a market value of 101% of the liquidation preference; provided,
however, that no such reset shall be required to be made if such Independent
Financial Advisor determines that the Exchangeable Preferred Stock, after giving
effect to the Change of Control, has a market value of 101% of the liquidation
preference thereof or greater. Upon the determination of the reset rate, the
Exchangeable Preferred Stock shall accrue and accumulate dividends at the reset
rate as of the date of occurrence of the Change of Control; provided, however,
that the reset rate shall in no event be less than 13 3/4% per annum (the
initial dividend rate on the Exchangeable Preferred Stock) or greater than 15%
per annum. The reasonable fees and expenses, including reasonable fees and
expenses of legal counsel, if any, and customary indemnification, of the above-
referenced Independent Financial Advisor shall be borne by the Company.
The Company shall comply, to the extent applicable, with the requirements of
Section 14(e) of the Exchange Act and any other securities laws or regulations
in connection with the purchase of Exchangeable Preferred Stock pursuant to the
covenant described hereunder. To the extent that the provisions of any
securities laws or regulations conflict with the provisions of the covenant
described hereunder, the Company shall comply with the applicable
<PAGE>
securities laws and regulations and shall not be deemed to have breached its
obligations under the covenant described hereunder by virtue thereof.
The Change of Control purchase feature is a result of negotiations between the
Company and the Initial Purchasers. The Company has no present intention to
engage in a transaction involving a Change of Control, although it is possible
that the Company would decide to do so in the future. Subject to the limitations
discussed below, the Company could, in the future, enter into certain
transactions, including acquisitions, refinancings or other recapitalizations,
that would not constitute a Change of Control, but that could increase the
amount of indebtedness outstanding at such time or otherwise affect the
Company's capital structure or credit ratings. Restrictions on the ability of
the Company and its Restricted Subsidiaries to incur additional indebtedness are
contained in the covenant described under "--Certain Covenants--Limitation on
Indebtedness." Such restrictions can only be waived with the consent of the
holders of a majority of the outstanding shares of the Exchangeable Preferred
Stock. Except for the limitations contained in such covenants, however, the
Amended Articles of Designation will not contain any covenants or provisions
that may afford holders of the Exchangeable Preferred Stock protection in the
event of a highly leveraged transaction.
Future indebtedness of the Company may contain, prohibitions on the occurrence
of certain events that would constitute a Change of Control or require such
indebtedness to be repurchased upon a Change of Control. Moreover, the Company's
ability to pay cash to the holders of Exchangeable Preferred Stock following the
occurrence of a Change of Control may be limited by the Company's then existing
financial resources. There can be no assurance that sufficient funds will be
available when necessary to make any repurchases. In the event a Change of
Control occurs at a time when the Company is prohibited from purchasing
Exchangeable Preferred Stock, the Company could seek the consent of its lenders
to make such purchase, or could attempt to refinance the borrowings that contain
such prohibitions. If the Company does not obtain such consent or repay such
borrowings, the Company would be required to utilize the reset provision
described herein.
CERTAIN COVENANTS
The Amended Articles contains covenants including, among others, the
following:
Limitation on Indebtedness. (a) The Company shall not Incur, and shall not
permit any of its Restricted Subsidiaries to Incur, directly or indirectly, any
Indebtedness, except that the Company may Incur Indebtedness if, on the date of
such Incurrence and after giving effect thereto, the Consolidated Leverage Ratio
would be less than 6.0 to 1.0, for Indebtedness Incurred prior to or on December
31, 1999, and less than 5.0 to 1.0 for Indebtedness Incurred thereafter.
(b) Notwithstanding the foregoing paragraph (a), the Company and (except as
specified below) any Restricted Subsidiary may Incur any or all of the following
Indebtedness:
(1) Indebtedness Incurred pursuant to the Credit Agreement; provided,
however, that the aggregate amount of such Indebtedness, when taken together
with all other Indebtedness Incurred pursuant to this clause (1) and then
outstanding, does not exceed the remainder of (x) $50 million minus (y) the
sum of all principal payments with respect to the permanent retirement of such
Indebtedness pursuant to paragraph (a)(ii)(A) of the covenant described under
"--Limitation on Sales of Assets and Subsidiary Stock;"
(2) Indebtedness owed to and held by the Company or a Restricted
Subsidiary; provided, however, that any subsequent issuance or transfer of any
Capital Stock which results in any such Restricted Subsidiary ceasing to be a
Restricted Subsidiary or any subsequent transfer of such Indebtedness (other
than to the Company or another Restricted Subsidiary) shall be deemed, in each
case, to constitute the Incurrence of such Indebtedness by the issuer thereof;
<PAGE>
(3) the Notes;
(4) Indebtedness outstanding on the Issue Date (other than Indebtedness
described in clause (1), (2) or (3) of this covenant);
(5) Refinancing Indebtedness in respect of Indebtedness Incurred pursuant
to paragraph (a) or pursuant to clause (3) or (4) above, this clause (5) or
clauses (7), (8) or (11) below; provided, however, that to the extent such
Refinancing Indebtedness directly or indirectly Refinances Indebtedness of a
Restricted Subsidiary described in clause (11), such Refinancing Indebtedness
shall be Incurred only by such Restricted Subsidiary;
(6) Hedging Obligations consisting of Interest Rate Agreements directly
related to Indebtedness permitted to be Incurred by the Company or any
Restricted Subsidiary pursuant to paragraphs (a) or (b) hereof;
(7) Indebtedness, including Indebtedness of a Restricted Subsidiary
Incurred and outstanding on or prior to the date on which such Subsidiary was
acquired by the Company, Incurred to finance the cost (including the cost of
design, development, acquisition, construction, installation, improvement,
transportation or integration) to acquire equipment, inventory or network
assets (including real estate) (including acquisitions by way of capital lease
and acquisitions of the Capital Stock of a Person that becomes a Restricted
Subsidiary to the extent of the fair market value of the equipment, inventory
or networks assets so acquired) by the Company or a Restricted Subsidiary
after the Issue Date for use in a Related Business;
(8) Indebtedness of the Company in an amount which, when taken together
with the amount of Indebtedness Incurred pursuant to this clause (8) and then
outstanding, does not exceed two times the Net Cash Proceeds received by the
Company after the Issue Date as a capital contribution from, or from the
issuance and sale of its Capital Stock (other than Disqualified Stock) to, a
Person that is not a Subsidiary of the Company, to the extent such Net Cash
Proceeds have not been used pursuant to paragraph (a) (3) (B) or paragraph (b)
(i) of the covenant described under "--Limitation on Restricted Payments" to
make a Restricted Payment; provided, however, that such Indebtedness does not
mature prior to the Stated Maturity of the Exchangeable Preferred Stock and
has an Average Life longer than the Average Life of the Exchangeable Preferred
Stock;
(9) Indebtedness in respect of performance, surety or appeal bonds or
similar obligations, in each case Incurred in the ordinary course of business
of the Company and its Restricted Subsidiaries and Indebtedness due and owing
to governmental entities in connection with any licenses and franchises issued
by a governmental entity and necessary or desirable to conduct a Related
Business;
(10) Guarantees of the Notes issued by any Restricted Subsidiary;
(11) Indebtedness of a Restricted Subsidiary Incurred and outstanding on or
prior to the date on which such Subsidiary was acquired by the Company (other
than Indebtedness Incurred in connection with, or to provide all or any
portion of the funds or credit support utilized to consummate, the transaction
or series of related transactions pursuant to which such Subsidiary became a
Subsidiary or was acquired by the Company); provided, however, that on the
date of such acquisition and after giving effect thereto, the Company would
have been able to Incur at least $1.00 of additional Indebtedness pursuant to
paragraph (a) hereof; and
(12) Indebtedness Incurred in an aggregate amount which, when taken
together with the aggregate amount of all other Indebtedness of the Company
and its Restricted Subsidiaries outstanding on the date of such Incurrence
(other than Indebtedness permitted by clauses (1) through (11) above or
paragraph (a)) does not exceed the greater of (a) $10 million and (b) an
amount equal to 5% of the Company's Consolidated Net Tangible Assets as of
such date.
(c) For purposes of determining compliance with the foregoing covenant, (i) in
the event that an item of Indebtedness meets the criteria of more than one of
the types of Indebtedness described above, the Company, in its
<PAGE>
sole discretion, will classify such item of Indebtedness and only be required to
include the amount and type of such Indebtedness in one of the above clauses and
(ii) an item of Indebtedness may be divided and classified in more than one of
the types of Indebtedness described above.
(d) For the purposes of determining the amount of Indebtedness outstanding at
any time, Guarantees with respect to Indebtedness otherwise included in the
determination of such amount shall not be included.
Limitation on Restricted Payments. (a) The Company shall not, and shall not
permit any Restricted Subsidiary, directly or indirectly, to (i) declare or pay
any dividend or make any distribution (including any payment in connection with
any merger or consolidation involving the Company) on or in respect of, in the
case of the Company, any Junior Stock or, in the case of any Restricted
Subsidiary, any Capital Stock, in each case held by Persons other than the
Company or any Restricted Subsidiary or similar payment to the direct or
indirect holders (other than the Company or a Restricted Subsidiary) of any such
Stock (other than dividends or distributions payable solely in Junior Stock
(other than Disqualified Stock) and other than pro rata dividends or other
distributions made by a Subsidiary that is not a Wholly Owned Subsidiary to
minority stockholders (or owners of an equivalent interest in the case of a
Subsidiary that is an entity other than a corporation)), (ii) purchase, redeem
or otherwise acquire or retire for value any Junior Stock of the Company or any
Capital Stock of any direct or indirect parent of the Company, or (iii) make any
Investment (other than a Permitted Investment) in any Person (any such dividend,
distribution, purchase, redemption, other acquisition, retirement or investment
being herein referred to as a "Restricted Payment") if at the time the Company
or such Restricted Subsidiary makes such Restricted Payment: (1) any accrued and
payable dividends (including dividends for the then current dividend period)
with respect to the Exchangeable Preferred Stock or any Parity Stock have not
been paid in full and funds for such payment have not been set apart (or, if on
or prior to February 15, 2003, shares of Exchangeable Preferred Stock have not
been issued in payment of such dividends and are not held by the Transfer
Agent); (2) the Company is not able to Incur an additional $1.00 of Indebtedness
pursuant to paragraph (a) of the covenant described under "--Limitation on
Indebtedness;" or (3) the aggregate amount of such Restricted Payment and all
other Restricted Payments (the amount of any Restricted Payments, if other than
in cash, to be determined in good faith by the Board of Directors and to be
evidenced by a resolution of such Board set forth in an Officer's Certificate
delivered to the Transfer Agent) since the Issue Date would exceed the sum of,
without duplication:
(A) the remainder of (x) cumulative EBITDA during the period (taken as a
single accounting period) beginning on the first day of the fiscal quarter of
the Company beginning after the Issue Date and ending on the last day of the
most recent fiscal quarter for which financial statements have been made
publicly available but in no event ending more than 135 days prior to the date
of such determination minus (y) the product of 1.5 times cumulative
Consolidated Interest Expense during such period;
(B) the aggregate Net Cash Proceeds received by the Company from the
issuance or sale of its Junior Stock (in each case other than Disqualified
Stock) subsequent to the Issue Date (other than an issuance or sale to a
Subsidiary of the Company and other than an issuance or sale to an employee
stock ownership plan or to a trust established by the Company or any of its
Subsidiaries for the benefit of their employees);
(C) the amount by which Indebtedness of the Company is reduced on the
Company's balance sheet upon the conversion or exchange (other than by a
Subsidiary of the Company) subsequent to the Issue Date of any Indebtedness of
the Company convertible or exchangeable for Junior Stock (in each case other
than Disqualified Stock) of the Company (less the amount of any cash, or the
fair value of any other property, distributed by the Company upon such
conversion or exchange); and
(D) an amount equal to the sum of (i) the net reduction in Investments in
Unrestricted Subsidiaries resulting from payments of interest, dividends,
repayments of loans or advances or other transfers of assets, in each case to
the Company or any Restricted Subsidiary from Unrestricted Subsidiaries, and
(ii) the portion (proportionate to the Company's equity interest in such
Subsidiary) of the fair market value of the net assets of an Unrestricted
Subsidiary at the time such Unrestricted Subsidiary is designated a Restricted
Subsidiary;
<PAGE>
provided, however, that the foregoing sum shall not exceed, in the case of any
Unrestricted Subsidiary, the amount of Investments previously made (and
treated as a Restricted Payment) by the Company or any Restricted Subsidiary
in such Unrestricted Subsidiary.
(b) The provisions of the foregoing paragraph (a) shall not prohibit:
(i) any acquisition of Junior Stock made out of the proceeds of the
substantially concurrent sale of, or any acquisition of any Junior Stock of
the Company made by exchange for, other Junior Stock of the Company (in each
case other than Disqualified Stock and other than Junior Stock issued or sold
to a Subsidiary of the Company or an employee stock ownership plan or to a
trust established by the Company or any of its Subsidiaries for the benefit of
their employees); provided, however, that (A) such acquisition of Junior Stock
shall be excluded in the calculation of the amount of Restricted Payments and
(B) the Net Cash Proceeds from such sale shall be excluded from the
calculation of amounts under clause (3)(B) of paragraph (a) above;
(ii) dividends paid within 60 days after the date of declaration thereof if
at such date of declaration such dividend would have complied with this
covenant; provided, however, that at the time of payment of such dividend, all
accumulated dividends on the Exchangeable Preferred Stock have been paid in
full and no other Default shall have occurred and be continuing (or result
therefrom); provided further, however, that such dividend shall be included in
the calculation of the amount of Restricted Payments;
(iii) the purchase, redemption, retirement, repurchase or other acquisition
of shares of, or options to purchase shares of, Junior Stock (other than
Disqualified Stock) of the Company or Capital Stock (other than Preferred
Stock) of any of its Subsidiaries from employees, former employees, directors
or former directors of the Company or any of its Subsidiaries (or permitted
transferees of such employees, former employees, directors or former directors
including their estates or beneficiaries under their estates), (a) upon their
death, disability, retirement or termination of employment or (b) otherwise
pursuant to the terms of agreements (including employment agreements) or plans
(or amendments thereto) approved by the Board of Directors under which such
individuals received such Capital Stock; provided, however, that the aggregate
amount of consideration paid for such purchases, redemptions, retirements,
repurchases and other acquisitions made pursuant to this clause (iv) shall not
exceed $500,000 in any calendar year; provided further, however, that such
purchases, redemptions, retirements, repurchases and other acquisitions
pursuant to this clause shall be excluded in the calculation of the amount of
Restricted Payments pursuant to clause (3) of paragraph (a) above;
(iv) the purchase, redemption, acquisition, cancellation or other
retirement for value of shares of Junior Stock of the Company or Capital Stock
of any of its Restricted Subsidiaries to the extent necessary, as determined
in good faith by a majority of the disinterested members of the Board of
Directors, to prevent the loss or to secure the renewal or reinstatement of
any license or franchise held by the Company or any Restricted Subsidiary from
any governmental entity; provided, however, that such purchase or redemption
shall be included in the calculation of the amount of Restricted Payments
pursuant to clause (3) of paragraph (a) above; or
(v) any purchase or redemption of Junior Stock following a Change of
Control pursuant to an obligation in the instruments governing such Junior
Stock to purchase or redeem such Junior Stock as a result of such Change of
Control; provided, however, that no such purchase or redemption shall be
permitted until the Company has completely discharged its obligations
described under "--Change of Control" (including the purchase of all
Exchangeable Preferred Stock tendered for purchase by holders) arising as a
result of such Change of Control; provided further, however, that such
purchase or redemption shall be included in the calculation of the amount of
Restricted Payments pursuant to clause (3) of paragraph (a) above.
Limitation on Restrictions on Distributions from Restricted Subsidiaries.
The Company shall not, and shall not permit any Restricted Subsidiary to, create
or otherwise cause or permit to exist or become effective any consensual
encumbrance or restriction on the ability of any Restricted Subsidiary to (a)
pay dividends or make any
<PAGE>
other distributions on its Capital Stock to the Company or a Restricted
Subsidiary, (b) pay any Indebtedness owed to the Company, (c) make any loans or
advances to the Company or (d) transfer any of its property or assets to the
Company, except:
(i) any encumbrance or restriction pursuant to the Indenture, the Amended
Articles or any other agreement in effect at or entered into on the Issue
Date;
(ii) any encumbrance or restriction with respect to a Restricted Subsidiary
pursuant to an agreement relating to any Indebtedness Incurred by such
Restricted Subsidiary on or prior to the date on which such Restricted
Subsidiary was acquired by the Company (other than Indebtedness Incurred as
consideration in, or to provide all or any portion of the funds or credit
support utilized to consummate, the transaction or series of related
transactions pursuant to which such Restricted Subsidiary became a Restricted
Subsidiary or was acquired by the Company) and outstanding on such date;
(iii) any encumbrance or restriction pursuant to an agreement effecting a
Refinancing of Indebtedness Incurred pursuant to an agreement or instrument
referred to in clause (i) or (ii) of this covenant or this clause (iii) or
contained in any amendment to an agreement or instrument referred to in clause
(i) or (ii) of this covenant or this clause (iii); provided, however, that the
encumbrances and restrictions with respect to such Restricted Subsidiary
contained in any such refinancing agreement or amendment are no less favorable
to the holders of the Exchangeable Preferred Stock than encumbrances and
restrictions with respect to such Restricted Subsidiary contained in such
predecessor agreements;
(iv) any such encumbrance or restriction consisting of customary non-
assignment or anti-alienation provisions in (a) leases governing leasehold
interests to the extent such provisions restrict the transfer of the lease or
the property leased thereunder or subletting and (b) licenses or franchises to
the extent such provisions restrict the transfer of the license or franchise;
(v) in the case of clause (d) above, restrictions contained in security
agreements or mortgages securing Indebtedness of a Restricted Subsidiary to
the extent such restrictions restrict the transfer of the property subject to
such security agreements or mortgages;
(vi) any restriction with respect to a Restricted Subsidiary imposed
pursuant to an agreement entered into for the sale or disposition of all or
substantially all the Capital Stock or assets of such Restricted Subsidiary
pending the closing of such sale or disposition; and
(vii) any encumbrance or restriction contained in the terms of any
Indebtedness or any agreement pursuant to which such Indebtedness was Incurred
if the Board of Directors determines in good faith that any such encumbrance
or restriction will not materially affect the Company's ability to pay the
mandatory redemption price and dividends on the Exchangeable Preferred Stock
when due and such encumbrance or restriction by its terms expressly permits
such Restricted Subsidiary, (A) in the absence of a payment default in respect
of such Indebtedness or other agreement, to make cash payments to the Company
(in any form) sufficient to pay when due all amounts of the mandatory
redemption price and dividends on the Exchangeable Preferred Stock and (B)
following the occurrence and during the continuance of a payment default in
respect of such Indebtedness or other agreement, to resume making cash
payments to the Company (in any form) sufficient to pay when due all amounts
of the mandatory redemption price and dividends on the Exchangeable Preferred
Stock upon the earlier of the cure of such payment default and the lapse of
179 consecutive days following the date when such encumbrance or restriction
became operative to prohibit or limit such Restricted Subsidiary from making
such payments to the Company; provided, however, that no Restricted Subsidiary
shall be affected by the operation of such encumbrances or restrictions
following the occurrence of a payment default on more than one occasion in any
consecutive 360-day period.
<PAGE>
Limitation on Sales of Assets and Subsidiary Stock. (a) The Company shall
not, and shall not permit any Restricted Subsidiary to, directly or indirectly,
consummate any Asset Disposition unless (i) the Company or such Restricted
Subsidiary receives consideration at the time of such Asset Disposition at least
equal to the fair market value (including as to the value of all non-cash
consideration), as determined in good faith by the Board of Directors, of the
shares and assets subject to such Asset Disposition and at least 75% of the
consideration thereof received by the Company or such Restricted Subsidiary is
in the form of cash or cash equivalents and (ii) an amount equal to 100% of the
Net Available Cash from such Asset Disposition is applied by the Company (or
such Restricted Subsidiary, as the case may be)
(A) first, to the extent the Company elects in its sole discretion (or is
required by the terms of any Indebtedness), to prepay, repay, redeem or
purchase Indebtedness (other than any Disqualified Stock) of the Company or a
Restricted Subsidiary (in each case other than Indebtedness owed to the
Company or an Affiliate of the Company) within one year from the later of the
date of such Asset Disposition or the receipt of such Net Available Cash;
(B) second, to the extent of the balance of such Net Available Cash after
application in accordance with clause (A), to the extent the Company elects in
its sole discretion, to acquire Additional Assets within one year after the
receipt of such Net Available Cash;
(C) third, to the extent of the balance of such Net Available Cash after
application in accordance with clauses (A) and (B), to make an offer to the
holders of the Exchangeable Preferred Stock (and to holders of Parity Stock
designated by the Company) to purchase Exchangeable Preferred Stock (and such
Parity Stock) pursuant to and subject to the conditions contained in the
Amended Articles; and
(D) fourth, to the extent of the balance of such Net Available Cash after
application in accordance with clauses (A), (B) and (C), for the general
corporate and working capital purposes of the Company and its Restricted
Subsidiaries;
provided, however, that in connection with any prepayment, repayment or purchase
of Indebtedness pursuant to clause (A) above, the Company or such Restricted
Subsidiary shall permanently retire such Indebtedness and shall cause the
related loan commitment (if any) to be permanently reduced in an amount equal to
the principal amount so prepaid, repaid or purchased. Notwithstanding the
foregoing provisions of this paragraph, the Company and the Restricted
Subsidiaries shall not be required to apply any Net Available Cash in accordance
with this paragraph except to the extent that the aggregate Net Available Cash
from all Asset Dispositions occurring after the Issue Date which are not applied
in accordance with this paragraph exceeds $5 million. Pending application of Net
Available Cash pursuant to this covenant, such Net Available Cash shall be
invested in Permitted Investments.
For the purposes of this covenant, the following are deemed to be cash or cash
equivalents: (x) the assumption of Indebtedness of the Company or any Restricted
Subsidiary and the release of the Company or such Restricted Subsidiary from all
liability on such Indebtedness in connection with such Asset Disposition, (y)
securities received by the Company or any Restricted Subsidiary from the
transferee that are promptly converted by the Company or such Restricted
Subsidiary into cash; and (z) Temporary Cash Investments.
(b) In the event of an Asset Disposition that requires the purchase of
Exchangeable Preferred Stock (and Parity Stock) pursuant to clause (a)(ii)(C)
above, the Company will be required to purchase Exchangeable Preferred Stock
tendered pursuant to an offer by the Company for the Exchangeable Preferred
Stock (and Parity Stock) at a purchase price of 100% of their liquidation
preference plus accrued but unpaid dividends, if any, to the date of purchase
(or, in respect of such Parity Stock, such lesser price, if any, as may be
provided for by the terms of such Parity Stock) in accordance with the
procedures (including prorating in the event of oversubscription) set forth in
the Amended Articles. If the aggregate purchase price of Exchangeable Preferred
Stock (and any Parity Stock) tendered pursuant to such offer is less than the
Net Available Cash allotted to the purchase thereof, the Company will be
required to apply the remaining Net Available Cash in accordance with clause
(a)(ii)(D) above. The
<PAGE>
Company shall not be required to make such an offer to purchase Exchangeable
Preferred Stock (and Parity Stock) pursuant to this covenant if the Net
Available Cash available therefor is less than $5.0 million (which lesser amount
shall be carried forward for purposes of determining whether such an offer is
required by this covenant or by the covenant in the Exchange Indenture described
under "Description of the Exchange Debentures--Certain Covenants--Limitation on
Sales of Assets and Subsidiary Stock" with respect to the Net Available Cash
from any subsequent Asset Disposition).
(c) The Company shall comply, to the extent applicable, with the requirements
of Section 14(e) of the Exchange Act and any other securities laws or
regulations in connection with the repurchase of Exchangeable Preferred Stock
pursuant to this covenant. To the extent that the provisions of any securities
laws or regulations conflict with provisions of this covenant, the Company shall
comply with the applicable securities laws and regulations and shall not be
deemed to have breached its obligations under this clause by virtue thereof.
Limitation on Affiliate Transactions. (a) The Company shall not, and shall
not permit any Restricted Subsidiary to, enter into or permit to exist any
transaction (including the purchase, sale, license, lease or exchange of any
property, employee compensation arrangements or the rendering of any service)
with any Affiliate of the Company (an "Affiliate Transaction") unless the
terms thereof (1) are no less favorable to the Company or such Restricted
Subsidiary than those that could be obtained at the time of such transaction in
arm's-length dealings with a Person who is not such an Affiliate, (2) if such
Affiliate Transaction involves an amount in excess of $1.0 million, (i) are set
forth in writing and (ii) have been approved by a majority of the members of the
Board of Directors having no personal stake in such Affiliate Transaction and
(3) if such Affiliate Transaction involves an amount in excess of $5.0 million,
have been determined by a nationally recognized investment banking firm or other
qualified appraiser under the relevant circumstances to be fair, from a
financial standpoint, to the Company and its Restricted Subsidiaries.
(b) The provisions of the foregoing paragraph (a) shall not prohibit (i) any
Permitted Investment or any Restricted Payment permitted to be paid pursuant to
the covenant described under "--Limitation on Restricted Payments," (ii) any
issuance of securities, or other payments, awards or grants in cash, securities
or otherwise pursuant to, or the funding of, employment arrangements, stock
options and stock ownership plans approved by the Board of Directors, (iii) the
grant of stock options or similar rights to employees and directors of the
Company pursuant to plans approved by the Board of Directors, (iv) loans or
advances to employees in the ordinary course of business in accordance with the
past practices of the Company or its Restricted Subsidiaries, but in any event
not to exceed $500,000 in the aggregate outstanding at any one time, (v) the
payment of reasonable fees to directors of the Company and its Restricted
Subsidiaries who are not employees of the Company or its Restricted
Subsidiaries, (vi) any Affiliate Transaction between the Company and a
Restricted Subsidiary or between Restricted Subsidiaries; provided, however,
that no beneficial owner (as defined in Rule 13d-1 and 13d-5 of the Exchange
Act) of 5% or more of the Capital Stock of the Company holds, directly or
indirectly, any Investments in any such Restricted Subsidiary (other than
indirectly through the Company), (vii) the issuance or sale of any Capital Stock
(other than Disqualified Stock) of the Company and (viii) any transaction
pursuant to an agreement or arrangement in effect on the Issue Date.
Limitation on the Sale or Issuance of Capital Stock of Certain Restricted
Subsidiaries. The Company shall not sell or otherwise dispose of any Capital
Stock (other than Qualified Preferred Stock) of an Existing Restricted
Subsidiary, and shall not permit any Existing Restricted Subsidiary, directly or
indirectly, to issue or sell or otherwise dispose of any of its Capital Stock
(other than Qualified Preferred Stock), except (i) to the Company or a Wholly
Owned Subsidiary, (ii) if, immediately after giving effect to such issuance,
sale or other disposition, neither the Company nor any of its Subsidiaries own
any Capital Stock of such Restricted Subsidiary, (iii) if, immediately after
giving effect to such issuance, sale or other disposition, such Existing
Restricted Subsidiary would no longer constitute a Restricted Subsidiary and any
Investment in such Person remaining after giving effect thereto would have been
permitted to be made under the covenant described under "--Limitation on
Restricted Payments" if made on the date of such issuance, sale or other
disposition, (iv) to directors of directors' qualifying shares of common stock
of any Restricted Subsidiary, to the extent mandated by applicable law, or (v)
the issuance or sale of Capital
<PAGE>
Stock of a Restricted Subsidiary that has a class of equity security registered
under Section 12 of the Exchange Act pursuant to an employee stock option plan
approved by the Board of Directors.
Limitation on Market Swaps. The Company will not, and will not permit any
Restricted Subsidiary to, engage in any Market Swaps, unless:
(i) at the time of entering into the agreement to swap markets and
immediately after giving effect to the proposed Market Swap, no Default shall
have occurred and be continuing;
(ii) the respective fair market values of the markets and other assets (to
be determined in good faith by the Board of Directors and to be evidenced by a
resolution of such Board set forth in an Officer's Certificate delivered to
the Transfer Agent) being purchased and sold by the Company or any of its
Restricted Subsidiaries are substantially the same at the time of entering
into the agreement to swap markets; and
(iii) the cash payments, if any, received by the Company or such Restricted
Subsidiary in connection with such Market Swap are treated as Net Available
Cash received from an Asset Disposition.
Limitation on Lines of Business. The Company shall not, and shall not permit
any Restricted Subsidiary to, engage in any trade or business other than a
Related Business.
Merger and Consolidation. The Company shall not consolidate with or merge
with or into, or convey, transfer or lease, in one transaction or a series of
transactions, all or substantially all its assets to, any Person, unless:
(i) the resulting, surviving or transferee Person (the "Successor
Company") shall be a Person organized and existing under the laws of the
United States of America, any State thereof or the District of Columbia and
the Successor Company (if not the Company) shall expressly assume all the
obligations of the Company under the Exchangeable Preferred Stock and the
Amended Articles;
(ii) immediately after giving effect to such transaction (and treating any
Indebtedness which becomes an obligation of the Successor Company or any
Subsidiary as a result of such transaction as having been Incurred by such
Successor Company or such Subsidiary at the time of such transaction), no
Default shall have occurred and be continuing,
(iii) immediately after giving effect to such transaction, the Successor
Company would be able to Incur an additional $1.00 of Indebtedness pursuant to
paragraph (a) of the covenant described under "--Limitation on
Indebtedness;"
(iv) immediately after giving effect to such transaction, the Successor
Company shall have Consolidated Net Worth in an amount that is not less than
the Consolidated Net Worth of the Company immediately prior to such
transaction;
(v) the Company shall have delivered to the Transfer Agent an Officers'
Certificate and an Opinion of Counsel, each stating that such consolidation,
merger or transfer comply with the Amended Articles; and
(vi) the Company shall have delivered to the Transfer Agent an Opinion of
Counsel to the effect that the holders of the Exchangeable Preferred Stock
will not recognize income, gain or loss for Federal income tax purposes as a
result of such transaction and will be subject to Federal income tax on the
same amounts, in the same manner and at the same times as would have been the
case if such transaction had not occurred.
The Successor Company shall be the successor to the Company and shall succeed
to, and be substituted for, and may exercise every right and power of, the
Company under the Amended Articles, but the predecessor
<PAGE>
Company in the case of a conveyance, transfer or lease shall not be released
from the obligation to pay the liquidation preference of, the mandatory
redemption price of and dividends on the Exchangeable Preferred Stock.
SEC Reports. Notwithstanding that the Company may not be subject to the
reporting requirements of Section 13 or 15(d) of the Exchange Act, the Company
shall file with the SEC and provide the holders of the Exchangeable Preferred
Stock with such annual reports and such information, documents and other reports
as are specified in Sections 13 and 15(d) of the Exchange Act and applicable to
a U.S. corporation subject to such Sections, such information, documents and
other reports to be so filed and provided at the times specified for the filing
of such information, documents and reports under such Sections if it were
subject thereto (unless the SEC will not accept such a filing, in which case the
Company shall provide such documents to the Transfer Agent). In addition, for so
long as any of the Exchangeable Preferred Stock is outstanding, the Company will
make available to any prospective purchaser of the Exchangeable Preferred Stock
or beneficial owner thereof (upon written request to the Company) in connection
with any sales thereof the information required by Rule144A(d) (4) under the
Securities Act.
DESCRIPTION OF THE EXCHANGE DEBENTURES
The Exchange Debentures, if issued, will be issued under the Exchange
Indenture, to be dated as of February 15, 1998 (the "Exchange Indenture"),
between the Company and IBJ Schroder Bank and Trust Company, as Trustee (the
"Trustee"). The following is a summary of certain provisions of the Exchange
Indenture and the Exchange Debentures. A copy of the Exchange Indenture and the
form of Exchange Debentures are available upon request to the Company at the
address set forth under "Available Information." The following summary of
certain provisions of the Exchange Indenture does not purport to be complete and
is subject to, and is qualified in its entirety by reference to, all the
provisions of the Exchange Indenture, including the definitions of certain terms
therein and those terms made a part thereof by the Trust Indenture Act of 1939,
as amended. The terms of the Notes limit the Company's ability to issue the
Exchange Debentures. For definition of certain capitalized terms used in the
following summary, see "Description of the New Notes--Certain Definitions."
The Exchange Debentures will be unsecured subordinated obligations of the
Company, limited in aggregate principal amount to the sum of the liquidation
preference of the Exchangeable Preferred Stock, plus, without duplication,
accumulated and unpaid dividends on the Exchange Date of the Exchangeable
Preferred Stock (plus any additional Exchange Debentures issued in lieu of cash
interest as described herein). The Exchange Debentures will be issued only in
fully registered form, without coupons, in denominations of $1,000 and any
integral multiple of $1,000 (other than as described in "--Exchangeable
Preferred Stock--Exchange" or with respect to additional Exchange Debentures
issued in lieu of cash interest as described herein). The Exchange Debentures
will be subordinated to all existing and future senior and senior subordinated
debt of the Company.
Principal of, premium, if any, and interest on the Exchange Debentures will be
payable, and the Exchange Debentures may be presented for registration of
transfer or exchange, at the office of the Paying Agent and Registrar. The
Trustee will initially act as Paying Agent and Registrar. The Company may change
any Paying Agent and Registrar without prior notice to holders of the Exchange
Debentures. Holders of the Exchange Debentures must surrender Exchange
Debentures to the Paying Agent to collect principal payments.
The Exchange Debentures will mature on February 15, 2010. Each Exchange
Debenture will bear interest at the rate of 13 3/4% per annum from the most
recent interest payment date to which interest has been paid or provided for or,
if no interest has been paid or provided for, from the Exchange Date. Interest
will be payable semiannually in cash (or, on or prior to February 15, 2003, in
additional Exchange Debentures, at the option of the Company) in arrears on each
February 15 and August 15, commencing with the first such date after the
Exchange Date. Interest on the Exchange Debentures will be computed on the basis
of a 360-day year comprised of twelve 30-day months and the actual number of
days elapsed.
<PAGE>
OPTIONAL REDEMPTION
Except as set forth in the following paragraph, the Exchange Debentures will
not be redeemable at the option of the Company prior to February 15, 2003.
Thereafter, the Exchange Debentures will be redeemable, at the Company's option,
in whole or in part, at any time or from time to time, upon not less than 30 nor
more than 60 days' prior notice mailed by first-class mail to each Holder's
registered address, at the following redemption prices (expressed in percentages
of principal amount), plus accrued interest to the redemption date (subject to
the right of Holders of record on the relevant record date to receive interest
due on the relevant interest payment date), if redeemed during the 12-month
period commencing on February 15 of the years set forth below:
<TABLE>
<CAPTION>
REDEMPTION
----------
PERIOD PRICE
- -------- -----
<S> <C>
2003....................... 106.8750%
2004....................... 104.5833
2005....................... 102.2917
2006 and thereafter........ 100.0000
</TABLE>
In addition, at any time and from time to time prior to February 15, 2001, the
Company may redeem the Exchange Debentures, in whole, but not in part, with the
proceeds of an Equity Offering at 113 3/4% of the principal amount thereof,
plus accrued and unpaid interest to the redemption date (subject to the right of
Holders of record on the relevant record date to receive interest due on the
relevant interest payment date).
RANKING
The indebtedness evidenced by the Exchange Debentures will be subordinated,
unsecured obligations of the Company. The payment of the principal of, premium
(if any) and interest on the Exchange Debentures is subordinate in right of
payment, as set forth in the Exchange Indenture, to the prior payment in full of
all Senior Indebtedness (including senior subordinated indebtedness) of the
Company, whether outstanding on the Issue Date or thereafter incurred.
As of December 31, 1997, after giving effect to the Private Placement and the
application of the proceeds thereof, the outstanding Senior Indebtedness of the
Company would have been approximately $200.2 million. Although the Exchange
Indenture contains limitations on the amount of additional Indebtedness that the
Company may incur, under certain circumstances the amount of such Indebtedness
could be substantial and, in any case, such Indebtedness may be Senior
Indebtedness. See "--Certain Covenants--Limitation on Indebtedness."
Substantially all the operations of the Company are or will be conducted
through one or more of its subsidiaries. The Company intends to transfer
substantially all its assets to newly formed Restricted Subsidiaries, and
thereafter the Company will be a holding company with no assets other than the
capital stock of its subsidiaries. Claims of creditors of such subsidiaries,
including trade creditors, secured creditors and creditors holding indebtedness
and guarantees issued by such subsidiaries, and claims of preferred stockholders
(if any) of such subsidiaries generally will have priority with respect to the
assets and earnings of such subsidiaries over the claims of creditors of the
Company, including holders of the Exchange Debentures, even if such obligations
do not constitute Senior Indebtedness. The Exchange Debentures, therefore, will
be effectively subordinated to creditors (including trade creditors) and
preferred stockholders (if any) of subsidiaries of the Company. Although the
Exchange Indenture limits the incurrence of Indebtedness and preferred stock of
certain of the Company's subsidiaries, such limitation is subject to a number of
significant qualifications. Moreover, the Exchange Indenture does not impose any
limitation on the incurrence by such subsidiaries of liabilities that are not
considered Indebtedness or Preferred Stock under the Exchange Indenture. See "-
- -Certain Covenants--Limitation on Indebtedness."
<PAGE>
Only Indebtedness of the Company that is Senior Indebtedness (including senior
subordinated indebtedness) will rank senior to the Exchange Debentures in
accordance with the provisions of the Exchange Indenture. The Exchange
Debentures will in all respects rank pari passu with all other Subordinated
Indebtedness of the Company.
The Company may not pay principal of, premium (if any) or interest on, the
Exchange Debentures or make any deposit pursuant to the provisions described
under "Defeasance" below and may not repurchase, redeem or otherwise retire
any Exchange Debentures (collectively, "pay the Exchange Debentures") if (i)
any Designated Senior Indebtedness is not paid when due or (ii) any other
default on Designated Senior Indebtedness occurs and the maturity of such
Designated Senior Indebtedness is accelerated in accordance with its terms
unless, in either case, the default has been cured or waived and any such
acceleration has been rescinded or such Designated Senior Indebtedness has been
paid in full. However, the Company may pay the Exchange Debentures without
regard to the foregoing if the Company and the Trustee receive written notice
approving such payment from the Representative of the Designated Senior
Indebtedness with respect to which either of the events set forth in clause (i)
or (ii) of the immediately preceding sentence has occurred and is continuing.
During the continuance of any default (other than a default described in clause
(i) or (ii) of the second preceding sentence) with respect to any Designated
Senior Indebtedness pursuant to which the maturity thereof may be accelerated
immediately without further notice (except such notice as may be required to
effect such acceleration) or the expiration of any applicable grace periods, the
Company may not pay the Exchange Debentures for a period (a "Payment Blockage
Period") commencing upon the receipt by the Trustee (with a copy to the
Company) of written notice (a "Blockage Notice") of such default from the
Representative of the holders of such Designated Senior Indebtedness specifying
an election to effect a Payment Blockage Period and ending 179 days thereafter
(or earlier if such Payment Blockage Period is terminated (i) by written notice
to the Trustee and the Company from the Person or Persons who gave such Blockage
Notice, (ii) because the default giving rise to such Blockage Notice is no
longer continuing or (iii) because such Designated Senior Indebtedness has been
repaid in full). Notwithstanding the provisions described in the immediately
preceding sentence (but subject to the provisions described in the first
sentence of this paragraph), unless the holders of such Designated Senior
Indebtedness or the Representative of such holders have accelerated the maturity
of such Designated Senior Indebtedness, the Company may resume payments on the
Exchange Debentures after the end of such Payment Blockage Period. The Exchange
Debentures shall not be subject to more than one Payment Blockage Period in any
consecutive 360-day period, irrespective of the number of defaults with respect
to Designated Senior Indebtedness during such period.
Upon any payment or distribution of the assets of the Company upon a total or
partial liquidation or dissolution or reorganization of or similar proceeding
relating to the Company or its property, the holders of Senior Indebtedness will
be entitled to receive payment in full of such Senior Indebtedness before the
holders of Exchange Debentures are entitled to receive any payment, and until
the Senior Indebtedness is paid in full, any payment or distribution to which
holders of Exchange Debentures would be entitled but for the subordination
provisions of the Exchange Indenture will be made to holders of such Senior
Indebtedness as their interests may appear. If a distribution is made to holders
of Exchange Debentures that, due to the subordination provisions, should not
have been made to them, such holders are required to hold it in trust for the
holders of Senior Indebtedness and pay it over to them as their interests may
appear.
If payment of the Exchange Debentures is accelerated because of an Event of
Default, the Company or the Trustee shall promptly notify the holders of
Designated Senior Indebtedness or the Representative of such holders of the
acceleration.
By reason of the subordination provisions contained in the Exchange Indenture,
in the event of insolvency, creditors of the Company who are holders of Senior
Indebtedness of the Company may recover more, ratably, than the holders of
Exchange Debentures, and creditors of the Company who are not holders of Senior
Indebtedness may recover less, ratably, than holders of Senior Indebtedness and
may recover more, ratably, than holders of Exchange Debentures.
<PAGE>
The terms of the subordination provisions described above will not apply to
payments from money or the proceeds of U.S. Government Obligations held in trust
by the Trustee for the payment of principal of and interest on the Exchange
Debentures pursuant to the provisions described under "--Defeasance."
CHANGE OF CONTROL
The Exchange Indenture will provide that upon the occurrence of a Change of
Control (as defined under "Description of the New Exchangeable Preferred Stock-
- -Change of Control"), each holder of Exchange Debentures shall have the right
to require that the Company repurchase such holder's Exchange Debentures at a
purchase price in cash equal to 101% of the principal amount thereof plus
accrued and unpaid interest, if any, to the date of purchase (subject to the
right of holders of record on the relevant record date to receive interest due
on the relevant interest payment date).
Within 30 days following any Change of Control, the Company shall mail a
notice to each Holder with a copy to the Trustee stating: (1) that a Change of
Control has occurred and that such Holder has the right to require the Company
to purchase such Holder's Exchange Debentures at a purchase price in cash equal
to 101% of the principal amount thereof plus accrued and unpaid interest, if
any, to the date of purchase (subject to the right of holders of record on the
relevant record date to receive interest on the relevant interest payment date);
(2) the circumstances and relevant facts regarding such Change of Control
(including information with respect to pro forma historical income, cash flow
and capitalization after giving effect to such Change of Control); (3) the
purchase date (which shall be no earlier than 30 days nor later than 60 days
from the date such notice is mailed); and (4) the instructions determined by the
Company, consistent with the covenant described hereunder, that a Holder must
follow in order to have its Exchange Debentures purchased.
The Company shall comply, to the extent applicable, with the requirements of
Section 14(e) of the Exchange Act and any other securities laws or regulations
in connection with the purchase of Exchange Debentures pursuant to the covenant
described hereunder. To the extent that the provisions of any securities laws or
regulations conflict with the provisions of the covenant described hereunder,
the Company shall comply with the applicable securities laws and regulations and
shall not be deemed to have breached its obligations under the covenant
described hereunder by virtue thereof.
The Change of Control purchase feature is a result of negotiations between the
Company and the Initial Purchasers. The Company has no present intention to
engage in a transaction involving a Change of Control, although it is possible
that the Company would decide to do so in the future. Subject to the limitations
discussed below, the Company could, in the future, enter into certain
transactions, including acquisitions, refinancings or other recapitalizations,
that would not constitute a Change of Control under the Exchange Indenture, but
that could increase the amount of indebtedness outstanding at such time or
otherwise affect the Company's capital structure or credit ratings. Restrictions
on the ability of the Company and its Restricted Subsidiaries to incur
additional Indebtedness are contained in the covenants described under "--
Certain Covenants--Limitation on Indebtedness." Such restrictions can only be
waived with the consent of the holders of a majority in principal amount of the
Exchange Debentures then outstanding. Except for the limitations contained in
such covenants, however, the Exchange Indenture will not contain any covenants
or provisions that may afford holders of the Exchange Debentures protection in
the event of a highly leveraged transaction.
Future indebtedness of the Company may contain, prohibitions on the occurrence
of certain events that would constitute a Change of Control or require such
indebtedness to be repurchased upon a Change of Control. Moreover, the exercise
by the holders of their right to require the Company to repurchase the Exchange
Debentures could cause a default under such indebtedness, even if the Change of
Control itself does not, due to the financial effect of such repurchase on the
Company. Finally, the Company's ability to pay cash to the holders of Exchange
Debentures following the occurrence of a Change of Control may be limited by the
Company's then existing financial resources. There can be no assurance that
sufficient funds will be available when necessary to make any required
repurchases.
<PAGE>
In the event a Change of Control occurs at a time when the Company is prohibited
from purchasing Exchange Debentures, the Company could seek the consent of its
lenders to make such purchase, or could attempt to refinance the borrowings that
contain such prohibitions. If the Company does not obtain such consent or repay
such borrowings, the Company will remain prohibited from purchasing Exchange
Debentures. The provisions under the Exchange Indenture relative to the
Company's obligation to make an offer to repurchase the Exchange Debentures as a
result of a Change of Control may be waived or modified with the written consent
of the holders of a majority in principal amount of the outstanding Exchange
Debentures.
CERTAIN COVENANTS
The Exchange Indenture contains covenants including, among others, the
following:
Limitation on Indebtedness. (a) The Company shall not Incur, and shall not
permit any of its Restricted Subsidiaries to Incur, directly or indirectly, any
Indebtedness, except that the Company may Incur Indebtedness if, on the date of
such Incurrence and after giving effect thereto, the Consolidated Leverage Ratio
would be less than 6.0 to 1.0, for Indebtedness Incurred prior to or on December
31, 1999, and less than 5.0 to 1.0 for Indebtedness Incurred thereafter.
(b) Notwithstanding the foregoing paragraph (a), the Company and (except as
specified below) any Restricted Subsidiary may Incur any or all of the following
Indebtedness:
(1) Indebtedness Incurred pursuant to the Credit Agreement; provided,
however, that the aggregate amount of such Indebtedness, when taken together
with all other Indebtedness Incurred pursuant to this clause (1) and then
outstanding, does not exceed the remainder of (x) $50 million minus (y) the
sum of all principal payments with respect to the permanent retirement of such
Indebtedness pursuant to paragraph (a) (ii) (A) of the covenant described
under "--Limitation on Sales of Assets and Subsidiary Stock;"
(2) Indebtedness owed to and held by the Company or a Restricted
Subsidiary; provided, however, that any subsequent issuance or transfer of any
Capital Stock which results in any such Restricted Subsidiary ceasing to be a
Restricted Subsidiary or any subsequent transfer of such Indebtedness (other
than to the Company or another Restricted Subsidiary) shall be deemed, in each
case, to constitute the Incurrence of such Indebtedness by the issuer thereof;
(3) the Notes and the Exchange Debentures (including any Exchange
Debentures issued in lieu of cash interest payments with respect to the
Exchange Debentures);
(4) Indebtedness outstanding on the Issue Date (other than Indebtedness
described in clause (1), (2) or (3) of this covenant);
(5) Refinancing Indebtedness in respect of Indebtedness Incurred pursuant
to paragraph (a) or pursuant to clause (3) or (4) above, this clause (5) or
clauses (7), (8) or (11) below; provided, however, that to the extent such
Refinancing Indebtedness directly or indirectly Refinances Indebtedness of a
Restricted Subsidiary described in clause (11), such Refinancing Indebtedness
shall be Incurred only by such Restricted Subsidiary;
(6) Hedging Obligations consisting of Interest Rate Agreements directly
related to Indebtedness permitted to be Incurred by the Company or any
Restricted Subsidiary pursuant to paragraphs (a) or (b) hereof;
(7) Indebtedness, including Indebtedness of a Restricted Subsidiary
Incurred and outstanding on or prior to the date on which such Subsidiary was
acquired by the Company, Incurred to finance the cost (including the cost of
design, development, acquisition, construction, installation, improvement,
transportation or integration) to acquire equipment, inventory or network
assets (including real estate) (including acquisitions by way of
<PAGE>
capital lease and acquisitions of the Capital Stock of a Person that becomes a
Restricted Subsidiary to the extent of the fair market value of the equipment,
inventory or networks assets so acquired) by the Company or a Restricted
Subsidiary after the Issue Date for use in a Related Business;
(8) Indebtedness of the Company in an amount which, when taken together
with the amount of Indebtedness Incurred pursuant to this clause (8) and then
outstanding, does not exceed two times the Net Cash Proceeds received by the
Company after the Issue Date as a capital contribution from, or from the
issuance and sale of its Capital Stock (other than Disqualified Stock) to, a
Person that is not a Subsidiary of the Company, to the extent such Net Cash
Proceeds have not been used pursuant to paragraph (a) (3) (B) or paragraph (b)
(i) of the covenant described under "--Limitation on Restricted Payments" to
make a Restricted Payment; provided, however, that such Indebtedness does not
mature prior to the Stated Maturity of the Exchange Debentures and has an
Average Life longer than the Average Life of the Exchange Debentures;
(9) Indebtedness in respect of performance, surety or appeal bonds or
similar obligations, in each case Incurred in the ordinary course of business
of the Company and its Restricted Subsidiaries and Indebtedness due and owing
to governmental entities in connection with any licenses and franchises issued
by a governmental entity and necessary or desirable to conduct a Related
Business;
(10) Guarantees of the Notes issued by any Restricted Subsidiary;
(11) Indebtedness of a Restricted Subsidiary Incurred and outstanding on or
prior to the date on which such Subsidiary was acquired by the Company (other
than Indebtedness Incurred in connection with, or to provide all or any
portion of the funds or credit support utilized to consummate, the transaction
or series of related transactions pursuant to which such Subsidiary became a
Subsidiary or was acquired by the Company); provided, however, that on the
date of such acquisition and after giving effect thereto, the Company would
have been able to Incur at least $1.00 of additional Indebtedness pursuant to
paragraph (a) hereof; and
(12) Indebtedness Incurred in an aggregate amount which, when taken
together with the aggregate amount of all other Indebtedness of the Company
and its Restricted Subsidiaries outstanding on the date of such Incurrence
(other than Indebtedness permitted by clauses (1) through (11) above or
paragraph (a)) does not exceed the greater of (a) $10 million and (b) an
amount equal to 5% of the Company's Consolidated Net Tangible Assets as of
such date.
(c) Notwithstanding the foregoing, the Company shall not Incur (i) any
Indebtedness pursuant to the foregoing paragraph (b) if the proceeds thereof are
used, directly or indirectly, to Refinance any Subordinated Obligations unless
such Indebtedness shall be subordinated to the Exchange Debentures to at least
the same extent as such Subordinated Obligations or (ii) any Secured
Indebtedness that is not Senior Indebtedness unless contemporaneously therewith
effective provision is made to secure the Exchange Debentures equally and
ratably with such Secured Indebtedness for so long as such Secured Indebtedness
is secured by a Lien.
(d) For purposes of determining compliance with the foregoing covenant, (i) in
the event that an item of Indebtedness meets the criteria of more than one of
the types of Indebtedness described above, the Company, in its sole discretion,
will classify such item of Indebtedness and only be required to include the
amount and type of such Indebtedness in one of the above clauses and (ii) an
item of Indebtedness may be divided and classified in more than one of the types
of Indebtedness described above.
(e) For the purposes of determining the amount of Indebtedness outstanding at
any time, Guarantees with respect to Indebtedness otherwise included in the
determination of such amount shall not be included.
Limitation on Restricted Payments. (a) The Company shall not, and shall not
permit any Restricted Subsidiary to, directly or indirectly, make a Restricted
Payment if at the time the Company or such Restricted Subsidiary makes such
Restricted Payment: (1) a Default shall have occurred and be continuing (or
would result therefrom); (2) the
<PAGE>
Company is not able to Incur an additional $1.00 of Indebtedness pursuant to
paragraph (a) of the covenant described under "--Limitation on Indebtedness;" or
(3) the aggregate amount of such Restricted Payment and all other Restricted
Payments (the amount of any Restricted Payment, if other than in cash, to be
determined in good faith by the Board of Directors and to be evidenced by a
resolution of such Board set forth in an Officer's Certificate delivered to the
Trustee) since the Issue Date would exceed the sum of, without duplication:
(A) the remainder of (x) cumulative EBITDA during the period (taken as a
single accounting period) beginning on the first day of the fiscal quarter of
the Company beginning after the Issue Date and ending on the last day of the
most recent fiscal quarter for which financial statements have been made
publicly available but in no event ending more than 135 days prior to the date
of such determination minus (y) the product of 1.5 times cumulative
Consolidated Interest Expense during such period;
(B) the aggregate Net Cash Proceeds received by the Company from the
issuance or sale of its Capital Stock (other than Disqualified Stock)
subsequent to the Issue Date (other than an issuance or sale to a Subsidiary
of the Company and other than an issuance or sale to an employee stock
ownership plan or to a trust established by the Company or any of its
Subsidiaries for the benefit of their employees);
(C) the amount by which Indebtedness of the Company is reduced on the
Company's balance sheet upon the conversion or exchange (other than by a
Subsidiary of the Company) subsequent to the Issue Date of any Indebtedness of
the Company convertible or exchangeable for Capital Stock (other than
Disqualified Stock) of the Company (less the amount of any cash, or the fair
value of any other property, distributed by the Company upon such conversion
or exchange); and
(D) an amount equal to the sum of (i) the net reduction in Investments in
Unrestricted Subsidiaries resulting from payments of interest, dividends,
repayments of loans or advances or other transfers of assets, in each case to
the Company or any Restricted Subsidiary from Unrestricted Subsidiaries, and
(ii) the portion (proportionate to the Company's equity interest in such
Subsidiary) of the fair market value of the net assets of an Unrestricted
Subsidiary at the time such Unrestricted Subsidiary is designated a Restricted
Subsidiary; provided, however, that the foregoing sum shall not exceed, in the
case of any Unrestricted Subsidiary, the amount of Investments previously made
(and treated as a Restricted Payment) by the Company or any Restricted
Subsidiary in such Unrestricted Subsidiary.
(b) The provisions of the foregoing paragraph (a) shall not prohibit:
(i) any acquisition of any Capital Stock of the Company or any Restricted
Subsidiary or any purchase, repurchase, redemption, defeasance or other
acquisition or retirement for value of Subordinated Obligations made out of
the proceeds of the substantially concurrent sale of, or made by exchange for,
Capital Stock of the Company (other than Disqualified Stock and other than
Capital Stock issued or sold to a Subsidiary of the Company or an employee
stock ownership plan or to a trust established by the Company or any of its
Subsidiaries for the benefit of their employees); provided, however, that (A)
such acquisition of Capital Stock or of Subordinated Obligations shall be
excluded in the calculation of the amount of Restricted Payments pursuant to
clause (3) of paragraph (a) above and (B) the Net Cash Proceeds from such sale
shall be excluded from the calculation of amounts under clause (3) (B) of
paragraph(a) above;
(ii) any purchase, repurchase, redemption, defeasance or other acquisition
or retirement for value of Subordinated Obligations in whole or in part
(including premium, if any, and accrued and unpaid interest) made by exchange
for, or out of the proceeds of the substantially concurrent sale of,
Indebtedness of the Company which is permitted to be Incurred pursuant to the
covenant described under "--Limitation on Indebtedness;" provided, however,
that such purchase, repurchase, redemption, defeasance or other acquisition or
retirement for value shall be excluded in the calculation of the amount of
Restricted Payments pursuant to clause (3) of paragraph (a) above;
<PAGE>
(iii) dividends paid within 60 days after the date of declaration thereof
if at such date of declaration such dividend would have complied with this
covenant; provided, however, that at the time of payment of such dividend, no
other Default shall have occurred and be continuing (or result therefrom);
provided further, however, that such dividend shall be included in the
calculation of the amount of Restricted Payments pursuant to clause (3) of
paragraph (a) above;
(iv) the purchase, redemption, retirement, repurchase or other acquisition
of shares of, or options to purchase shares of, Capital Stock (other than
Disqualified Stock) of the Company or Capital Stock (other than Preferred
Stock) of any of its Subsidiaries from employees, former employees, directors
or former directors of the Company or any of its Subsidiaries (or permitted
transferees of such employees, former employees, directors or former directors
including their estates or beneficiaries under their estates), (a) upon their
death, disability, retirement or termination of employment or (b) otherwise
pursuant to the terms of agreements (including employment agreements) or plans
(or amendments thereto) approved by the Board of Directors under which such
individuals received such Capital Stock; provided, however, that the aggregate
amount of consideration paid for such purchases, redemptions, retirements,
repurchases and other acquisitions made pursuant to this clause (iv) shall not
exceed $500,000 in any calendar year; provided further, however, that such
purchases, redemptions, retirements, repurchases and other acquisitions
pursuant to this clause shall be excluded in the calculation of the amount of
Restricted Payments pursuant to clause (3) of paragraph (a) above;
(v) any purchase or redemption of Subordinated Obligations in whole or in
part (including premium, if any, and accrued and unpaid interest) from Net
Available Cash to the extent permitted by the covenant described under "--
Limitation on Sales of Assets and Subsidiary Stock;" provided, however, that
such purchase or redemption shall be excluded in the calculation of the amount
of Restricted Payments pursuant to clause (3) of paragraph (a) above;
(vi) the purchase, redemption, acquisition, cancellation or other
retirement for value of shares of Capital Stock of the Company or any of its
Restricted Subsidiaries to the extent necessary, as determined in good faith
by a majority of the disinterested members of the Board of Directors, to
prevent the loss or to secure the renewal or reinstatement of any license or
franchise held by the Company or any Restricted Subsidiary from any
governmental entity; provided, however, that such purchase or redemption shall
be included in the calculation of the amount of Restricted Payments pursuant
to clause (3) of paragraph (a) above; or
(vii) any purchase or redemption of Subordinated Obligations or Preferred
Stock following a Change of Control pursuant to an obligation in the
instruments governing such Subordinated Obligations or Preferred Stock to
purchase or redeem such Subordinated Obligations or Preferred Stock as a
result of such Change of Control; provided, however, that no such purchase or
redemption shall be permitted until the Company has completely discharged its
obligations described under "--Change of Control" (including the purchase of
all Exchange Debentures tendered for purchase by holders) arising as a result
of such Change of Control; provided further, however, that such purchase or
redemption shall be included in the calculation of the amount of Restricted
Payments pursuant to clause (3) of paragraph (a) above.
Limitation on Restrictions on Distributions from Restricted Subsidiaries.
The Company shall not, and shall not permit any Restricted Subsidiary to, create
or otherwise cause or permit to exist or become effective any consensual
encumbrance or restriction on the ability of any Restricted Subsidiary to (a)
pay dividends or make any other distributions on its Capital Stock to the
Company or a Restricted Subsidiary, (b) pay any Indebtedness owed to the
Company, (c) make any loans or advances to the Company or (d) transfer any of
its property or assets to the Company, except:
(i) any encumbrance or restriction pursuant to the Indenture, the Exchange
Indenture or any other agreement in effect at or entered into on the Issue
Date;
<PAGE>
(ii) any encumbrance or restriction with respect to a Restricted Subsidiary
pursuant to an agreement relating to any Indebtedness Incurred by such
Restricted Subsidiary on or prior to the date on which such Restricted
Subsidiary was acquired by the Company (other than Indebtedness Incurred as
consideration in, or to provide all or any portion of the funds or credit
support utilized to consummate, the transaction or series of related
transactions pursuant to which such Restricted Subsidiary became a Restricted
Subsidiary or was acquired by the Company) and outstanding on such date;
(iii) any encumbrance or restriction pursuant to an agreement effecting a
Refinancing of Indebtedness Incurred pursuant to an agreement or instrument
referred to in clause (i) or (ii) of this covenant or this clause (iii) or
contained in any amendment to an agreement or instrument referred to in clause
(i) or (ii) of this covenant or this clause (iii); provided, however, that the
encumbrances and restrictions with respect to such Restricted Subsidiary
contained in any such refinancing agreement or amendment are no less favorable
to the Noteholders than encumbrances and restrictions with respect to such
Restricted Subsidiary contained in such predecessor agreements;
(iv) any such encumbrance or restriction consisting of customary non-
assignment or anti-alienation provisions in (a) leases governing leasehold
interests to the extent such provisions restrict the transfer of the lease or
the property leased thereunder or subletting and (b) licenses or franchises to
the extent such provisions restrict the transfer of the license or franchise;
(v) in the case of clause (d) above, restrictions contained in security
agreements or mortgages securing Indebtedness of a Restricted Subsidiary to
the extent such restrictions restrict the transfer of the property subject to
such security agreements or mortgages;
(vi) any restriction with respect to a Restricted Subsidiary imposed
pursuant to an agreement entered into for the sale or disposition of all or
substantially all the Capital Stock or assets of such Restricted Subsidiary
pending the closing of such sale or disposition; and
(vii) any encumbrance or restriction contained in the terms of any
Indebtedness or any agreement pursuant to which such Indebtedness was Incurred
if the Board of Directors determines in good faith that any such encumbrance
or restriction will not materially affect the Company's ability to pay
principal or interest on the Exchange Debentures when due and such encumbrance
or restriction by its terms expressly permits such Restricted Subsidiary, (A)
in the absence of a payment default in respect of such Indebtedness or other
agreement, to make cash payments to the Company (in any form) sufficient to
pay when due all amounts of principal and interest on the Exchange Debentures
and (B) following the occurrence and during the continuance of a payment
default in respect of such Indebtedness or other agreement, to resume making
cash payments to the Company (in any form) sufficient to pay when due all
amounts of principal and interest on the Exchange Debentures upon the earlier
of the cure of such payment default and the lapse of 179 consecutive days
following the date when such encumbrance or restriction became operative to
prohibit or limit such Restricted Subsidiary from making such payments to the
Company; provided, however, that no restricted Subsidiary shall be affected by
the operation of any such encumbrances or restrictions following the
occurrence of a payment default on more than one occasion in any consecutive
360-day period.
Limitation on Sales of Assets and Subsidiary Stock. (a) The Company shall
not, and shall not permit any Restricted Subsidiary to, directly or indirectly,
consummate any Asset Disposition unless (i) the Company or such Restricted
Subsidiary receives consideration at the time of such Asset Disposition at least
equal to the fair market value (including as to the value of all non-cash
consideration), as determined in good faith by the Board of Directors, of the
shares and assets subject to such Asset Disposition and at least 75% of the
consideration thereof received by the Company or such Restricted Subsidiary is
in the form of cash or cash equivalents and (ii) an amount equal to 100% of the
Net Available Cash from such Asset Disposition is applied by the Company (or
such Restricted Subsidiary, as the case may be)
<PAGE>
(A) first, to the extent the Company elects in its sole discretion (or is
required by the terms of any Indebtedness), to prepay, repay, redeem or
purchase Indebtedness (other than any Disqualified Stock) of the Company or a
Restricted Subsidiary (in each case other than Indebtedness owed to the
Company or an Affiliate of the Company) within one year from the later of the
date of such Asset Disposition or the receipt of such Net Available Cash;
(B) second, to the extent of the balance of such Net Available Cash after
application in accordance with clause (A), to the extent the Company elects in
its sole discretion, to acquire Additional Assets within one year after the
receipt of such Net Available Cash;
(C) third, to the extent of the balance of such Net Available Cash after
application in accordance with clauses (A) and (B), to make an offer to the
holders of the Exchange Debentures to purchase Exchange Debentures pursuant to
and subject to the conditions contained in the Exchange Indenture; and
(D) fourth, to the extent of the balance of such Net Available Cash after
application in accordance with clauses (A), (B) and (C), for the general
corporate and working capital purposes of the Company and its Restricted
Subsidiaries;
provided, however, that in connection with any prepayment, repayment or purchase
of Indebtedness pursuant to clause (A) above, the Company or such Restricted
Subsidiary shall permanently retire such Indebtedness and shall cause the
related loan commitment (if any) to be permanently reduced in an amount equal to
the principal amount so prepaid, repaid or purchased. Notwithstanding the
foregoing provisions of this paragraph, the Company and the Restricted
Subsidiaries shall not be required to apply any Net Available Cash in accordance
with this paragraph except to the extent that the aggregate Net Available Cash
from all Asset Dispositions occurring after the Issue Date which are not applied
in accordance with this paragraph or with the covenant in the Amended Articles
described under "Description of Exchangeable Preferred Stock--Certain
Covenants--Limitation on Sales of Assets and Subsidiary Stock" exceeds $5
million. Pending application of Net Available Cash pursuant to this covenant,
such Net Available Cash shall be invested in Permitted Investments.
For the purposes of this covenant, the following are deemed to be cash or cash
equivalents: (x) the assumption of Indebtedness of the Company or any Restricted
Subsidiary and the release of the Company or such Restricted Subsidiary from all
liability on such Indebtedness in connection with such Asset Disposition, (y)
securities received by the Company or any Restricted Subsidiary from the
transferee that are promptly converted by the Company or such Restricted
Subsidiary into cash; and (z) Temporary Cash Investments.
(b) In the event of an Asset Disposition that requires the purchase of the
Exchange Debentures pursuant to clause (a) (ii) (C) above, the Company will be
required to purchase Exchange Debentures tendered pursuant to an offer by the
Company for the Exchange Debentures at a purchase price of 100% of their
principal amount plus accrued but unpaid interest, if any, to the date of
purchase in accordance with the procedures (including prorating in the event of
oversubscription) set forth in the Exchange Indenture. If the aggregate purchase
price of Exchange Debentures tendered pursuant to such offer is less than the
Net Available Cash allotted to the purchase thereof, the Company will be
required to apply the remaining Net Available Cash in accordance with clause (a)
(ii) (D) above. The Company shall not be required to make such an offer to
purchase Exchange Debentures pursuant to this covenant if the Net Available Cash
available therefor (including any Net Available Cash that was not required to be
applied to make on an offer under the corresponding provisions of the Amended
Articles) is less than $5.0 million (which lesser amount shall be carried
forward for purposes of determining whether such an offer is required with
respect to the Net Available Cash from any subsequent Asset Disposition).
(c) The Company shall comply, to the extent applicable, with the requirements
of Section 14(e) of the Exchange Act and any other securities laws or
regulations in connection with the repurchase of Exchange Debentures pursuant to
this covenant. To the extent that the provisions of any securities laws or
regulations conflict
<PAGE>
with provisions of this covenant, the Company shall comply with the applicable
securities laws and regulations and shall not be deemed to have breached its
obligations under this clause by virtue thereof.
Limitation on Affiliate Transactions. (a) The Company shall not, and shall
not permit any Restricted Subsidiary to, enter into or permit to exist any
transaction (including the purchase, sale, license, lease or exchange of any
property, employee compensation arrangements or the rendering of any service)
with any Affiliate of the Company (an "Affiliate Transaction") unless the
terms thereof (1) are no less favorable to the Company or such Restricted
Subsidiary than those that could be obtained at the time of such transaction in
arm's-length dealings with a Person who is not such an Affiliate, (2) if such
Affiliate Transaction involves an amount in excess of $1.0 million, (i) are set
forth in writing and (ii) have been approved by a majority of the members of the
Board of Directors having no personal stake in such Affiliate Transaction and
(3) if such Affiliate Transaction involves as amount in excess of $5.0 million,
have been determined by a nationally recognized investment banking firm or other
qualified appraiser under the relevant circumstances to be fair, from a
financial standpoint, to the Company and its Restricted Subsidiaries.
(b) The provisions of the foregoing paragraph (a) shall not prohibit (i) any
Permitted Investment or any Restricted Payment permitted to be paid pursuant to
the covenant described under "--Limitation on Restricted Payments," (ii) any
issuance of securities, or other payments, awards or grants in cash, securities
or otherwise pursuant to, or the funding of, employment arrangements, stock
options and stock ownership plans approved by the Board of Directors, (iii) the
grant of stock options or similar rights to employees and directors of the
Company pursuant to plans approved by the Board of Directors, (iv) loans or
advances to employees in the ordinary course of business in accordance with the
past practices of the Company or its Restricted Subsidiaries, but in any event
not to exceed $500,000 in the aggregate outstanding at any one time, (v) the
payment of reasonable fees to directors of the Company and its Restricted
Subsidiaries who are not employees of the Company or its Restricted
Subsidiaries, (vi) any Affiliate Transaction between the Company and a
Restricted Subsidiary or between Restricted Subsidiaries; provided, however,
that no beneficial owner (as defined in Rule 13d-1 and 13d-5 of the Exchange
Act) of 5% or more of the Capital Stock of the Company holds, directly or
indirectly, any Investments in any such Restricted Subsidiary (other than
indirectly through the Company), (vii) the issuance or sale of any Capital Stock
(other than Disqualified Stock) of the Company and (viii) any transaction
pursuant to an agreement or arrangement in effect on the Issue Date.
Limitation on the Sale or Issuance of Capital Stock of Certain Restricted
Subsidiaries. The Company shall not sell or otherwise dispose of any Capital
Stock (other than Qualified Preferred Stock) of an Existing Restricted
Subsidiary, and shall not permit any Existing Restricted Subsidiary, directly or
indirectly, to issue or sell or otherwise dispose of any of its Capital Stock
(other than Qualified Preferred Stock), except (i) to the Company or a Wholly
Owned Subsidiary, (ii) if, immediately after giving effect to such issuance,
sale or other disposition, neither the Company nor any of its Subsidiaries own
any Capital Stock of such Restricted Subsidiary, (iii) if, immediately after
giving effect to such issuance, sale or other disposition, such Existing
Restricted Subsidiary would no longer constitute a Restricted Subsidiary and any
Investment in such Person remaining after giving effect thereto would have been
permitted to be made under the covenant described under "--Limitation on
Restricted Payments" if made on the date of such issuance, sale or other
disposition, (iv) to directors of directors' qualifying shares of common stock
of any Restricted Subsidiary, to the extent mandated by applicable law, or (v)
the issuance or sale of Capital Stock of a Restricted Subsidiary that has a
class of equity security registered under Section 12 of the Exchange Act
pursuant to an employee stock option plan approved by the Board of Directors.
Limitation on Market Swaps. The Company will not, and will not permit any
Restricted Subsidiary to, engage in any Market Swaps, unless:
(i) at the time of entering into the agreement to swap markets and
immediately after giving effect to the proposed Market Swap, no Default shall
have occurred and be continuing;
<PAGE>
(ii) the respective fair market values of the markets and other assets (to
be determined in good faith by the Board of Directors and to be evidenced by a
resolution of such Board set forth in an Officer's Certificate delivered to
the Trustee) being purchased and sold by the Company or any of its Restricted
Subsidiaries are substantially the same at the time of entering into the
agreement to swap markets; and
(iii) the cash payments, if any, received by the Company or such Restricted
Subsidiary in connection with such Market Swap are treated as Net Available
Cash received from an Asset Disposition.
Limitation on Lines of Business. The Company shall not, and shall not permit
any Restricted Subsidiary to, engage in any trade or business other than a
Related Business.
Merger and Consolidation. The Company shall not consolidate with or merge
with or into, or convey, transfer or lease, in one transaction or a series of
transactions, all or substantially all its assets to, any Person, unless:
(i) the resulting, surviving or transferee Person (the "Successor
Company") shall be a Person organized and existing under the laws of the
United States of America, any State thereof or the District of Columbia and
the Successor Company (if not the Company) shall expressly assume, by an
indenture supplemental thereto, executed and delivered to the Trustee, in form
satisfactory to the Trustee, all the obligations of the Company under the
Exchange Debentures and the Exchange Indenture;
(ii) immediately after giving effect to such transaction (and treating any
Indebtedness which becomes an obligation of the Successor Company or any
Subsidiary as a result of such transaction as having been Incurred by such
Successor Company or such Subsidiary at the time of such transaction), no
Default shall have occurred and be continuing,
(iii) immediately after giving effect to such transaction, the Successor
Company would be able to Incur an additional $1.00 of Indebtedness pursuant to
paragraph (a) of the covenant described under
"--Limitation on Indebtedness;"
(iv) immediately after giving effect to such transaction, the Successor
Company shall have Consolidated Net Worth in an amount that is not less than
the Consolidated Net Worth of the Company immediately prior to such
transaction;
(v) the Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that such consolidation,
merger or transfer and such supplemental indenture (if any) comply with the
Exchange Indenture; and
(vi) the Company shall have delivered to the Trustee an Opinion of Counsel
to the effect that the holders of the Notes will not recognize income, gain or
loss for Federal income tax purposes as a result of such transaction and will
be subject to Federal income tax on the same amounts, in the same manner and
at the same times as would have been the case if such transaction had not
occurred.
The Successor Company shall be the successor to the Company and shall succeed
to, and be substituted for, and may exercise every right and power of, the
Company under the Exchange Indenture, but the predecessor Company in the case of
a conveyance, transfer or lease shall not be released from the obligation to pay
the principal of and interest on the Exchange Debentures.
SEC Reports. Notwithstanding that the Company may not be subject to the
reporting requirements of Section 13 or 15(d) of the Exchange Act, the Company
shall file with the SEC and provide the Trustee and holders of the Exchange
Debentures with such annual reports and such information, documents and other
reports as are specified in Sections 13 and 15(d) of the Exchange Act and
applicable to a U.S. corporation subject to such Sections, such information,
documents and other reports to be so filed and provided at the times specified
for the filing of such
<PAGE>
information, documents and reports under such Sections if it were subject
thereto (unless the SEC will not accept such a filing, in which case the Company
shall provide such documents to the Trustee). In addition, for so long as any of
the Exchange Debentures are outstanding, the Company will make available to any
prospective purchaser of the Exchange Debentures or beneficial owner thereof
(upon written request to the Company) in connection with any sales thereof the
information required by Rule 144A(d) (4) under the Securities Act.
DEFAULTS
An Event of Default is defined in the Exchange Indenture as (i) a default in
the payment of interest on the Exchange Debentures when due and continued for 30
days, (ii) a default in the payment of principal of any Exchange Debenture when
due at its Stated Maturity, upon optional redemption, upon required repurchase,
upon declaration or otherwise, (iii) the failure by the Company to comply with
its obligations under "--Certain Covenants--Merger and Consolidation" above,
(iv) the failure by the Company to comply for 30 days after the notice described
below with any of its obligations in the covenants described above under
"Change of Control" (other than a failure to purchase Exchange Debentures) or
under "--Certain Covenants" under "--Limitation on Indebtedness," "--
Limitation on Restricted Payments," "--Limitation on Restrictions on
Distributions from Restricted Subsidiaries," "--Limitation on Sales of Assets
and Subsidiary Stock" (other than a failure to purchase Exchange Debentures),
"--Limitation on Affiliate Transactions," "--Limitation on the Sale or
Issuance of Capital Stock of Certain Restricted Subsidiaries," "--Limitation
on Market Swaps," "--Limitation on Lines of Business" or "--SEC Reports,"
(v) the failure by the Company to comply for 60 days after notice with its other
agreements contained in the Exchange Indenture, (vi) Indebtedness of the Company
or any Significant Subsidiary is not paid within any applicable grace period
after final maturity or is accelerated by the holders thereof because of a
default and the total amount of such Indebtedness unpaid or accelerated exceeds
$10 million and such nonpayment continues, or such acceleration is not
rescinded, within 10 days after notice (the "cross acceleration provision"),
(vii) certain events of bankruptcy, insolvency or reorganization of the Company
or a Significant Subsidiary (the "bankruptcy provisions") or (viii) any
judgment or decree (not covered by insurance or indemnification by a person
other than the Company or a Restricted Subsidiary, which indemnity party is
solvent and has acknowledged responsibility) for the payment of money in excess
of $10 million is entered against the Company or a Significant Subsidiary,
remains outstanding for a period of 60 days following such judgment and is not
discharged, waived, bonded over or stayed within 10 days after notice (the
"judgment default provision"). However, a default under clauses (iv), (v),
(vi) and (viii) will not constitute an Event of Default until the Trustee or the
holders of 25% in principal amount of the outstanding Exchange Debentures notify
the Company of the default and the Company does not cure such default within the
time specified after receipt of such notice.
If an Event of Default occurs and is continuing, the Trustee or the holders of
at least 25% in principal amount of the outstanding Exchange Debentures may
declare the principal of and accrued but unpaid interest on all the Exchange
Debentures to be due and payable. Upon such a declaration, such principal and
interest shall be due and payable immediately. If an Event of Default relating
to certain events of bankruptcy, insolvency or reorganization of the Company
occurs and is continuing, the principal of and interest on all the Exchange
Debentures will ipso facto become and be immediately due and payable without any
declaration or other act on the part of the Trustee or any holders of the
Exchange Debentures. Under certain circumstances, the holders of a majority in
principal amount of the outstanding Exchange Debentures may rescind any such
acceleration with respect to the Exchange Debentures and its consequences.
Subject to the provisions of the Exchange Indenture relating to the duties of
the Trustee, in case an Event of Default occurs and is continuing, the Trustee
will be under no obligation to exercise any of the rights or powers under the
Exchange Indenture at the request or direction of any of the holders of the
Exchange Debentures unless such holders have offered to the Trustee reasonable
indemnity or security against any loss, liability or expense. Except to enforce
the right to receive payment of principal, premium (if any) or interest when
due, no holder of an Exchange Debenture may pursue any remedy with respect to
the Exchange Indenture or the Exchange Debentures unless (i) such holder has
previously given the Trustee notice that an Event of Default is continuing, (ii)
holders of at least 25% in principal amount of the outstanding Exchange
Debentures have requested the Trustee to pursue the remedy, (iii) such holders
have offered the Trustee reasonable security or indemnity
<PAGE>
against any loss, liability or expense, (iv) the Trustee has not complied with
such request within 60 days after the receipt thereof and the offer of security
or indemnity and (v) the holders of a majority in principal amount of the
outstanding Exchange Debentures have not given the Trustee a direction
inconsistent with such request within such 60-day period. Subject to certain
restrictions, the holders of a majority in principal amount of the outstanding
Exchange Debentures are given the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee or of
exercising any trust or power conferred on the Trustee. The Trustee, however,
may refuse to follow any direction that conflicts with law or the Exchange
Indenture or that the Trustee determines is unduly prejudicial to the rights of
any other holder of an Exchange Debenture or that would involve the Trustee in
personal liability.
The Exchange Indenture provides that if a Default occurs and is continuing and
is known to the Trustee, the Trustee must mail to each holder of the Exchange
Debentures notice of the Default within 90 days after it occurs. Except in the
case of a Default in the payment of principal of or interest on any Exchange
Debenture, the Trustee may withhold notice if and so long as a committee of its
trust officers determines that withholding notice is not opposed to the interest
of the holders of the Exchange Debentures. In addition, the Company is required
to deliver to the Trustee, within 120 days after the end of each fiscal year, a
certificate indicating whether the signers thereof know of any Default that
occurred during the previous year. The Company also is required to deliver to
the Trustee, within 30 days after the Company becomes aware of the occurrence
thereof, written notice of any event which would constitute certain Defaults,
their status and what action the Company is taking or proposes to take in
respect thereof.
AMENDMENTS AND WAIVERS
Subject to certain exceptions, the Exchange Indenture may be amended with the
consent of the holders of a majority in principal amount of the Exchange
Debentures then outstanding (including consents obtained in connection with a
tender offer or exchange for the Exchange Debentures) and any past default or
compliance with any provisions may also be waived with the consent of the
holders of a majority in principal amount of the Exchange Debentures then
outstanding. However, without the consent of each holder of an outstanding
Exchange Debenture affected thereby, no amendment may, among other things, (i)
reduce the amount of Exchange Debentures whose holders must consent to an
amendment, (ii) reduce the rate of or extend the time for payment of interest on
any Exchange Debenture, (iii) reduce the principal of or extend the Stated
Maturity of any Exchange Debenture, (iv) reduce the premium payable upon the
redemption of any Exchange Debenture or change the time at which any Exchange
Debenture may be redeemed as described under "--Optional Redemption," (v) make
any Exchange Debenture payable in money other than that stated in the Exchange
Debenture, (vi) impair the right of any holder of the Exchange Debentures to
receive payment of principal of and interest on such holder's Exchange
Debentures on or after the due dates therefor or to institute suit for the
enforcement of any payment on or with respect to such holder's Exchange
Debentures, (vii) make any change in the amendment provisions which require each
holder's consent or in the waiver provisions or (viii) make any change to the
subordination provisions of the Exchange Indenture that would adversely affect
the holders of Exchange Debentures.
Without the consent of any holder of the Exchange Debentures, the Company and
Trustee may amend the Exchange Indenture to cure any ambiguity, omission, defect
or inconsistency, to provide for the assumption by a successor corporation of
the obligations of the Company under the Exchange Indenture, to provide for
uncertificated Exchange Debentures in addition to or in place of certificated
Exchange Debentures (provided that the uncertificated Exchange Debentures are
issued in registered form for purposes of Section 163(f) of the Code, or in a
manner such that the uncertificated Exchange Debentures are described in Section
163(f) (2) (B) of the Code), to add guarantees with respect to the Exchange
Debentures, to secure the Exchange Debentures, to add to the covenants of the
Company for the benefit of the holders of the Exchange Debentures or to
surrender any right or power conferred upon the Company, to make any change that
does not adversely affect the rights of any holder of the Exchange Debentures or
to comply with any requirement of the SEC in connection with the qualification
of the Exchange Indenture under the Trust Indenture Act. However, no amendment
may be made to the subordination
<PAGE>
provisions of the Exchange Indenture that adversely affects the rights of any
holder of Senior Indebtedness then outstanding unless the holders of such Senior
Indebtedness (or their Representative) consent to such change.
The consent of the holders of the Exchange Debentures is not necessary under
the Exchange Indenture to approve the particular form of any proposed amendment.
It is sufficient if such consent approves the substance of the proposed
amendment.
After an amendment under the Exchange Indenture becomes effective, the Company
is required to mail to holders of the Exchange Debentures a notice briefly
describing such amendment. However, the failure to give such notice to all
holders of the Exchange Debentures, or any defect therein, will not impair or
affect the validity of the amendment.
TRANSFER
The Exchange Debentures will be issued in registered form and will be
transferable only upon the surrender of the Exchange Debentures being
transferred for registration of transfer. The Company may require payment of a
sum sufficient to cover any tax, assessment or other governmental charge payable
in connection with certain transfers and exchanges.
DEFEASANCE
The Company at any time may terminate all its obligations under the Exchange
Debentures and the Exchange Indenture ("legal defeasance"), except for certain
obligations, including those respecting the defeasance trust and obligations to
register the transfer or exchange of the Exchange Debentures, to replace
mutilated, destroyed, lost or stolen Exchange Debentures and to maintain a
registrar and paying agent in respect of the Exchange Debentures. The Company at
any time may terminate its obligations under "Change of Control" and under the
covenants described under "--Certain Covenants" (other than the covenant
described under "--Merger and Consolidation"), the operation of the cross
acceleration provision, the bankruptcy provisions with respect to Significant
Subsidiaries and the judgment default provision described under "--Defaults"
above and the limitations contained in clauses (iii) and (iv) under "--Certain
Covenants--Merger and Consolidation" above ("covenant defeasance").
The Company may exercise its legal defeasance option notwithstanding its prior
exercise of its covenant defeasance option. If the Company exercises its legal
defeasance option, payment of the Exchange Debentures may not be accelerated
because of an Event of Default with respect thereto. If the Company exercises
its covenant defeasance option, payment of the Exchange Debentures may not be
accelerated because of an Event of Default specified in clause (iv), (vi), (vii)
(with respect only to Significant Subsidiaries) or (viii) under "--Defaults"
above or because of the failure of the Company to comply with clause (iii) or
(iv) under "--Certain Covenants--Merger and Consolidation" above.
In order to exercise either defeasance option, the Company must irrevocably
deposit in trust (the "defeasance trust") with the Trustee money or U.S.
Government Obligations that through the payment of interest and principal in
respect thereof in accordance with their terms will provide money in an amount
sufficient to pay principal and interest on the Exchange Debentures when due
(whether at scheduled maturity or upon redemption as to which irrevocable
instructions have been given to the Trustee) in accordance with terms of the
Exchange Indenture and the Exchange Debentures and must comply with certain
other conditions, including delivery to the Trustee of an Opinion of Counsel to
the effect that holders of the Exchange Debentures will not recognize income,
gain or loss for Federal income tax purposes as a result of such deposit and
defeasance and will be subject to Federal income tax on the same amounts and in
the same manner and at the same times as would have been the case if such
deposit and defeasance had not occurred (and, in the case of legal defeasance
only, such Opinion of Counsel must be based on a ruling of the Internal Revenue
Service or other change in applicable Federal income tax law).
<PAGE>
CONCERNING THE TRUSTEE
IBJ Schroder Bank and Trust Company is to be the Trustee under the Exchange
Indenture and has been appointed by the Company as Registrar and Paying Agent
with regard to the Exchange Debentures.
The Holders of a majority in principal amount of the outstanding Exchange
Debentures will have the right to direct the time, method and place of
conducting any proceeding for exercising any remedy available to the Trustee,
subject to certain exceptions. The Exchange Indenture provides that if an Event
of Default occurs (and is not cured), the Trustee will be required, in the
exercise of its power, to use the degree of care of a prudent man in the conduct
of his own affairs. Subject to such provisions, the Trustee will be under no
obligation to exercise any of its rights or powers under the Exchange Indenture
at the request of any holder of Exchange Debentures, unless such Holder shall
have offered to the Trustee security and indemnity satisfactory to it against
any loss, liability or expense and then only to the extent required by the terms
of the Exchange Indenture.
GOVERNING LAW
The Exchange Indenture provides that it and the Exchange Debentures will be
governed by, and construed in accordance with, the laws of the State of New York
without giving effect to applicable principles of conflicts of law to the extent
that the application of the law of another jurisdiction would be required
thereby.
CERTAIN DEFINITIONS
"Additional Assets" means (i) any property or assets (other than
Indebtedness and Capital Stock) in a Related Business; (ii) the Capital Stock of
a Person that becomes a Restricted Subsidiary as a result of the acquisition of
such Capital Stock by the Company or another Restricted Subsidiary; or (iii)
Capital Stock constituting a minority interest in any Person that at such time
is or becomes a Restricted Subsidiary; provided, however, that any such
Restricted Subsidiary described in clauses (ii) or (iii) above is primarily
engaged in a Related Business.
"Affiliate" of any specified Person means any other Person, directly or
indirectly, controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
For purposes of the provisions described under "--Certain Covenants--Limitation
on Restricted Payments," "--Certain Covenants--Limitation on Affiliate
Transactions" and "--Certain Covenants--Limitation on Sales of Assets and
Subsidiary Stock" only, "Affiliate" shall also mean any beneficial owner of
Capital Stock representing 5% or more of the total voting power of the Voting
Stock (on a fully diluted basis) of the Company or of rights or warrants to
purchase such Capital Stock (whether or not currently exercisable) and any
Person who would be an Affiliate of any such beneficial owner pursuant to the
first sentence hereof.
"Annualized EBITDA" as of any date of determination means EBITDA for the
most recent two consecutive fiscal quarters for which financial statements have
been made publicly available but in no event ending more than 135 days prior to
the date of such determination multiplied by two.
"Area 1 Franchise" means the Company's cable television franchise pursuant
to a Franchise Agreement between the Company and the City of Chicago in effect
on the Issue Date.
<PAGE>
"Asset Disposition" means any sale, lease, transfer or other disposition (or
series of related sales, leases, transfers or dispositions) (that is not for
security purposes) by the Company or any Restricted Subsidiary, including any
disposition by means of a merger, consolidation or similar transaction (each
referred to for the purposes of this definition as a "disposition"), of (i)
any shares of Capital Stock (other than Qualified Preferred Stock) of a
Restricted Subsidiary (other than directors' qualifying shares or shares
required by applicable law to be held by a Person other than the Company or a
Restricted Subsidiary), (ii) all or substantially all the assets of any division
or line of business of the Company or any Restricted Subsidiary or (iii) any
other assets (other than Capital Stock or other Investments in an Unrestricted
Subsidiary) of the Company or any Restricted Subsidiary outside of the ordinary
course of business of the Company or such Restricted Subsidiary (other than, in
the case of (i), (ii) and (iii) above, (a) a disposition by a Restricted
Subsidiary to the Company or by the Company or a Restricted Subsidiary to
another Restricted Subsidiary, (b) for purposes of the covenant described under
"--Certain Covenants--Limitation on Sales of Assets and Subsidiary Stock"
only, a disposition that (x) constitutes a Permitted Investment or a Restricted
Payment permitted by the covenant described under "--Certain Covenants--
Limitation on Restricted Payments," (y) complies with the covenant described
under "--Certain Covenants--Merger and Consolidation" or (z) constitutes a
Market Swap permitted by the covenant described under "--Certain Covenants--
Limitation on Market Swaps" and (c) a disposition of assets with a fair market
value of less than $250,000).
"Attributable Debt" in respect of a Sale/Leaseback Transaction means, as at
the time of determination, the present value (discounted at the interest rate
borne by the Notes, compounded annually) of the total obligations of the lessee
for rental payments during the remaining term of the lease included in such
Sale/Leaseback Transaction (including any period for which such lease has been
extended).
"Average Life" means, as of the date of determination, with respect to any
Indebtedness or Preferred Stock, the quotient obtained by dividing (i) the sum
of the products of numbers of years (calculated to the nearest one-twelfth) from
the date of determination to the dates of each successive scheduled principal
payment of such Indebtedness or redemption or similar payment with respect to
such Preferred Stock multiplied by the amount of each such principal payment by
(ii) the sum of all such principal payments.
"Board of Directors" means the Board of Directors of the Company or any
committee thereof duly authorized to act on behalf of such Board.
"Business Day" means any day other than a Saturday, Sunday or day on which
banking institutions are not required to be open in the States of New York,
Illinois or Massachusetts.
"Capital Lease Obligation" means an obligation that is required to be
classified and accounted for as a capital lease for financial reporting purposes
in accordance with GAAP, and the amount of Indebtedness represented by such
obligation shall be the capitalized amount of such obligation determined in
accordance with GAAP; and the Stated Maturity thereof shall be the date of the
last payment of rent or any other amount due under such lease prior to the first
date upon which such lease may be terminated by the lessee without payment of a
penalty.
"Capital Stock" of any Person means any and all shares, interests, rights to
purchase, warrants, options, participations or other equivalents of or interests
in (however designated, whether voting or nonvoting) equity of such Person,
including any common stock and Preferred Stock, whether outstanding on the Issue
Date or issued after the Issue Date, but excluding any debt securities
convertible into such equity.
"Code" means the Internal Revenue Code of 1986, as amended.
"consolidated" means the consolidation of accounts of the Company and its
Subsidiaries in accordance with GAAP.
"Consolidated Current Liabilities" as of the date of determination means the
aggregate amount of liabilities of the Company and its Restricted Subsidiaries
which may properly be classified as current liabilities (including taxes
<PAGE>
accrued as estimated), on a consolidated basis, after eliminating (i) all
intercompany items between the Company and any Restricted Subsidiary and (ii)
all current maturities of long-term Indebtedness, all as determined in
accordance with GAAP consistently applied.
"Consolidated Interest Expense" means, for any period, the total interest
expense of the Company and its consolidated Restricted Subsidiaries, plus, to
the extent not included in such total interest expense, and to the extent
incurred in such period by the Company or its Restricted Subsidiaries, without
duplication, (i) interest expense attributable to capital leases and the
interest expense attributable to leases constituting part of a Sale/Leaseback
Transaction, (ii) amortization of debt discount and debt issuance cost, (iii)
capitalized interest, (iv) non-cash interest expense, (v) commissions, discounts
and other fees and charges owed with respect to letters of credit and bankers'
acceptance financing, (vi) net costs associated with Hedging Obligations
(including amortization of fees), (vii) Preferred Stock dividends in respect of
all Preferred Stock held by Persons other than the Company or a Restricted
Subsidiary, (viii) interest incurred in connection with Investments in
discontinued operations, (ix) interest accruing on any Indebtedness of any other
Person to the extent such Indebtedness is Guaranteed by (or secured by the
assets of) the Company or any Restricted Subsidiary and (x) the cash
contributions to any employee stock ownership plan or similar trust to the
extent such contributions are used by such plan or trust to pay interest or fees
to any Person (other than the Company) in connection with Indebtedness Incurred
by such plan or trust; excluding, however, (y) a proportional amount of any of
the foregoing items or other interest expense incurred by a Restricted
Subsidiary in such period to the extent the net income of such Restricted
Subsidiary is excluded in the calculation of Consolidated Net Income pursuant to
clause (iii) of the definition thereof and (z) any fees or debt issuance costs
(and any amortization thereof) payable in connection with the sale of the Notes
and Units on the Issue Date.
"Consolidated Leverage Ratio" as of any date of determination means the
ratio of (i) the aggregate amount of Indebtedness of the Company and its
Restricted Subsidiaries calculated on a consolidated basis as of the end of the
most recent fiscal quarter for which financial statements have been made
publicly available but in no event ending more than 135 days prior to the date
of such determination to (ii) Annualized EBITDA as of such date of
determination; provided, however, that
(1) if the transaction giving rise to the need to calculate the
Consolidated Leverage Ratio is an Incurrence of Indebtedness, the amount of
Indebtedness outstanding at the end of such fiscal quarter shall be calculated
after giving effect on a pro forma basis to the Incurrence of such
Indebtedness as if such Indebtedness had been outstanding as of the end of
such fiscal quarter and to the discharge of any other Indebtedness to the
extent it was outstanding as of the end of such fiscal quarter and is to be
repaid, repurchased, defeased or otherwise discharged with the proceeds of
such new Indebtedness as if such Indebtedness had been discharged as of the
end of such fiscal quarter,
(2) if the Company or any Restricted Subsidiary has repaid, repurchased,
defeased or otherwise discharged any Indebtedness that was outstanding as of
the end of such fiscal quarter or if any Indebtedness that was outstanding as
of the end of such fiscal quarter is to be repaid, repurchased, defeased or
otherwise discharged on the date of the transaction giving rise to the need to
calculate the Consolidated Leverage Ratio, the aggregate amount of
Indebtedness outstanding as of the end of such fiscal quarter shall be
calculated on a pro forma basis as if such discharge had occurred as of the
end of such fiscal quarter and EBITDA shall be calculated as if the Company or
such Restricted Subsidiary had not earned the interest income, if any,
actually earned during the period of the most recent two consecutive fiscal
quarters for which financial statements have been made publicly available but
in no event ending more than 135 days prior to the date of such determination
(the "Reference Period") in respect of cash or Temporary Cash Investments
used to repay, repurchase, defease or otherwise discharge such Indebtedness,
(3) if since the beginning of the Reference Period the Company or any
Restricted Subsidiary shall have made any Asset Disposition, the EBITDA for
the Reference Period shall be reduced by an amount equal to the EBITDA (if
positive) directly attributable to the assets which are the subject of such
Asset Disposition for the
<PAGE>
Reference Period, or increased by an amount equal to the EBITDA (if negative),
directly attributable thereto for the Reference Period,
(4) if since the beginning of the Reference Period the Company or any
Restricted Subsidiary (by merger or otherwise) shall have made an Investment
in any Restricted Subsidiary (or any person which becomes a Restricted
Subsidiary) or an acquisition of assets, including any acquisition of assets
occurring in connection with a transaction requiring a calculation to be made
hereunder, which constitutes all or substantially all an operating unit of a
business, EBITDA for the Reference Period shall be calculated after giving pro
forma effect thereto (including the Incurrence of any Indebtedness) as if such
Investment or acquisition occurred on the first day of the Reference Period,
(5) if since the beginning of the Reference Period any Person (that
subsequently became a Restricted Subsidiary or was merged with or into the
Company or any Restricted Subsidiary since the beginning of such Reference
Period) shall have made any Asset Disposition, any Investment or acquisition
of assets that would have required an adjustment pursuant to clause (3) or (4)
above if made by the Company or a Restricted Subsidiary during the Reference
Period, EBITDA for the Reference Period shall be calculated after giving pro
forma effect thereto as if such Asset Disposition, Investment or acquisition
occurred on the first day of the Reference Period; and
(6) the aggregate amount of Indebtedness outstanding at the end of such
most recent fiscal quarter will be deemed to include the total principal
amount of funds outstanding or available to be borrowed on the date of
determination under any revolving credit or similar facilities of the Company
or its Restricted Subsidiaries.
For purposes of this definition, whenever pro forma effect is to be given to an
acquisition of assets, the amount of income or earnings relating thereto, the
pro forma calculations shall be determined in good faith by a responsible
financial or accounting Officer of the Company.
"Consolidated Net Income" means, for any period, the aggregate net income of
the Company and its consolidated Subsidiaries for such period; provided,
however, that the following shall not be included in such Consolidated Net
Income:
(i) any net income (or loss) of any Person (other than the Company) if such
Person is not a Restricted Subsidiary, except that subject to the exclusion
contained in clause (iv) below, the Company's equity in the net income of any
such Person for such period shall be included in such Consolidated Net Income
up to the aggregate amount of cash actually distributed by such Person during
such period to the Company or a Restricted Subsidiary as a dividend or other
distribution (subject, in the case of a dividend or other distribution paid to
a Restricted Subsidiary, to the limitations contained in clause (iii) below);
(ii) any net income (or loss) of any Person acquired by the Company or a
Subsidiary in a pooling of interests transaction for any period prior to the
date of such acquisition;
(iii) any net income of any Restricted Subsidiary if such Restricted
Subsidiary is subject to restrictions, directly or indirectly, on the payment
of dividends or the making of distributions by such Restricted Subsidiary,
directly or indirectly, to the Company, except that (A) subject to the
exclusion contained in clause (iv) below, the Company's equity in the net
income of any such Restricted Subsidiary for such period shall be included in
such Consolidated Net Income up to the aggregate amount of cash actually
distributed by such Restricted Subsidiary during such period to the Company or
another Restricted Subsidiary as a dividend or other distribution (subject, in
the case of a dividend or other distribution paid to another Restricted
Subsidiary, to the limitation contained in this clause) and (B) the Company's
equity in a net loss of any such Restricted Subsidiary for such period shall
be included in determining such Consolidated Net Income;
<PAGE>
(iv) the after-tax gain or loss realized upon the sale or other disposition
of any assets of the Company, its consolidated Subsidiaries or any other
Person (including pursuant to any sale-and-leaseback arrangement) which is not
sold or otherwise disposed of in the ordinary course of business and the
after-tax gain or loss realized upon the sale or other disposition of any
Capital Stock of any Person;
(v) extraordinary gains or losses; and
(vi) the cumulative effect of a change in accounting principles.
Notwithstanding the foregoing, for the purposes of the covenant described under
"Certain Covenants--Limitation on Restricted Payments" only, there shall be
excluded from Consolidated Net Income any payments of interest, dividends,
repayments of loans or advances or other transfers of assets from Unrestricted
Subsidiaries to the Company or a Restricted Subsidiary to the extent such
interest, dividends, repayments or transfers increase the amount of Restricted
Payments permitted under such covenant pursuant to clause (a)(3)(D) thereof.
"Consolidated Net Tangible Assets" as of any date of determination, means
the total amount of assets (less accumulated depreciation and amortization,
allowances for doubtful receivables, other applicable reserves and other
properly deductible items) which would appear on a balance sheet of the Company
and its Restricted Subsidiaries, determined on a consolidated basis in
accordance with GAAP, and after giving effect to purchase accounting and after
deducting therefrom Consolidated Current Liabilities and, to the extent
otherwise included, the amounts of: (i) minority interests in consolidated
Subsidiaries held by Persons other than the Company or a Restricted Subsidiary;
(ii) excess of cost over fair value of assets of businesses acquired, as
determined in good faith by the Board of Directors; (iii) any revaluation or
other write-up in book value of assets subsequent to the Issue Date as a result
of a change in the method of valuation in accordance with GAAP consistently
applied; (iv) unamortized debt discount and expenses and other unamortized
deferred charges, goodwill, patents, trademarks, service marks, trade names,
copyrights, licenses, organization or developmental expenses and other
intangible items; (v) treasury stock; (vi) cash set apart and held in a sinking
or other analogous fund established for the purpose of redemption or other
retirement of Capital Stock to the extent such obligation is not reflected in
Consolidated Current Liabilities; and (vii) Investments in and assets of
Unrestricted Subsidiaries.
"Consolidated Net Worth" means, at any date of determination, the total of
the amounts shown on the balance sheet of the Company and its consolidated
Subsidiaries, determined on a consolidated basis in accordance with GAAP, as of
the end of the most recent fiscal quarter of the Company for which financial
statements have been made publicly available but in no event ending more than
135 days prior to the taking of any action for the purpose of which the
determination is being made, as (i) the par or stated value of all outstanding
Capital Stock of the Company plus (ii) paid-in capital or capital surplus
relating to such Capital Stock plus (iii) any retained earnings or earned
surplus less (A) any accumulated deficit and (B) any amounts attributable to
Disqualified Stock.
"Credit Agreement" means one or more term loans or revolving credit or
working capital facilities (including any letter of credit subfacility) with one
or more banks or other institutional lenders in favor of the Company or any
Restricted Subsidiary.
"Currency Agreement" means in respect of a Person any foreign exchange
contract, currency swap agreement or other similar agreement designed to protect
such Person against fluctuations in currency values.
"Default" means any event which is, or after notice or passage of time or
both would be, in the case of the Exchangeable Preferred Stock, a Voting Rights
Triggering Event and, in the case of the Exchange Debentures, an Event of
Default.
"Designated Senior Indebtedness" means (i) the Notes and any Indebtedness
Incurred pursuant to paragraph (b) (1) of the covenant described under "--
Certain Covenants--Limitation on Indebtedness" and (ii) any other Senior
Indebtedness of the Company which, at the date of determination, has an
aggregate amount outstanding of, or under
<PAGE>
which, at the date of determination, the holders thereof are committed to lend
up to, at least $25 million and is specifically designated by the Company in the
instrument evidencing or governing such Senior Indebtedness as "Designated
Senior Indebtedness" for purposes of the Exchange Indenture.
"Disqualified Stock" means, with respect to any Person, any Capital Stock
which by its terms (or by the terms of any security into which it is convertible
or for which it is exchangeable) or upon the happening of any event (i) matures
or is mandatorily redeemable pursuant to a sinking fund obligation or otherwise,
(ii) is convertible or exchangeable for Indebtedness or Disqualified Stock or
(iii) is redeemable or must be purchased, upon the occurrence of certain events
or otherwise, by such Person at the option of the holder thereof, in whole or in
part, in each case on or prior to the first anniversary of the Stated Maturity
of the Exchangeable Preferred Stock or Exchange Debentures, as the case may be;
provided, however, that any Capital Stock that would not constitute Disqualified
Stock but for provisions thereof giving holders thereof the right to require
such Person to purchase or redeem such Capital Stock upon the occurrence of an
"asset sale" or "change of control" occurring prior to the first anniversary
of the Stated Maturity of the Exchangeable Preferred Stock or Exchange
Debentures, as the case may be, shall not constitute Disqualified Stock if (x)
the "asset sale" or "change of control" provisions applicable to such
Capital Stock are not more favorable to the holders of such Capital Stock than
the terms applicable to the Exchangeable Preferred Stock or Exchange Debentures,
as the case may be, and described under "--Certain Covenants--Limitation on
Sales of Assets and Subsidiary Stock" and "--Change of Control" and (y) any
such requirement only becomes operative after compliance with such terms
applicable to the Exchangeable Preferred Stock or Exchange Debentures, as the
case may be, including the purchase of any Exchangeable Preferred Stock or
Exchange Debentures, as the case may be, tendered pursuant thereto.
"EBITDA" for any period means the sum of Consolidated Net Income, plus the
following to the extent deducted in calculating such Consolidated Net Income:
(a) Consolidated Interest Expense, (b) all income tax expense of the Company and
its consolidated Restricted Subsidiaries, (c) depreciation expense of the
Company and its consolidated Restricted Subsidiaries, (d) amortization expense
of the Company and its consolidated Restricted Subsidiaries (excluding
amortization expense attributable to a prepaid cash item that was paid in a
prior period) and (e) all other non-cash charges of the Company and its
consolidated Restricted Subsidiaries (excluding any such non-cash charge to the
extent that it represents an accrual of or reserve for cash expenditures in any
future period), in each case for such period, all as determined on a
consolidated basis for the Company and its Restricted Subsidiaries.
Notwithstanding the foregoing, the provision for taxes based on the income or
profits of, and the depreciation and amortization and non-cash charges of, a
Restricted Subsidiary shall be added to Consolidated Net Income to compute
EBITDA only to the extent (and in the same proportion) that the net income of
such Restricted Subsidiary was included in calculating Consolidated Net Income
and only if a corresponding amount would be permitted at the date of
determination to be dividended to the Company by such Restricted Subsidiary
without prior approval (that has not been obtained), pursuant to the terms of
its charter and all agreements, instruments, judgments, decrees, orders,
statutes, rules and governmental regulations applicable to such Restricted
Subsidiary or its stockholders.
"Equity Offering" means either (a) an underwritten primary public offering
of common stock of Parent or the Company pursuant to an effective registration
statement under the Securities Act or (b) a primary offering of Capital Stock
(other than Disqualified Stock) of the Company to one or more Persons primarily
engaged in a Related Business.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exchange Date" means the date on which the Exchange Debentures are
exchanged for the Exchangeable Preferred Stock.
"Existing Restricted Subsidiary" means any Restricted Subsidiary in
existence on the Issue Date and any Restricted Subsidiary formed after the Issue
Date which thereafter conducts all or any portion of the Company's business
pertaining to its Area 1 franchise in Chicago, as in effect on the Issue Date.
<PAGE>
"GAAP" means generally accepted accounting principles in the United States
of America as in effect as of the Issue Date, including those set forth in (i)
the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants, (ii) statements and
pronouncements of the Financial Accounting Standards Board, (iii) such other
statements by such other entity as approved by a significant segment of the
accounting profession and (iv) the rules and regulations of the SEC governing
the inclusion of financial statements (including pro forma financial statements)
in periodic reports required to be filed pursuant to Section 13 of the Exchange
Act, including opinions and pronouncements in staff accounting bulletins and
similar written statements from the accounting staff of the SEC.
"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness of any Person and any
obligation, direct or indirect, contingent or otherwise, of such Person (i) to
purchase or pay (or advance or supply funds for the purchase or payment of) such
Indebtedness or other obligation of such Person (whether arising by virtue of
partnership arrangements, or by agreements to keep-well, to purchase assets,
goods, securities or services, to take-or-pay or to maintain financial statement
conditions or otherwise) or (ii) entered into for the purpose of assuring in any
other manner the obligee of such Indebtedness of the payment thereof or to
protect such obligee against loss in respect thereof (in whole or in part);
provided, however, that the term "Guarantee" shall not include endorsements
for collection or deposit in the ordinary course of business. The term
"Guarantee" used as a verb has a corresponding meaning. The term "Guarantor"
shall mean any Person Guaranteeing any obligation.
"Hedging Obligations" of any Person means the obligations of such Person
pursuant to any Interest Rate Agreement or Currency Agreement.
"Holder" or "Debentureholder" means the Person in whose name an Exchange
Debenture is registered on the Registrar's books.
"Incur" means issue, assume, Guarantee, incur or otherwise become liable
for; provided, however, that any Indebtedness or Capital Stock of a Person
existing at the time such Person becomes a Subsidiary (whether by merger,
consolidation, acquisition or otherwise) shall be deemed to be Incurred by such
Subsidiary at the time it becomes a Subsidiary. The term "Incurrence" when
used as a noun shall have a correlative meaning. The accretion of principal of a
non-interest bearing or other discount security shall be deemed the Incurrence
of Indebtedness.
"Indebtedness" means, with respect to any Person on any date of
determination (without duplication):
(i) the principal in respect of (A) indebtedness of such Person for money
borrowed and (B) indebtedness evidenced by notes, debentures, bonds or other
similar instruments for the payment of which such Person is responsible or
liable, including, in each case, any premium on such indebtedness to the
extent such premium has become due and payable;
(ii) all Capital Lease Obligations of such Person and all Attributable Debt
in respect of Sale/Leaseback Transactions entered into by such Person;
(iii) all obligations of such Person issued or assumed as the deferred
purchase price of property, all conditional sale obligations of such Person
and all obligations of such Person under any title retention agreement (but
excluding trade accounts payable arising in the ordinary course of business);
(iv) all obligations of such Person for the reimbursement of any obligor on
any letter of credit, banker's acceptance or similar credit transaction (other
than obligations with respect to letters of credit securing obligations (other
than obligations described in clauses (i) through (iii) above) entered into in
the ordinary course of business of such Person to the extent such letters of
credit are not drawn upon or, if and to the extent drawn upon, such drawing is
reimbursed no later than the tenth Business Day following payment on the
letter of credit);
<PAGE>
(v) the amount of all obligations of such Person with respect to the
redemption, repayment or other repurchase of any Disqualified Stock or, with
respect to any Subsidiary of such Person (including any Restricted
Subsidiary), the liquidation preference with respect to, any Preferred Stock
(but excluding, in each case, any accrued dividends);
(vi) all obligations of the type referred to in clauses (i) through (v) of
other Persons and all dividends of other Persons for the payment of which, in
either case, such Person is responsible or liable, directly or indirectly, as
obligor, guarantor or otherwise, including by means of any Guarantee;
(vii) all obligations of the type referred to in clauses (i) through (vi)
of other Persons secured by any Lien on any property or asset of such Person
(whether or not such obligation is assumed by such Person), the amount of such
obligation being deemed to be the lesser of the fair value of such property or
assets or the amount of the obligation so secured, in each case as of the date
of determination; and
(viii) to the extent not otherwise included in this definition, Hedging
Obligations of such Person.
The amount of Indebtedness of any Person at any date shall be the outstanding
balance at such date of all unconditional obligations as described above and the
maximum liability, upon the occurrence of the contingency giving rise to the
obligation, of any contingent obligations at such date.
"Independent Financial Advisor" means a United States investment banking
firm of national standing in the United States which does not, and whose
directors, officers and employees or affiliates do not, have a direct or
indirect financial interest in the Company.
"Interest Rate Agreement" means in respect of a Person any interest rate
swap agreement, interest rate cap, floor, collar or forward interest rate
agreement or other financial agreement or arrangement designed to protect such
Person against fluctuations in interest rates.
"Investment" in any Person means any direct or indirect advance, loan (other
than advances to customers in the ordinary course of business that are recorded
as accounts receivable on the balance sheet of the lender) or other extensions
of credit (including by way of Guarantee or similar arrangement) or capital
contribution to (by means of any transfer of cash or other property to others or
any payment for property or services for the account or use of others), or any
purchase or acquisition of Capital Stock, Indebtedness or other similar
instruments issued by such Person. For purposes of the definition of
"Unrestricted Subsidiary", the definition of "Restricted Payment" and the
covenant described under "--Certain Covenants--Limitation on Restricted
Payments," (i) "Investment" shall include the portion (proportionate to the
Company's equity interest in such Subsidiary) of the fair market value of the
net assets of any Subsidiary of the Company at the time that such Subsidiary is
designated an Unrestricted Subsidiary; provided, however, that upon a
redesignation of such Subsidiary as a Restricted Subsidiary, the Company shall
be deemed to continue to have a permanent "Investment" in an Unrestricted
Subsidiary equal to an amount (if positive) equal to (x) the Company's
"Investment" in such Subsidiary at the time of such redesignation less (y) the
portion (proportionate to the Company's equity interest in such Subsidiary) of
the fair market value of the net assets of such Subsidiary at the time of such
redesignation; and (ii) any property transferred to or from an Unrestricted
Subsidiary shall be valued at its fair market value at the time of such
transfer, in each case as determined in good faith by the Board of Directors.
"Issue Date" means the date on which the shares of Old Exchangeable
Preferred Stock were issued pursuant to the Amended Articles.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind (including any conditional sale or other title retention
agreement or lease in the nature thereof).
<PAGE>
"Market Assets" means assets used or useful in the ownership or operation of
a Related Business, including any and all licenses, franchises and assets
related thereto.
"Market Swap" means the execution of a definitive agreement, subject only to
governmental approval and other customary closing conditions, that the Company
in good faith believes will be satisfied, for a substantially concurrent
purchase and sale, or exchange, of Market Assets between the Company or any of
its Restricted Subsidiaries and another Person or group of Persons; provided
that any amendment to or waiver of any closing condition which individually or
in the aggregate is material to the Market Swap will be deemed to be a new
Market Swap; provided, however, that the Market Assets to be sold by the Company
or its Restricted Subsidiaries in connection with a Market Swap do not include
assets used in or necessary for the ownership or operation of the Company's
business pertaining to its Area 1 Franchise in Chicago; provided further,
however, that the cash and other assets to be received by the Company or its
Restricted Subsidiaries which do not constitute Market Assets do not constitute
more than 15% of the total consideration to be received by the Company or its
Restricted Subsidiaries in such Market Swap.
"Net Available Cash" from an Asset Disposition means cash payments received
therefrom (including any cash payments received by way of deferred payment of
principal pursuant to a note or installment receivable or otherwise and proceeds
from the sale or other disposition of any securities received as consideration,
but only as and when received, but excluding any other consideration received in
the form of assumption by the acquiring Person of Indebtedness or other
obligations relating to such properties or assets or received in any other
noncash form), in each case net of (i) all legal, title and recording tax
expenses, commissions and other fees and expenses incurred, and all Federal,
state, provincial, foreign and local taxes required to be accrued as a liability
under GAAP, as a consequence of such Asset Disposition, (ii) all payments made
on any Indebtedness which is secured by any assets subject to such Asset
Disposition, in accordance with the terms of any Lien upon or other security
agreement of any kind with respect to such assets, or which must by its terms,
or in order to obtain a necessary consent to such Asset Disposition, or by
applicable law, be repaid out of the proceeds from such Asset Disposition, (iii)
all distributions and other payments required to be made to minority interest
holders in Restricted Subsidiaries as a result of such Asset Disposition and
(iv) the deduction of appropriate amounts provided by the seller as a reserve,
in accordance with GAAP, against any liabilities associated with the property or
other assets disposed in such Asset Disposition and retained by the Company or
any Restricted Subsidiary after such Asset Disposition.
"Net Cash Proceeds", with respect to any issuance or sale of Capital Stock,
means the proceeds of such issuance or sale in the form of cash or cash
equivalents including payments in respect of deferred payment obligations (to
the extent corresponding to the principal, but not interest, component thereof)
when received in such form of cash or cash equivalents and the conversion of
other property received when converted to such form of cash or cash equivalents,
net of any and all issuance costs, including attorneys' fees, accountants' fees,
underwriters' or placement agents' fees, discounts or commissions and brokerage,
consultant and other fees actually incurred in connection with such issuance or
sale and net of taxes paid or payable as a result thereof.
"Parent" means any Person that owns directly or indirectly all the Voting
Stock of the Company.
"Permitted Holders" means Purnendu Chatterjee, JK&B Capital, William Farley,
Boston Capital Ventures II, L.P., Glenn W. Milligan, Edward T. Joyce and each of
their affiliates.
"Permitted Investment" means an Investment by the Company or any Restricted
Subsidiary in (i) the Company, a Restricted Subsidiary or a Person that will,
upon the making of such Investment, become a Restricted Subsidiary; provided,
however, that the primary business of such Restricted Subsidiary is a Related
Business; (ii) another Person if as a result of such Investment such other
Person is merged or consolidated with or into, or transfers or conveys all or
substantially all its assets to, the Company or a Restricted Subsidiary;
provided, however, that such Person's primary business is a Related Business;
(iii) Temporary Cash Investments; (iv) receivables owing to the Company or any
Restricted Subsidiary if created or acquired in the ordinary course of business
and payable or dischargeable in accordance with customary trade terms; provided,
however, that such trade terms may include such concessionary
<PAGE>
trade terms as the Company or any such Restricted Subsidiary deems reasonable
under the circumstances; (v) commissions, payroll, travel and similar advances
to cover matters that are expected at the time of such advances ultimately to be
treated as expenses for accounting purposes and that are made in the ordinary
course of business; (vi) loans or advances to employees made in the ordinary
course of business consistent with past practices of the Company or such
Restricted Subsidiary; (vii) stock, obligations or securities received in
settlement of debts created in the ordinary course of business and owing to the
Company or any Restricted Subsidiary or in satisfaction of judgments; (viii) any
Person to the extent such Investment represents either the non-cash portion of
the consideration received for an Asset Disposition as permitted pursuant to the
covenant described under "--Certain Covenants--Limitation on Sales of Assets and
Subsidiary Stock" or the consideration not constituting Market Assets received
in a Market Swap as permitted pursuant to the covenant described under "--
Certain Covenants--Limitation on Market Swaps;" and (ix) any Person principally
engaged in a Related Business if (a) the Company or a Restricted Subsidiary,
after giving effect to such Investment, will own at least 20% of the Voting
Stock of such Person and (b) the amount of such Investment, when taken together
with the aggregate amount of all Investments made pursuant to this clause (ix)
and then outstanding, does not exceed $10.0 million.
"Person" means any individual, corporation, partnership, limited liability
company, joint venture, association, joint-stock company, trust, unincorporated
organization, government or any agency or political subdivision thereof or any
other entity.
"Preferred Stock", as applied to the Capital Stock of any Person, means
Capital Stock of any class or classes (however designated, whether voting or
nonvoting) which is preferred as to the payment of dividends or distributions,
or as to the distribution of assets upon any voluntary or involuntary
liquidation or dissolution of such Person, over shares of Capital Stock of any
other class of such Person.
"principal" of an Exchange Debenture means the principal amount of the
Exchange Debenture plus the premium, if any, payable on the Exchange Debenture
which is due or overdue or is to become due at the relevant time.
"Public Market" means any time after (x) a Public Offering has been
consummated and (y) at least 15% of the total issued and outstanding common
stock of Parent or the Company has been distributed by means of an effective
registration statement under the Securities Act or sales pursuant to Rule 144
under the Securities Act.
"Public Offering" means an underwritten primary public offering of common
stock of the Company pursuant to an effective registration statement under the
Securities Act.
"Qualified Preferred Stock" of a Restricted Subsidiary means a series of
Preferred Stock of such Restricted Subsidiary which (i) has a fixed liquidation
preference that is no greater in the aggregate than the sum of (x) the fair
market value (as determined in good faith by the Board of Directors at the time
of the issuance of such series of Preferred Stock) of the consideration received
by such Restricted Subsidiary for the issuance of such series of Preferred Stock
and (y) accrued and unpaid dividends to the date of liquidation, (ii) has a
fixed annual dividend and has no right to share in any dividend or other
distributions based on the financial or other similar performance of such
Restricted Subsidiary and (iii) does not entitle the holders thereof to vote in
the election of directors, managers or trustees of such Restricted Subsidiary
unless such Restricted Subsidiary has failed to pay dividends on such series of
Preferred Stock for a period of at least 12 consecutive calendar months.
"Refinance" means, in respect of any Indebtedness, to refinance, extend,
renew, refund, repay, prepay, redeem, defease or retire, or to issue other
Indebtedness in exchange or replacement for, such indebtedness. "Refinanced"
and "Refinancing" shall have correlative meanings.
"Refinancing Indebtedness" means Indebtedness that Refinances any
Indebtedness of the Company or any Restricted Subsidiary existing on the Issue
Date or Incurred in compliance with the covenant described under "Certain
Covenants--Limitation on Indebtedness", including Indebtedness that Refinances
Refinancing
<PAGE>
Indebtedness; provided, however, that (i) such Refinancing Indebtedness has a
Stated Maturity no earlier than the Stated Maturity of the Indebtedness being
Refinanced, (ii) such Refinancing Indebtedness has an Average Life at the time
such Refinancing Indebtedness is Incurred that is equal to or greater than the
Average Life of the Indebtedness being Refinanced, and (iii) such Refinancing
Indebtedness has an aggregate principal amount (or if Incurred with original
issue discount, an aggregate issue price) that is equal to or less than the
aggregate principal amount (or if Incurred with original issue discount, the
aggregate accreted value) then outstanding or committed (plus accrued and unpaid
interest, fees and expenses, including any premium and defeasance costs) under
the Indebtedness being Refinanced; provided further, however, that Refinancing
Indebtedness shall not include (x) Indebtedness of a Subsidiary that Refinances
Indebtedness of the Company or (y) Indebtedness of the Company or a Restricted
Subsidiary that Refinances Indebtedness of an Unrestricted Subsidiary.
"Related Business" means the businesses of the Company and the Restricted
Subsidiaries on the Issue Date and any business related, ancillary or
complementary to the businesses of the Company and the Restricted Subsidiaries
on the Issue Date.
"Representative" means any trustee, agent or representative (if any) for an
issue of Senior Indebtedness of the Company.
"Restricted Payment" with respect to any Person means
(i) the declaration or payment of any dividends or any other distributions
of any sort (including any payment in connection with any merger or
consolidation involving such Person) in respect of its Capital Stock held by
Persons other than the Company or any Restricted Subsidiary or similar payment
to the direct or indirect holders (other than the Company or a Restricted
Subsidiary) of its Capital Stock (other than dividends or distributions
payable solely in its Capital Stock (other than Disqualified Stock), and other
than pro rata dividends or other distributions made by a Subsidiary that is
not a Wholly Owned Subsidiary to minority stockholders (or owners of an
equivalent interest in the case of a Subsidiary that is an entity other than a
corporation)),
(ii) the purchase, redemption or other acquisition or retirement for value
of any Capital Stock of the Company held by any Person or of any Capital Stock
of a Restricted Subsidiary held by any Affiliate of the Company (other than a
Restricted Subsidiary), including the exercise of any option to exchange any
Capital Stock (other than into Capital Stock of the Company that is not
Disqualified Stock),
(iii) the purchase, repurchase, redemption, defeasance or other acquisition
or retirement for value, prior to scheduled maturity, scheduled repayment or
scheduled sinking fund payment of any Subordinated Obligations (other than the
purchase, repurchase, redemption or other acquisition of Subordinated
Obligations purchased in anticipation of satisfying a sinking fund obligation,
principal installment or final maturity, in each case due within one year of
the date of such purchase, repurchase, redemption or acquisition) or
(iv) the making of any Investment (other than a Permitted Investment) in
any Person.
"Restricted Subsidiary" means any Subsidiary of the Company that is not an
Unrestricted Subsidiary.
"Sale/Leaseback Transaction" means an arrangement relating to property now
owned or hereafter acquired whereby the Company or a Restricted Subsidiary
transfers such property to a Person and the Company or a Restricted Subsidiary
leases it from such Person.
"SEC" means the Securities and Exchange Commission.
"Secured Indebtedness" means Indebtedness that is secured by a Lien on
assets of the Company or a Restricted Subsidiary.
<PAGE>
"Senior Indebtedness" of the Company means (i) Indebtedness of the Company,
whether outstanding on the Issue Date or thereafter Incurred, and (ii) accrued
and unpaid interest (including interest accruing on or after the filing of any
petition in bankruptcy or for reorganization relating to the Company to the
extent post-filing interest is allowed in such proceeding) in respect of (A)
indebtedness of the Company for money borrowed and (B) indebtedness evidenced by
notes, debentures, bonds or other similar instruments for the payment of which
such Person is responsible or liable unless, in the case of (i) and (ii), in the
instrument creating or evidencing the same or pursuant to which the same is
outstanding, it is provided that such obligations are not superior in right of
payment to the Exchange Debentures; provided, however, that Senior Indebtedness
shall not include (1) any obligation of such Person to any Subsidiary of such
Person, (2) any liability for Federal, state, local or other taxes owed or owing
by such Person, (3) any accounts payable or other liability to trade creditors
arising in the ordinary course of business (including guarantees thereof or
instruments evidencing such liabilities) or (4) that portion of any Indebtedness
which at the time of Incurrence is Incurred in violation of the Exchange
Indenture.
"Significant Subsidiary" means any Restricted Subsidiary that would be a
"Significant Subsidiary" of the Company within the meaning of Rule 1-02 under
Regulation S-X promulgated by the SEC.
"Stated Maturity" means, with respect to any security, the date specified in
such security as the fixed date on which the final payment of principal of such
security is due and payable, including pursuant to any mandatory redemption
provision (but excluding any provision providing for the repurchase of such
security at the option of the holder thereof upon the happening of any
contingency unless such contingency has occurred).
"Subordinated Obligation" means any Indebtedness of the Company (whether
outstanding on the Issue Date or thereafter Incurred) which is subordinate or
junior in right of payment to the Exchange Debentures pursuant to a written
agreement to that effect.
"Subsidiary" means, in respect of any Person, any corporation, association,
partnership or other business entity of which more than 50% of the total voting
power of shares of Voting Stock is at the time owned or controlled, directly or
indirectly, by (i) such Person, (ii) such Person and one or more Subsidiaries of
such Person or (iii) one or more Subsidiaries of such Person.
"Temporary Cash Investments" means any of the following:
(i) any investment in direct obligations of the United States of America or
any agency thereof or obligations guaranteed by the United States of America
or any agency thereof,
(ii) investments in time deposit accounts, certificates of deposit and
money market deposits maturing within 365 days of the date of acquisition
thereof issued by a bank or trust company which is organized under the laws of
the United States of America, any state thereof or any foreign country
recognized by the United States, and which bank or trust company has capital,
surplus and undivided profits aggregating in excess of $50,000,000 (or the
foreign currency equivalent thereof) and has outstanding debt which is rated
"A" (or such similar equivalent rating) or higher by at least one nationally
recognized statistical rating organization (as defined in Rule 436 under the
Securities Act) or any money-market fund sponsored by a registered broker
dealer or mutual fund distributor,
(iii) repurchase obligations with a term of not more than 30 days for
underlying securities of the types described in clause (i) above entered into
with a bank meeting the qualifications described in clause (ii) above,
(iv) investments in commercial paper, maturing not more than 270 days after
the date of acquisition, issued by a corporation (other than an Affiliate of
the Company) organized and in existence under the laws of the United States of
America or any foreign country recognized by the United States of America with
a rating
<PAGE>
at the time as of which any investment therein is made of "P-1" (or higher)
according to Moody's Investors Service, Inc. or "A-1" (or higher) according to
Standard and Poor's Ratings Group,
(v) investments in securities with maturities of six months or less from
the date of acquisition issued or fully guaranteed by any state, commonwealth
or territory of the United States of America, or by any political subdivision
or taxing authority thereof, and rated at least "A" by Standard & Poor's
Ratings Group or "A" by Moody's Investors Service, Inc., and
(vi) investments in money-market funds (other than single-state funds) that
make investments in instruments of the type described in clauses (i)-(v) above
in accordance with the regulations of the SEC under the Investment Company Act
of 1940, as amended.
"Unrestricted Subsidiary" means (i) any Subsidiary of the Company that at
the time of determination shall be designated an Unrestricted Subsidiary by the
Board of Directors in the manner provided below and (ii) any Subsidiary of an
Unrestricted Subsidiary. The Board of Directors may designate any Subsidiary of
the Company (including any newly acquired or newly formed Subsidiary) to be an
Unrestricted Subsidiary unless such Subsidiary or any of its Subsidiaries owns
any Capital Stock or Indebtedness of, or holds any Lien on any property of, the
Company or any other Subsidiary of the Company that is not a Subsidiary of the
Subsidiary to be so designated; provided, however, that either (A) the
Subsidiary to be so designated has total assets of $1,000 or less or (B) if such
Subsidiary has assets greater than $1,000, such designation would be permitted
under the covenant described under "--Certain Covenants--Limitation on
Restricted Payments." The Board of Directors may designate any Unrestricted
Subsidiary to be a Restricted Subsidiary; provided, however, that immediately
after giving effect to such designation (x) the Company could Incur $1.00 of
additional Indebtedness under paragraph (a) of the covenant described under "--
Certain Covenants--Limitation on Indebtedness" and (y) no Default shall have
occurred and be continuing. Any such designation by the Board of Directors shall
be evidenced to the Trustee and the Transfer Agent by promptly filing with the
Trustee and the Transfer Agent a copy of the resolution of the Board of
Directors giving effect to such designation and an Officers' Certificate
certifying that such designation complied with the foregoing provisions.
"U.S. Government Obligations" means direct obligations (or certificates
representing an ownership interest in such obligations) of the United States of
America (including any agency or instrumentality thereof) for the payment of
which the full faith and credit of the United States of America is pledged and
which are not callable at the issuer's option.
"Voting Stock" of a Person means all classes of Capital Stock or other
interests (including partnership interests) of such Person then outstanding and
normally entitled (without regard to the occurrence of any contingency) to vote
in the election of directors, managers or trustees thereof.
"Wholly Owned Subsidiary" means a Restricted Subsidiary all the Capital
Stock of which (other than directors' qualifying shares) is owned by the Company
or one or more Wholly Owned Subsidiaries.
BOOK-ENTRY, DELIVERY AND FORM
GENERAL
The New Notes and New Exchangeable Preferred Stock will be issued in the form
of one or more fully registered New Notes in global form ("Global Notes") or
one or more shares of New Exchangeable Preferred Stock in global form ("Global
Preferred Stock"). Global Notes and Global Preferred Stock are collectively
referred to herein as "Global Securities."
<PAGE>
Upon issuance of the Global Securities, the Depositary or its nominee will
credit, on its book-entry registration and transfer system, the number of New
Notes or New Exchangeable Preferred Stock, as the case may be, represented by
such Global Securities to the accounts of institutions that have accounts with
the Depositary or its nominee ("participants"). The accounts to be credited
shall be designated by the Initial Purchasers. Ownership of beneficial interests
in the Global Securities will be limited to participants or persons that may
hold interests through participants. Ownership of beneficial interest in such
Global Securities will be shown on, and the transfer of that ownership will be
effected only through, records maintained by the Depositary or its nominee (with
respect to participants' interests) for such Global Securities, or by
participants or persons that hold interests through participants (with respect
to beneficial interests of persons other than participants). The laws of some
jurisdictions may require that certain purchasers of securities take physical
delivery of such securities in definitive form. Such limits and laws may impair
the ability to transfer or pledge beneficial interests in the Global Securities.
So long as the Depositary, or its nominee, is the registered holder of any
Global Securities, the Depositary or such nominee, as the case may be, will be
considered the sole legal owner and holder of such New Notes or New Exchangeable
Preferred Stock (or Exchange Debentures), as the case may be, represented by
such Global Securities for all purposes under the Indenture and the Amended
Articles (or the Exchange Indenture) and the New Notes and New Exchangeable
Preferred Stock (or Exchange Debentures), as the case may be. Except as set
forth below, owners of beneficial interests in Global Securities will not be
entitled to have such Global Securities or any New Notes or New Exchangeable
Preferred Stock (or Exchange Debentures) represented thereby registered in their
names, will not receive or be entitled to receive physical delivery or
certificated securities in exchange therefor and will not be considered to be
the owners or holders of such Global Securities or any New Notes or New
Exchangeable Preferred Stock (or Exchange Debentures) represented thereby for
any purpose under the New Notes or New Exchangeable Preferred Stock (or Exchange
Debentures), the Amended Articles or the Indentures. The Company understands
that under existing industry practice, in the event an owner of a beneficial
interest in a Global Security desires to take any action that the Depositary, as
the holder of such Global Security, is entitled to take, the Depositary would
authorize the participants to take such action, and that the participants would
authorize beneficial owners owning through such participants to take such action
or would otherwise act upon the instructions of beneficial owners owning through
them.
Any payment of principal, interest, liquidation preference or dividends due on
the Securities on any payment date or at maturity or upon mandatory redemption
will be made available by the Company to the applicable Trustee or Transfer
Agent by such date. As soon as possible thereafter, the Trustee or Transfer
Agent will make such payments to the Depositary or its nominee, as the case may
be, as the registered owner of the applicable Global Security in accordance with
existing arrangements between the Trustee or the Transfer Agent and the
Depositary.
The Company expects that the Depositary or its nominee, upon receipt of any
payment of principal, interest, liquidation preference or dividends in respect
of the Global Securities will credit immediately the accounts of the related
participants with payments in amounts proportionate to their respective
beneficial interests in such Global Security as shown on the records of the
Depositary. The Company also expects that payments by participants to owners of
beneficial interests in the Global Securities held through such participants
will be governed by standing instructions and customary practices, as is now the
case with securities held for the accounts of customers in bearer form or
registered in "street name," and will be the responsibility of such
participants.
None of the Company, the Trustee, the Transfer Agent and any payment agent for
the Global Securities will have any responsibility or liability for any aspect
of the records relating to or payments made on account of beneficial ownership
interests in any of the Global Securities or for maintaining, supervising or
reviewing any records relating to such beneficial ownership interests or for
other aspects of the relationship between the Depositary and its participants or
the relationship between such participants and the owners of beneficial
interests in the Global Securities owning through such participants.
As long as the New Notes or the New Exchangeable Preferred Stock (or Exchange
Debentures) are represented by a Global Security, the Depositary's nominee will
be the holder of such securities and therefore will be the only
<PAGE>
entity that can exercise a right to repayment or repurchase of such securities,
including following a change of control or a tender offer for such securities.
Notice by participants or by owners of beneficial interests in a Global Security
held through such participants of the exercise of the option to elect repayment
of beneficial interests in securities represented by a Global Security must be
transmitted to the Depositary in accordance with its procedures on a form
required by the Depositary and provided to participants. In order to ensure that
the Depositary's nominee will timely exercise a right to repayment with respect
to a particular security, the beneficial owner of such security must instruct
the broker or other participant to exercise a right to repayment. Different
firms have cut-off times for accepting instructions from their customers and,
accordingly, each beneficial owner should consult the broker or other
participant through which it holds an interest in a security in order to
ascertain the cut-off time by which such an instruction must be given in order
for timely notice to be delivered to the Depositary. The Company will not be
liable for any delay in delivery of notices of the exercise of the option to
elect repayment.
Unless and until exchanged in whole or in part for securities in definitive
form in accordance with the terms of such securities, the Global Securities may
not be transferred except as a whole by the Depositary to a nominee of the
Depositary or by a nominee of the Depositary to the Depositary or another
nominee of the Depositary or by the Depositary or any such nominee to a
successor of the Depositary or a nominee of each successor.
Although the Depositary has agreed to the foregoing procedures in order to
facilitate transfers of interests in the Global Securities among participants of
the Depositary, it is under no obligation to perform or continue to perform such
procedures, and such procedures may be discontinued at any time. None of the
Trustees, the Company and the Transfer Agent will have any responsibility for
the performance by the Depositary or its participants or indirect participants
of their respective obligations under the rules and procedures governing their
operations. The Company, the Trustees and the Transfer Agent may conclusively
rely on, and shall be protected in relying on, instructions from the Depositary
for all purposes.
Certificated Securities
A Global Security shall be exchangeable for corresponding certificated
securities registered in the name of persons other than the Depositary or its
nominee only if (A) the Depositary (i) notifies the Company that it is unwilling
or unable to continue as Depositary for such Global Security or (ii) at any time
ceases to be a clearing agency registered under the Exchange Act, (B) there
shall have occurred and be continuing an Event of Default (as defined in the
Indenture) with respect to the Notes or the Exchange Debentures or a Voting
Rights Triggering Event with respect to the Exchangeable Preferred Stock or (C)
the Company executes and delivers to the applicable Trustee or the Transfer
Agent, as appropriate, an order that such Global Security shall be so
exchangeable. Any certificated Securities will be issued only in fully
registered form, and in the case of Certificated Notes or Certificated Exchange
Debentures, as the case may be, shall be issued without coupons in denominations
of $1,000 and integral multiples thereof. Any Certificated Securities so issued
will be registered in such names and in such denominations as the Depositary
shall request.
The Clearing System
The Depositary has advised the Company as follows: The Depositary is a
limited-purpose trust company organized under the laws of the State of New York,
a member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and "a clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act. The
Depositary was created to hold securities of institutions that have accounts
with the Depositary ("participants") and to facilitate the clearance and
settlement of securities transactions among its participants in such securities
through electronic book-entry changes in accounts of participants, thereby
eliminating the need for physical movement of securities certificates. The
Depositary's participants include securities brokers and dealers (which may
include the Initial Purchasers), banks, trust companies, clearing corporations
and certain other organizations. Access to the Depositary's book-entry system is
<PAGE>
also available to others such as banks, brokers, dealers and trust companies
that clear through or maintain a custodial relationship with a participant,
whether directly or indirectly.
DESCRIPTION OF CAPITAL STOCK
The following summary description of the Company's existing equity securities
and of certain provisions of the Company's Articles of Incorporation and Bylaws
does not purport to be complete and is qualified in its entirety by reference to
the provisions of the Company's Articles of Incorporation and Bylaws and other
material agreements referenced herein. However, such description describes all
material matters relating to such securities.
AUTHORIZED CAPITAL STOCK
Pursuant to the Company's Articles of Incorporation, the Company has the
authority to issue up to 50,000,000 shares of common stock, with no par value
(the "Common Stock"), 1,000,000 shares of non-voting common stock, with no par
value (the "Non-Voting Common Stock"), 500,000 shares of Class A Convertible
8% Cumulative Preferred Stock, with no par value (the "Class A Preferred
Stock"), 500,000 shares of Class B Convertible 8% Cumulative Preferred Stock,
with no par value (the "Class B Preferred Stock" and, together with the Class
A Preferred Stock, the "Existing Preferred Stock"), and 100,000 shares of
13 3/4% Senior Cumulative Exchangeable Preferred Stock Due 2010, par value $.01
per share.
The rights of the holders of Common Stock discussed below are subject to the
rights of the holders of Existing Preferred Stock and to such rights as the
Board of Directors may hereafter confer on future holders of other series of the
Company's preferred stock.
COMMON STOCK
At December 31, 1997, there were 2,910,776.5 shares of Common Stock
outstanding and held of record by approximately 60 shareholders. At December 31,
1997, options and warrants to purchase an aggregate of 3,220,231.3 shares of
Common Stock were outstanding. In addition, in connection with the sale of
shares of Class A Preferred Stock to several common shareholders and certain
other persons and entities in January 1998, the Company agreed to issue warrants
to purchase an aggregate of 80,299.6 shares of Common Stock and to issue 28,330
shares of Common Stock. All outstanding options and warrants provide for
antidilution adjustments in the event of certain mergers, consolidations,
reorganizations, recapitalizations, stock dividends, stock splits or other
changes in the corporate structure of the Company.
Voting Rights. Except as otherwise required by law, the holders of Common
Stock are entitled to attend all special and annual meetings of the shareholders
of the Company. Holders of Common Stock are entitled to vote on all matters
submitted to the shareholders together with holders of the Existing Preferred
Stock, with all such holders voting together as a single class and with each
share of Common Stock entitled to one vote.
Liquidation Rights. In the event of any dissolution, liquidation or winding
up of the Company, whether voluntary or involuntary (collectively, a
"Liquidation"), holders of Common Stock, together with holders of non-voting
Common Stock, will be entitled to participate in the distribution of any assets
of the Company remaining after the Company shall have paid, or provided for
payment of, all debts and liabilities of the Company (including the Notes and,
if issued, the Exchange Debentures) and after the Company shall have paid, or
set aside for payment, to the holders of the Existing Preferred Stock and any
other class of stock having a liquidation preference over the Common Stock
(including the Exchangeable Preferred Stock), up to the full preferential
amounts to which they are entitled.
<PAGE>
NON-VOTING COMMON STOCK
At December 31, 1997, there were 522,032.3 shares of Non-Voting Common Stock
outstanding and held of record by approximately 35 shareholders. In addition, in
connection with the sale of shares of Class A Preferred Stock to several common
shareholders and certain other persons and entities in January 1998, the Company
has agreed to issue 28,330.0 shares of Non-Voting Common Stock. The terms of the
Non-Voting Common Stock are the same as those of the Common Stock, except that
shares of the Non-Voting Common Stock do not have voting rights.
CLASS A PREFERRED STOCK
At December 31, 1997, 1,453.1 shares of Class A Preferred Stock were
outstanding and held of record by approximately 35 shareholders. The Company
issued to several common shareholders and certain other persons and entities in
January 1998 an aggregate of 95.4 shares of Class A Preferred Stock at a price
of $15,793.84 per share.
Voting Rights. Except as otherwise required by law, the holders of shares of
Class A Preferred Stock are entitled to attend all special and annual meetings
of the shareholders of the Company. Holders of Class A Preferred Stock are
entitled to vote on all matters submitted to the shareholders for a vote,
together with holders of the Common Stock and the Class B Preferred Stock, with
all such holders voting together as a single class and with each share of Class
A Preferred Stock entitled to one vote for each share of Common Stock issuable
upon conversion of such share of Class A Preferred Stock.
Nominees to the Board of Directors. Pursuant to the Shareholders Agreement
dated as of January 30, 1997, as amended (the "Shareholders Agreement"), the
shareholders of the Company have agreed to elect to the Board of Directors three
persons designated by the holders of Class A Preferred Stock.
Liquidation Rights. Upon a Liquidation, each holder of shares of Class A
Preferred Stock will be entitled to receive out of the assets of the Company
remaining after the Company shall have paid, or provided payment for, all debts
and liabilities of the Company (including the Notes and, if issued, the Exchange
Debentures) and after the Company shall have paid, or set aside for payment, to
the holders of the Exchangeable Preferred Stock and any other class of stock
having a liquidation preference senior to the Class A Preferred Stock, up to the
full preferential amounts to which they are entitled, but before any payment or
distribution is made on the Common Stock or any other class of stock of the
Company ranking junior to the Class A Preferred Stock as to liquidation
preference, an amount in cash equal to the greater of (i) that amount which such
holder would have received if such holder had converted all its Class A
Preferred Stock into Common Stock immediately prior to the Liquidation; and (ii)
the aggregate Liquidation Value (defined below) of all shares of Class A
Preferred Stock then held by such holder (plus all accrued and unpaid dividends
thereon). The Liquidation Value of any share of Class A Preferred Stock is equal
to the aggregate purchase price paid pursuant to the Stock Purchase Agreement
dated January 30, 1997, as amended (the "Stock Purchase Agreement"), by and
among the Company and certain investors (the "Investors") for Class A
Preferred Stock and warrants to purchase Common Stock divided by the number of
shares of Class A Preferred Stock issued pursuant to the Stock Purchase
Agreement.
If the assets distributable upon such dissolution, liquidation or winding up
are insufficient to pay cash in the full amount of the liquidation preference on
the Existing Preferred Stock, then such assets or the proceeds thereof will be
distributed among the holders of shares of Existing Preferred Stock ratably
based upon the aggregate Liquidation Value (plus all accrued and unpaid
dividends) of the Existing Preferred Stock then held by such holders.
Conversion Into Common Stock. At any time and from time to time, any holder
of Class A Preferred Stock may convert all or any portion of the Class A
Preferred Stock (including any fraction of a share) held by such holder
<PAGE>
into Common Stock, with each share of Class A Preferred Stock being convertible
into one thousand shares of Common Stock (subject to adjustment under certain
circumstances). The Class A Preferred Stock will be automatically so converted
into Common Stock upon the closing of a firm commitment underwritten public
offering (a "Qualified Public Offering") of Common Stock in which (i) the
aggregate public offering price is at least $25 million, (ii) the price per
share of Common Stock is at least twice the Liquidation Value per share of Class
A Preferred Stock (subject to adjustment in the event of an "Organic Change," as
defined in the Company's Articles of Incorporation), (iii) the Common Stock will
be traded on a national securities exchange or The Nasdaq Stock Market and (iv)
the shares of Common Stock issued in such offering represent at least 20% of the
sum of (a) the aggregate shares of Common Stock outstanding after such offering
plus (b) the number of shares of Common Stock underlying options having an
exercise price less than the "Conversion Price," as defined in the Company's
Articles of Incorporation, in effect at the time of issuance of said options,
plus (c) the number of shares of Common Stock issuable upon conversion or
exchange of a convertible security issuable upon exercise of options and having
a conversion price less than the Conversion Price in effect at the time of
issuance of said convertible securities, plus (d) the number of shares of Common
Stock issuable upon conversion or exchange of a convertible or exchangeable
security having a per share conversion or exchange price less than the
Conversion Price in effect at the time of issuance of said convertible or
exchangeable securities.
CLASS B PREFERRED STOCK
As of the date hereof, there are no outstanding shares of Class B Preferred
Stock. Pursuant to the Stock Purchase Agreement, shares of Class B Preferred
Stock are issuable in exchange for a like number of shares of Class A Preferred
Stock upon the refusal of a holder of Class A Preferred Stock to purchase such
holder's pro rata portion of additional shares of Class A Preferred Stock
offered to the holders of Class A Preferred Stock. The terms of the Class B
Preferred Stock are the same as those of the Class A Preferred Stock, except
that the conversion rights associated with the Class B Preferred Stock have more
limited anti-dilution protection than the Class A Preferred Stock.
WARRANTS
At December 31, 1997, pursuant to the Stock Purchase Agreement, the Company
had issued warrants ("Secondary Warrants") to the holders of Class A Preferred
Stock to purchase, in the aggregate, 1,222,569.0 shares of Common Stock at a
price of $.000001 per share. In addition, in connection with the sale of shares
of Class A Preferred Stock to several holders of Common Stock in January 1998,
the Company has agreed to issue warrants to purchase an aggregate of 80,299.6
shares of Common Stock. These warrants are exercisable at any time until January
30, 2007. In addition, warrants having the same terms as the Secondary Warrants
entitling the holder thereof to purchase 18,994.6 shares of Common Stock are
held by a financial advisor of the Company.
CERTAIN COVENANTS
Pursuant to the Shareholders Agreement, the Company has agreed that, unless it
has obtained the prior approval of a majority of the members of the Company's
Board of Directors elected by the holders of Class A Preferred Stock, voting as
a separate class, it will not (i) pay or declare dividends on any of its equity
securities other than the Exchangeable Preferred Stock and the Existing
Preferred Stock, (ii) redeem or otherwise acquire any of its equity securities
other than mandatory redemptions of the Exchangeable Preferred Stock and
mandatory repurchases of the Warrants, (iii) issue or sell any Existing
Preferred Stock or any other equity securities other than equity securities that
rank junior to the Existing Preferred Stock, (iv) merge or consolidate with
another person or entity, (v) sell more that 20% of the consolidated assets of
the Company and its subsidiaries, (vi) liquidate itself, (vii) agree to
restrictions on its ability to perform its obligations in respect of the
Existing Preferred Stock (other than as set forth in the Indenture, the Amended
Articles, the Warrant Agreement, the Exchange Indenture or in
<PAGE>
connection with certain senior indebtedness) and (viii) incur or commit to incur
more than $500,000 of indebtedness (subject to certain limited exceptions).
These restrictions will terminate upon consummation of a Qualified Public
Offering.
In addition, pursuant to the Stock Purchase Agreement, the Company has agreed
that, without the prior written consent of the holders of a majority of the
Common Stock issuable upon conversion of the Class A Preferred Stock, it will
not (i) increase the authorized number of shares of the Existing Preferred Stock
or impair the rights of the holders thereof, (ii) prior to May 31, 1999, grant
or issue any phantom stock, shadow stock, stock appreciation or other right
directly or indirectly to participate in or benefit from the common equity of
the Company on an ongoing basis, other than capital stock of the Company or
options, warrants or other securities exercisable or exchangeable for or
convertible into any such capital stock or (iii) grant to the Company's
employees, directors and consultants any options, warrants or other rights to
subscribe for capital stock of the Company other than pursuant to the Company's
stock option plan in effect on the date of the Stock Purchase Agreement, unless
all options covered by such plan have been granted.
REGISTRATION RIGHTS
The Company is obligated under the Registration Rights Agreement dated January
30, 1997 (the "1997 Registration Rights Agreement") at any time after the
earlier of January 30, 2001 or the completion of a public offering of its equity
securities, at the demand of the holders (the "Majority Holders") of a
majority of the Common Stock underlying the Existing Preferred Stock and the
Existing Warrants (the "Underlying Common Stock") to register under the
Securities Act the Underlying Common Stock held by such holders.
In addition, if the Company proposes to register any of its securities under
the Securities Act (subject to certain limited exceptions, including the
Exchange Offer or the Shelf Registration Statement for the Old Notes or the Old
Exchangeable Preferred Stock and any registration statement for the Warrants and
the Common Stock underlying the Warrants) it must include in such registration
all Registrable Common Stock (as defined below) that the Company has been
requested to include therein. "Registrable Common Stock" means (i) Underlying
Common Stock (when issued) and any other Common Stock held by a holder (other
than an Original Common Stock Holder (as defined below)) of such Underlying
Common Stock (collectively, "New Registrable Common Stock") and (ii) Common
Stock that on January 30, 1997 was held, and that when requested to be
registered is held, by a person or entity that owned Common Stock on January 30,
1997 (such person or entity being herein referred to as an "Original Common
Stock Holder.")
Pursuant to the 1997 Registration Rights Agreement, except with respect to the
Notes and the Units, the Company may not grant demand registration rights to any
other person or entity without the prior written consent of the holders of a
majority of the Underlying Common Stock. The Company can, however, grant rights
to other persons to (i) participate in a piggyback registration so long as such
rights are subordinate to the rights of the holders of New Registrable Common
Stock and (ii) demand registration so long as the holders of New Registrable
Common Stock are entitled to participate in any such registrations with such
persons or entities pro rata on the basis of the number of shares owned by each
such holder. Except with respect to the shares of Common Stock issuable upon the
exercise of the Warrants, the Company may not include in any demand registration
triggered by the holders of New Registrable Common Stock any securities which
are not New Registrable Common Stock without the prior written consent of the
holders of a majority of the New Registrable Common Stock that requested such
demand registration.
PREEMPTIVE RIGHTS
If the Company issues any equity securities subject to certain limited
exemptions (including the New Exchangeable Preferred Stock), the Company must
first offer to sell such equity securities to the holders of Class A
<PAGE>
Preferred Stock ratably based on the number of shares then held by such holders.
If the holders of Class A Preferred Stock do not purchase all the offered
securities, then the Company may sell the remaining securities, for a period of
120 days, to purchasers on terms no more favorable to such purchasers than those
offered to the holders of Class A Preferred Stock.
RIGHT TO REQUIRE SALE
Unless the Company has theretofore consummated a Qualified Public Offering,
beginning on the fourth anniversary of the date of issuance of the Notes and
terminating on the earlier to occur of three years thereafter or the
consummation of a Qualified Public Offering, the Majority Holders shall have the
right to require the Company to retain an investment banking firm of nationally
recognized standing, selected by the Company and reasonably acceptable to the
Designated Holders (as defined below), for the purpose of soliciting bids in
connection with a sale of the Company. The Board of Directors of the Company
shall consider all bona fide bids received, and shall, in good faith, select the
best offer. The Company's shareholders have agreed to vote for the approval of
the bid selected by the Board of Directors, and to sell their shares of Company
capital stock if the transaction is structured as a stock sale. "Designated
Holders" means holders of not less than 51% of the sum of (i) the shares of
outstanding Common Stock held by holders of Class A Preferred Stock and (ii) the
shares of Common Stock issuable upon conversion of the Class A Preferred Stock.
RESTRICTIONS ON TRANSFER
If any Original Common Stock Holder proposes to transfer any of the Company's
equity securities held by it, it must first offer such equity securities to the
holders of the Existing Preferred Stock on the same terms and conditions as the
proposed transfer. Such holders of Existing Preferred Stock (or their designees)
may purchase all, but not less than all, of such equity securities, which will
be allocated among the holders of the Existing Preferred Stock (or their
designees) ratably in accordance with the number of shares of Existing Preferred
Stock held by such holders. If holders of the Existing Preferred Stock do not
purchase all such equity securities, then such Original Common Stock Holder may
sell the equity securities for a period of 60 days to other purchasers on terms
no more favorable to such purchasers than those offered to the holders of the
Existing Preferred Stock.
In addition, if any Original Common Stock Holder or holder of Existing
Preferred Stock (the "Transferring Holder") proposes to transfer any of the
Company's equity securities, it must offer the right to participate in the
proposed transfer to the other Original Common Stock Holders and holders of
Existing Preferred Stock (collectively, the "Other Holders"). If any of the
Other Holders elects to participate in the proposed transfer, the Transferring
Holder and such Other Holders will be entitled to transfer their equity
securities to the proposed transferee ratably in accordance with their
securities to be transferred. If the prospective transferee declines to allow
the participation of Other Holders, then no equity securities are permitted to
be sold to such prospective transferee. Furthermore, no Original Common Stock
Holder or holder of Existing Preferred Stock may encumber any of the Company's
equity securities without the prior consent of the Majority Holders.
DIVIDEND POLICY
Except with respect to the Exchangeable Preferred Stock and the Existing
Preferred Stock, the Board of Directors may not declare or pay any dividends on
any class or series of stock without the prior consent of the Majority Holders.
When and if dividends are declared (other than with respect to the Exchangeable
Preferred Stock), and to the extent permitted under the Illinois Business
Corporation Act, the Company is required to pay preferential dividends in cash
to holders of Existing Preferred Stock. Dividends on each share of Existing
Preferred Stock will accrue on a daily basis at a rate of eight percent (8%) per
annum of the sum of the Liquidation Value plus all accumulated and unpaid
dividends from and including the date of issuance. Such dividends will accrue
whether
<PAGE>
or not they have been declared and whether or not there are profits, surpluses
or other funds of the Company legally available for payment of dividends.
Accrued dividends on the Existing Preferred Stock are required to be paid upon a
Liquidation, although no portion of such accrued dividends may be paid in shares
of Common Stock or Existing Preferred Stock and no portion of such accrued
dividends may be converted into Common Stock. Except as otherwise provided, if
at any time the Company pays less than the total amount of dividends than
accrued with respect to the Existing Preferred Stock, such payment shall be
distributed pro rata among holders thereof based on the number of shares of the
Existing Preferred Stock held by each such holder.
If the Company declares or pays a dividend upon any class of Common Stock
payable otherwise than in cash out of earnings or earned surplus (determined in
accordance with generally accepted accounting principles, consistently applied)
except for a stock dividend payable in shares of such class of Common Stock,
then the Company shall pay to the holders of Existing Warrants the dividend that
would have been paid on the shares of Common Stock issuable upon the exercise of
the Existing Warrants had the Existing Warrants been exercised in full
immediately prior to the date on which a record is taken, or if no record is
taken, the date as of which the record holders of Common Stock entitled to such
dividends are to be determined.
<PAGE>
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The Federal income tax discussion set forth below summarizes certain United
States Federal income tax consequences that may be relevant to initial holders
of the New Exchangeable Preferred Stock, Exchange Debentures, and New Notes who
are United States Persons (as defined below) and hold their New Exchangeable
Preferred Stock, Exchange Debentures and New Notes as capital assets
("Holders"). The discussion is intended only as a summary and does not purport
to be a complete analysis or listing of all potential tax considerations that
may be relevant to such Holders of the New Exchangeable Preferred Stock,
Exchange Debentures and New Notes. The discussion does not include special rules
that may apply to certain holders (including insurance companies, tax-exempt
organizations, financial institutions or broker-dealers, and persons holding the
New Exchangeable Preferred Stock, Exchange Debentures and New Notes as part of a
"straddle," "hedge" or "conversion transaction," and investors who are not
United States Persons), and does not address the tax consequences of the law of
any state, locality or foreign jurisdiction. The discussion is based upon
currently existing provisions of the Internal Revenue Code of 1986, as amended
(the "Code"), existing and proposed Treasury regulations promulgated
thereunder and current administrative rulings and court decisions. All of the
foregoing are subject to change (possibly with retroactive effect) and any such
change could affect the continuing validity of this discussion.
As used herein, "United States Person" means a beneficial owner of the New
Exchangeable Preferred Stock, Exchange Debentures or New Notes who or that (i)
is a citizen or resident of the United States, (ii) is a corporation,
partnership or other entity created or organized in or under the laws of the
United States or political subdivision thereof, (iii) is an estate the income of
which is subject to United States Federal income taxation regardless of its
source, (iv) is a trust if (A) a United States court is able to exercise primary
supervision over the administration of the trust and (B) one or more United
States fiduciaries have authority to control all substantial decisions of the
trust or (v) is otherwise subject to United States Federal income tax on a net
income basis in respect of its worldwide taxable income.
THE NEW NOTES
THE EXCHANGE. In the opinion of Counsel to the Company, the exchange of Old
Notes for New Notes will not be treated as an exchange for federal income tax
purposes because the New Notes will not differ materially in kind or extent from
the Old Notes and because the exchange will occur by operation of the original
terms of the Old Notes. As a result, U.S. Holders who exchange their Old Notes
for New Notes will not recognize any income, gain or loss for federal income tax
purposes. A U.S. Holder will have the same adjusted issue price, adjusted basis
and holding period in the New Notes immediately after the exchange as it had in
the Old Notes immediately before the exchange.
STATUS OF THE NEW NOTES FOR FEDERAL INCOME TAX PURPOSES. The discussion set
forth in this section is based on the assumption that the New Notes will be
treated as indebtedness for Federal income tax purposes. Based upon the facts
that the Company's sole business enterprise is in a developmental stage, the New
Notes are effectively subordinated to indebtedness incurred by the Restricted
Subsidiaries, and the proceeds of the New Notes are to be used in substantial
part to acquire basic business assets, the IRS may contend that the New Notes do
not, in whole or in part, constitute indebtedness for Federal income tax
purposes. If it were determined that the New Notes should be treated, in whole
or in part, as an equity interest in the Company, rather than as indebtedness,
some portion or all of the interest expense (including original issue discount)
on the New Notes would not be deductible for Federal income tax purposes. As a
result, the amount of after tax income available to pay amounts due under the
New Notes, as well as distributions with respect to the New Exchangeable
Preferred Stock, could be substantially reduced with a material adverse affect
on the Holders of the New Notes and the New Exchangeable Preferred Stock. In
addition, the tax consequences of holding the New Notes would differ
significantly from those described below.
<PAGE>
The determination of whether an instrument issued by a corporation constitutes
indebtedness for Federal income tax purpose or should be treated, in whole or in
part, as an equity interest in the corporation is determined under current law
by reference to certain general guidelines and factors distilled from decisional
law and IRS rulings. The following are the principal factors that weigh in favor
of treating an instrument as indebtedness (i) the instrument has a fixed
maturity that is not unreasonably far in the future, (ii) the instrument
contains an unconditional obligation to pay a fixed amount upon maturity, (iii)
the instrument contains an unconditional obligation to pay interest determined
at a fixed rate, (iv) the holder has customary creditor remedies upon default,
(v) the instrument is not convertible into equity of the issuer, does not
provide for payments based upon the income of profits of the issuer and does not
confer upon the holder voting rights or other powers to affect control of the
management of the issuer, (vi) the issuer has sufficient anticipated cash flow
to satisfy the payments anticipated to become due under the instrument, (vii)
there is substantial disparity between the holdings of the instrument and the
holdings of the stock of the issuer in terms of the identity of the holders and
their proportionate interest, (viii) the issuer's debt/equity ratio is not
excessive, (ix) the obligations evidenced by the instrument are not subordinated
to other creditors, (x) subsequent to issuance, the holder takes reasonable
steps to enforce its rights as a creditor and (xi) the instrument was not issued
to provide funds for the acquisition of basic business assets. The presence or
absence of any one of the foregoing factors is not determinative. Counsel to the
Company has given an opinion that, more likely than not, the New Notes will be
treated as indebtedness for Federal income tax purposes. Counsel's opinion is
based upon the clear presence of factors (i), (ii), (iii), (iv) and (v) and its
assessment of the other factors, relying significantly on the validity and
reasonableness (without independent investigation) of the Company's business
plan under which there is projected sufficient cash flow to satisfy all payment
obligations under the New Notes. Moreover, Counsel's view is based in part on
its understanding that the Old Notes would not be sold at original issuance to
holders of the Company's Common Stock or Class A Preferred Stock and would be
sold at original issuance to traditional purchasers of high yield debt and that
the original purchasers of the Old Notes and the original purchasers of the
Units would not, in every case, purchase the Old Notes and Units in identical
proportions. No assurance can be given that the IRS will not assert that the New
Notes do not, in whole or in part, constitute indebtedness for federal income
tax purposes. Moreover, although the opinion represents counsel to the Company's
view that the factors indicating that the New Notes should be treated as
indebtedness outweigh those indicating that it should be treated, in whole or in
part, as a form of equity interest in the Company, that opinion is not binding
on any court that might have jurisdiction to adjudicate the matter.
ORIGINAL ISSUE DISCOUNT. The New Notes have original issue discount for
Federal income tax purposes. The amount of OID on a New Note is the excess of
its "stated redemption price at maturity" (the sum of all payments to be made
on the New Note, whether denominated as interest or principal) over its "issue
price." The "issue price" of each New Note is equal to the first price at
which a substantial amount of the Notes were sold for money (excluding sales to
bond houses, brokers or similar persons acting as underwriters, placement agents
or wholesalers). Each New Note Holder (whether a cash or accrual method
taxpayer) is required to include in income such OID as it accrues, in advance of
the receipt of some or all of the related cash payments.
The amount of OID includable in income by the initial Holder of a New Note is
the sum of the "daily portions" of OID with respect to the New Note for each day
during the taxable year or portion of the taxable year on which such Holder held
such New Note ("accrued OID"). The daily portion is determined by allocating to
each day in any "accrual period" a pro rata portion of the OID allocable to that
accrual period. The accrual periods for a New Note will be periods that are
each selected by the New Note Holder that are no longer than one year, provided
that each scheduled payment occurs either on the final day of an accrual period
or on the first day of an accrual period. The amount of OID allocable to any
accrual period other than the initial short accrual period (if any) and the
final accrual period is an amount equal to the product of the New Note's
"adjusted issue price" at the beginning of such accrual period and its yield to
maturity (determined on the basis of compounding at the close of each accrual
period and properly adjusted for the length of the accrual period). The amount
of OID allocable to the final accrual period is the difference between the
amount payable at maturity and the adjusted issue price of the New Note at the
beginning of the final accrual period. The amount of OID allocable to any
initial short accrual period may be computed under any reasonable method. The
adjusted issue price of the New Note at the start of any accrual period
<PAGE>
is equal to its issue price increased by the accrued OID for each prior accrual
period and reduced by any prior payments (whether stated as interest or
principal) with respect to such New Note. The Company is required to report the
amount of OID accrued on New Notes held of record by persons other than
corporations and other exempt New Note Holders, which may be based on accrual
periods other than those chosen by the New Note Holder. A New Note Holder is not
required to recognize any income upon the receipt of interest payments on the
New Notes. The tax basis of a New Note in the hands of the Holder will be
increased by the amount of OID, if any, on the New Note that is included in the
Holder's income pursuant to these rules, and will decreased by the amount of any
payments (whether stated as interest or principal) made with respect to the New
Note.
APPLICABLE HIGH YIELD DISCOUNT OBLIGATION. If the yield to maturity of the New
Notes (as determined for United States Federal income tax purposes) exceeds the
AFR plus 500 basis points, the New Notes will be subject to the AHYDO rules of
the Code. The AFR is an interest rate, announced monthly by the IRS, that is
based on the yield of debt obligations issued by the U.S. Treasury. The AFR for
the month of February, 1998 for instruments with a weighted average maturity in
excess of nine years providing for semi-annual compounding is 5.93%. Pursuant to
the AHYDO rules, the Company's deductions with respect to OID will be suspended
until such OID is actually paid, and the "disqualified portion" of such OID
(defined as the portion that is attributable to the yield on such New Note in
excess of the applicable Federal rate plus 600 basis points) will be permanently
nondeductible. These rules generally do not affect the amount, timing or
character of a Holder's income; however, domestic corporate Holders may be
eligible for a dividends-received deduction with respect to their inclusion in
income of the "disqualified portion" (as defined above) if such amount, if
paid with respect to stock, would have been treated as a dividend (i.e., among
other things, would have been paid out of earnings and profits, which the
Company does not believe that it currently has). See "--The New Exchangeable
Preferred Stock--Certain Federal Income Tax Consequences to the Company and to
Corporate Holders" for a more extensive discussion of the AHYDO rules. The
availability of the dividends-received deduction is subject to a number of
complex limitations. See "--The New Exchangeable Preferred Stock--Distributions
on the New Exchangeable Preferred Stock."
MARKET DISCOUNT. If a New Note is acquired by a subsequent purchaser at a
"market discount," some or all of any gain realized upon a disposition
(including a sale or a taxable exchange) or payment at maturity of such New Note
may be treated as ordinary income. "Market discount" with respect to a
security is, subject to a de minimis exception, the excess of (i) the issue
price of the security increased by all previously accrued original issue
discount and probably reduced (although the Code does not expressly so provide)
by any cash payments in respect of such security over (ii) such Holder's initial
tax basis in the security. The amount of market discount treated as having
accrued will be determined either on a ratable basis, or, if the Holder so
elects, on a constant interest method. Upon any subsequent disposition
(including a gift or payment at maturity) of such New Note (other than in
connection with certain nonrecognition transactions), the lesser of any gain on
such disposition (or appreciation, in the case of a gift) or the portion of the
market discount that accrued while the New Note was held by such Holder will be
treated as ordinary interest income at the time of the disposition. In lieu of
including accrued market discount in income at the time of disposition, a Holder
may elect to include market discount in income currently. Unless a New Note
Holder so elects, such Holder may be required to defer a portion of any interest
expense that may otherwise be deductible on any indebtedness incurred or
maintained to purchase or carry such New Note until the Holder disposes of the
New Note. The election to include market discount in income currently, once
made, is irrevocable and applies to all market discount obligations acquired on
or after the first day of the first taxable year to which the election applies
and may not be revoked without the consent of the IRS.
ACQUISITION PREMIUM. A subsequent Holder of a Note is generally subject to
rules for accruing OID described above. However, if such Holder's purchase price
for the Note exceeds the "revised issue price" (the sum of the issue price of
the Note and the aggregate amount of the OID includible in the gross income of
all Holders for periods before the acquisition of the Note by such Holder and
probably reduced (although the Code does not expressly so provide) by any cash
payment in respect of such security), the excess (referred to as "acquisition
premium") is offset ratably against the amount of OID otherwise includable in
such Holder's taxable income (i.e., such Holder may reduce the daily portions of
OID by a fraction, the numerator of which is the excess of such Holder's
purchase price
<PAGE>
for the Note over the revised issue price, and the denominator of which is the
excess of the sum of all amounts payable on the Note after the purchase date
over the Note's revised issue price).
DISPOSITION OF NEW NOTES. A Holder of New Notes will recognize gain or loss
upon the sale, redemption, retirement or other disposition of such New Notes;
such gain or loss will generally be equal to the difference between (i) the
amount of cash and the fair market value of property received and (ii) the
Holder's adjusted tax basis (increased by any accrued OID or market discount
previously included in income by the Holder and reduced by any previous payments
with respect to the New Notes) in such New Notes. Subject to the market discount
rules discussed above, gain or loss recognized will be capital gain or loss,
provided such New Notes are held as capital assets by the Holder, and will be
long term capital gain or loss if the Holder has held such New Notes (or is
treated as having held such New Notes) for longer than one year. Under current
law, capital gains recognized by corporations are currently taxed at a maximum
rate of 35% and the maximum rate on net capital gains (i.e., the excess of net
long-term capital gains over net short-term capital losses) in the case of
individuals is currently 20% for New Notes held for more than 18 months (28% if
held more than 12 months but not more than 18 months). Under the Code, an
individual Holder's net capital losses are currently deductible only to the
extent of $3,000 per year.
REPORTING REQUIREMENTS. The Company will provide annual information statements
to Holders of the New Notes and to the Internal Revenue Service, setting forth
the amount of original issue discount determined to be attributable to the New
Notes for that year.
THE NEW EXCHANGEABLE PREFERRED STOCK
THE EXCHANGE. In the opinion of Counsel to the Company, U.S. Holders who
exchange their Old Exchangeable Preferred Stock for New Exchangeable Preferred
Stock will not recognize any income, gain or loss for federal income tax
purposes. A U.S. Holder will have the same issue price, adjusted basis and
holding period in the New Exchangeable Preferred Stock immediately after the
exchange as it had in the Old Exchangeable Preferred Stock immediately before
the exchange.
DISTRIBUTIONS ON THE NEW EXCHANGEABLE PREFERRED STOCK. Distributions on the
New Exchangeable Preferred Stock paid in cash will be taxable to the Holder as
ordinary income and treated as a dividend to the extent of the Company's current
and accumulated earnings and profits (as determined for Federal income tax
purposes). A distribution on the New Exchangeable Preferred Stock made in the
form of additional shares of New Exchangeable Preferred Stock ("PIK Shares")
will be treated as being in an amount equal to the fair market value of the PIK
Shares and will be a taxable distribution treated as a dividend to the extent of
the Company's current and accumulated earnings and profits (as determined for
Federal income tax purposes). The holding period of any such PIK Shares will
commence on the date of their distribution.
To the extent that the amount of any distribution paid on the New Exchangeable
Preferred Stock (including distributions made in the form of PIK Shares) exceeds
the Company's current and accumulated earnings and profits allocable to such
distributions (as determined for Federal income tax purposes), such distribution
will be treated as a return of capital, thus reducing the Holder's adjusted tax
basis in such New Exchangeable Preferred Stock. Any such excess distribution
that is greater than the Holder's adjusted basis in the New Exchangeable
Preferred Stock will be taxed as capital gain and will be long-term capital gain
if the Holder's holding period for such New Exchangeable Preferred Stock exceeds
one year. For purposes of the remainder of this discussion, the term
"dividend" refers to a distribution paid out of the Company's allocable
earnings and profits, unless the context indicates otherwise.
It is anticipated that the mandatory redemption price of the New Exchangeable
Preferred Stock will exceed such stock's issue price by more than a de minimis
amount. As a result, such excess (a "redemption premium") will be required,
pursuant to section 305(c) of the Code, to be accrued by the Holder as a
constructive distribution of additional New Exchangeable Preferred Stock over
the term of the New Exchangeable Preferred Stock in a manner similar to the
accrual of original issue discount as described below in the discussion "--
Taxation of Stated Interest
<PAGE>
and Original Issue Discount on Exchange Debentures." The Company determined the
issue price of the Exchangeable Preferred Stock by allocating the aggregate
issue price of each Unit between the Exchangeable Preferred Stock and associated
Warrants comprising such Unit based upon their relative fair market values. The
Company intends to allocate $946 of the aggregate issue price of a Unit to the
Exchangeable Preferred Stock and $54 of the aggregate issue price to the
associated Warrants as set forth in the Private Placement offering circular.
That allocation by the Company will be binding on each holder, unless the holder
explicitly discloses (on a statement attached to the holder's timely filed
United States Federal income tax return for the year that includes the
acquisition date of the Unit) that its allocation of the Unit's issue price
between the Exchangeable Preferred Stock and the Warrants is different from the
Company's allocation. The Company's allocation, however, is not binding on the
IRS, and therefore, there can be no assurance that the IRS will respect such
allocation. If a holder purchases a Unit as part of the initial issuance at a
price that is lower than the aggregate issue price assumed in computing the
dollar amounts set forth above, then the issue price of such Unit will be
allocated between the Exchangeable Preferred Stock and the associated Warrants
in proportion to the allocation described above. A Holder's initial tax basis in
each security comprising a Unit will be the issue price allocated thereto.
Constructive distributions (including those arising from a redemption premium)
are taxable to the Holder as dividends to the extent of the Company's current or
accumulated earnings and profits. If the size of the constructive dividend is
greater than the Company's current or accumulated earnings and profits, the
excess is treated as a tax-free recovery of basis in the New Exchangeable
Preferred Stock until such Holder's basis is equal to zero, and then as capital
gain from the sale or exchange of the New Exchangeable Preferred Stock.
If the fair market value of any PIK Shares at the time of distribution is less
than the redemption price of such PIK Shares by more than a statutorily defined
de minimis amount, then the resulting redemption premium will be required,
pursuant to section 305(c) of the Code, to be accrued by the Holder as a
constructive distribution of additional PIK Shares over the term of the PIK
Shares in a manner similar to the accrual of original issue discount as
described below in the discussion "--Taxation of Stated Interest and Original
Issue Discount on Exchange Debentures."
PIK Shares issued on different dates will very likely have different amounts
of redemption premium. A Holder would be treated as having received constructive
distributions on its PIK Shares in differing amounts depending on the issue
price of each PIK Share and PIK Shares would not be interchangeable with each
other or with New Exchangeable Preferred Stock due to their differing United
States Federal income tax characteristics.
Dividends received by corporate Holders generally will be eligible for the 70%
dividends-received deduction available under Section 243 of the Code. The
availability of such dividends-received deduction is subject to numerous
exceptions and restrictions, including those relating to (i) the holding period
of the stock, (ii) stock treated as "debt-financed portfolio stock" within the
meaning of Section 246A of the Code, (iii) dividends treated as "extraordinary
dividends" for purposes of Section 1059 of the Code and (iv) Holders who pay
alternative minimum tax. A recent amendment made by the Taxpayer Relief Act of
1997 requires a corporate Holder to satisfy a separate 46-day holding period
requirement with respect to each dividend (91 days in the case of preferred
stock dividends with respect to periods aggregating more than 366 days) in order
to be eligible for such dividends-received deduction. Corporate shareholders
should consult their own tax advisors regarding the extent, if any, to which
such exceptions and restrictions may apply to their particular factual
situations.
The Company does not now have any current or accumulated earnings and profits
and is unable to predict whether or when it will have sufficient earnings and
profits for distributions with respect to the New Exchangeable Preferred Stock
to be treated as dividends. Until such time, if any, as such distributions are
treated as dividends, corporate Holders of the New Exchangeable Preferred Stock
will not be eligible for the dividends-received deduction described above.
SALE, REDEMPTION AND EXCHANGE OF EXCHANGEABLE PREFERRED STOCK. A redemption of
shares of New Exchangeable Preferred Stock for cash or in exchange for Exchange
Debentures would be a taxable event.
<PAGE>
A redemption of shares of New Exchangeable Preferred Stock for cash will
generally be treated as a sale or exchange if the Holder does not own, actually
or constructively within the meaning of Section 318 of the Code, any stock of
the Company other than the New Exchangeable Preferred Stock. For this purpose, a
Holder that holds Warrants will be treated as constructively owning shares of
Common Stock that it can acquire upon exercise of the Warrants. In addition,
under Section 318 of the Code, a person generally will be treated as the owner
of stock of the Company owned by certain related parties or certain entities in
which the person owns an interest. If a Holder does own, actually or
constructively, other stock of the Company, a redemption of New Exchangeable
Preferred Stock may be treated as a dividend to the extent of the Company's
current and accumulated earnings and profits (as determined for Federal income
tax purposes). Dividend treatment would not apply, however, if the redemption is
"not essentially equivalent to a dividend" with respect to the Holder under
Section 302(b)(1) of the Code. A distribution to a Holder will be "not
essentially equivalent to a dividend" if it results in a "meaningful
reduction" in the Holder's stock interest in the Company. For this purpose, a
redemption of New Exchangeable Preferred Stock that results in a reduction in
the proportionate interest in the Company (taking into account any actual
ownership of Common Stock of the Company and any stock constructively owned) of
a Holder whose relative stock interest in the Company is minimal should be
regarded as a meaningful reduction in the Holder's stock interest in the
Company.
If a redemption of the New Exchangeable Preferred Stock for cash is not
treated as a distribution taxable as a dividend, the redemption would result in
capital gain or loss equal to the difference between the amount of cash received
and the Holder's adjusted tax basis in the New Exchangeable Preferred Stock
redeemed, except to the extent that the redemption price includes dividends
which have been declared by the Board of Directors of the Company prior to the
redemption. Similarly, upon the sale of the New Exchangeable Preferred Stock
(other than in a redemption or in exchange for the Exchange Debentures), the
difference between the sum of the amount of cash and the fair market value of
other property received and the Holder's adjusted basis in the New Exchangeable
Preferred Stock would result in capital gain or loss. This gain or loss would be
long-term capital gain or loss if the Holder's holding period for the New
Exchangeable Preferred Stock exceeds one year. Under current law, capital gains
recognized by corporations are currently taxed at a maximum rate of 35% and the
maximum rate on net capital gains in the case of individuals is currently 20%
for property held for more than 18 months (28% if held more than 12 months but
not more than 18 months). A redemption of New Exchangeable Preferred Stock in
exchange for Exchange Debentures will be subject to the same general rules as a
redemption for cash, except that any gain or loss generally will be determined
based upon the issue price of the Exchange Debentures (as determined for
purposes of computing the original issue discount on such Exchange Debentures).
See the discussion below under "--Original Issue Discount."
If a redemption of the New Exchangeable Preferred Stock is treated as a
distribution that is taxable as a dividend, the amount of the distribution will
be measured by the amount of cash or the issue price of the Exchange Debentures,
as the case may be, received by the Holder. It is possible, however, that the
fair market value of the Exchange Debentures (if different from their issue
price) may constitute the amount of the distribution. The Holder's adjusted tax
basis in the redeemed New Exchangeable Preferred Stock will be transferred to
any remaining stock holdings in the Company, subject to reduction or possible
gain recognition under Section 1059 of the Code in respect of the nontaxed
portion of such dividend. If the Holder does not retain any actual stock
ownership in the Company (i.e., such Holder is treated as having received a
dividend because he constructively owns stock in the Company but such Holder
does not actually own any Company Stock), such Holder may lose the benefit of
his basis in the New Exchangeable Preferred Stock. However, such basis may be
transferred to the person or entity whose ownership of New Exchangeable
Preferred Stock was attributed to the Holder.
ORIGINAL ISSUE DISCOUNT. In the event that the New Exchangeable Preferred
Stock is exchanged for Exchange Debentures and the "stated redemption price at
maturity" of the Exchange Debentures exceeds their "issue price" by more than
a de minimis amount, the Exchange Debentures will be treated as having OID equal
to the amount of such excess.
<PAGE>
If the Exchange Debentures are traded on an established securities market
within the 60-day period ending thirty days after the Exchange Date, the issue
price of the Exchange Debentures will be their fair market value as of their
issue date. Subject to certain limitations described in the Treasury
Regulations, the Exchange Debentures will be deemed to be traded on an
established securities market if, at a minimum, price quotations will be readily
available from dealers, brokers or traders. If the New Exchangeable Preferred
Stock, but not the Exchange Debentures issued in exchange therefor, is traded on
an established securities market within the 60-day period ending thirty days
after the Exchange Date, then the issue price of each Exchange Debenture should
be the fair market value of the New Exchangeable Preferred Stock exchanged
therefor at the time of the exchange. The New Exchangeable Preferred Stock
generally will be deemed to be traded on an established securities market if, at
a minimum, it appears on a system of general circulation that provides a
reasonable basis to determine fair market value based either on recent price
quotations or recent sales transactions. In the event that neither the New
Exchangeable Preferred Stock nor the Exchange Debentures are traded on an
established securities market within the applicable period, the issue price of
the Exchange Debentures will be their stated principal amount (i.e., their face
value) unless either (i) the Exchange Debentures do not bear "adequate stated
interest" within the meaning of Section 1274 of the Code, which is unlikely or
(ii) the Exchange Debentures are issued in a so-called "potentially abusive
situation" as defined in the Treasury Regulations under Section 1274 of the
Code (including a situation involving a recent sales transaction), which is
unlikely, in which case the issue price of such Exchange Debentures generally
will be the fair market value of the New Exchangeable Preferred Stock
surrendered in exchange therefor.
The "stated redemption price at maturity" of the Exchange Debentures should
equal the total of all payments under the Exchange Debentures. The "stated
redemption price at maturity" would include any optional redemption premium on
the Exchange Debentures if assuming that such optional redemption will occur
would result in a lower yield to maturity on the Exchange Debentures.
TAXATION OF STATED INTEREST AND ORIGINAL ISSUE DISCOUNT ON EXCHANGE
DEBENTURES. Each Holder of an Exchange Debenture with OID will be required to
include in gross income an amount equal to the sum of the "daily portions" of
the OID for all days during the taxable year in which such Holder holds the
Exchange Debenture. The daily portions of OID required to be included in a
Holder's gross income in a taxable year will be determined under a constant
yield method by allocating to each day during the taxable year in which the
Holder holds the Exchange Debenture a pro rata portion of the OID thereon which
is attributable to the "accrual period" in which such day is included. The
amount of the OID attributable to each accrual period will be the product of the
"adjusted issue price" of the Exchange Debenture at the beginning of such
accrual period multiplied by the "yield to maturity" of the Exchange Debenture
(properly adjusted for the length of the accrual period). The adjusted issue
price of an Exchange Debenture at the beginning of an accrual period is the
original issue price of the Exchange Debenture plus the aggregate amount of OID
that accrued in all prior accrual periods, and less any cash payments. The
"yield to maturity" is the discount rate that, when used in computing the
present value of all principal and interest payments to be made under the
Exchange Debenture, produces an amount equal to the issue price of the Exchange
Debenture. An "accrual period" may be of any length and may vary in length
over the term of the debt instrument, provided that each accrual period is no
longer than one year and each scheduled payment of principal or interest occurs
either on the final day or the first day of an accrual period.
In the event that the Exchange Debentures are issued on or before February 15,
2003, the Company will have the option to pay interest thereon in PIK
Debentures. The issuance of PIK Debentures in lieu of cash interest is not
treated as a payment of interest. Instead, the underlying Exchange Debenture and
any PIK Debenture that may be issued thereon are treated as a single debt
instrument under the OID rules. Moreover, because the terms of the PIK
Debentures and the underlying Exchange Debentures are identical so that the two
are fungible in all respects, the issuance of a PIK Debenture should be treated
simply as a division of the underlying Exchange Debenture, so that the Holder's
tax basis and adjusted issue price in the underlying Exchange Debenture should
be allocated between the underlying Exchange Debenture and the PIK Debenture in
proportion to their relative principal amounts.
For purposes of determining the stated redemption price at maturity and the
rate at which OID accrues on an Exchange Debenture issued on or before February
15, 2003, applicable regulations require that it be assumed that
<PAGE>
the Company will pay interest in the form of PIK Debentures to the maximum
extent permitted under the terms of the Exchange Debentures if doing so would
reduce the yield to maturity on such Exchange Debentures. In such a case, if the
Company elects to pay in cash an interest payment on such Exchange Debentures
payable in cash or in PIK Debentures, the cash payment will be treated as a pro
rata prepayment on the Exchange Debentures. As a result, the Holder would
realize gain in an amount equal to the excess of the cash payment over the
portion of the Holder's tax basis that would have been allocated to such PIK
Debentures, and the Holder's tax basis in the Exchange Debentures held would be
reduced by such allocated portion of the Holder's tax basis. For purposes of
determining the stated redemption price at maturity and the rate at which OID
accrues on an Exchange Debenture issued on or before February 15, 2003,
applicable regulations require that it be assumed that the Company will pay
interest in cash and not in the form of PIK Debentures if paying interest in the
form of PIK Debentures would not reduce the yield to maturity on such Exchange
Debentures. In such a case, if the Company elects to pay in the form of PIK
Debentures an interest payment on such Exchange Debentures payable in cash or in
PIK Debentures, the future accruals of OID will be calculated based on a
redetermination of the stated redemption price at maturity and yield to maturity
made by treating the Exchange Debenture as if it were retired and reissued on
such payment date at a price equal to the adjusted issue price of the Exchange
Debentures at such time.
In the event that Exchange Debentures are issued after February 15, 2003 when
the Company does not have the option to pay interest thereon in PIK Debentures,
stated interest would be included in income by a Holder in accordance with such
Holder's usual method of accounting. In all other cases, all stated interest
paid will be treated as payments on Exchange Debentures under the rules
discussed above.
BOND PREMIUM ON EXCHANGE DEBENTURES. If the Holder's basis in the Exchange
Debentures exceeds the sum of all amounts payable on the Exchange Debentures
after the date on which Holder acquires them (computed by applying certain
provisions of the Treasury Regulations regarding the determination of the
amounts of future payments), such excess will be deductible by the Holder of the
Exchange Debentures as amortizable bond premium over the term of the Exchange
Debentures (or the period ending on such earlier call date) under a yield-to-
maturity formula, if an election by the Holder under Section 171 of the Code is
made or is already in effect. This election is revocable only with the consent
of the IRS and applies to all obligations owned or acquired by the Holder on or
after the first day of the taxable year to which the election applies. To the
extent the excess is deducted as amortizable bond premium, the Holder's adjusted
tax basis in the Exchange Debentures is reduced. Except as may otherwise be
provided in future Treasury Regulations, the amortizable bond premium will be
treated as an offset to interest income on the Exchange Debentures rather than
as a separate deduction item.
ACQUISITION PREMIUM ON EXCHANGE DEBENTURES. A Holder of an Exchange Debenture
issued with OID who purchases such Exchange Debenture for an amount that is
greater than its then adjusted issue price but equal to or less than the sum of
all amounts payable on the Exchange Debenture after the purchase date will be
considered to have purchased such Exchange Debenture at an "acquisition
premium." Under the acquisition premium rules, the amount of OID that such
Holder must include in income with respect to such Exchange Debenture for any
taxable year will be reduced by the portion of such acquisition premium properly
allocable to such year.
MARKET DISCOUNT ON EXCHANGE DEBENTURES. Holders of shares of Old Exchangeable
Preferred Stock who tender such shares for shares of New Exchangeable Preferred
Stock should be aware that the disposition of Exchange Debentures may be
affected by the market discount provisions of the Code. The market discount
rules generally provide that if a Holder of a debt instrument purchases it at a
"market discount" and thereafter realizes gain upon a disposition or a
retirement of the debt instrument, the lesser of such gain or the portion of the
market discount that has accrued on a straight-line basis (or, if the Holder so
elects under Section 1276(b) of the Code, on a constant interest rate basis)
while the debt instrument was held by such Holder will be taxed as ordinary
income at the time of such disposition. "Market discount" with respect to the
Exchange Debentures is the amount, if any, by which the "revised issue price"
of an Exchange Debenture (or its stated redemption price at maturity if the
Exchange Debenture does not have any OID) exceeds the Holder's basis in the
Exchange Debenture immediately after such Holder's acquisition, subject to a de
minimis exception. The "revised issue price" of an Exchange Debenture is its
issue price increased by the portion of OID previously includible in the gross
income of prior holders for periods
<PAGE>
prior to the acquisition of the Exchange Debenture by the Holder (without regard
to any acquisition premium exclusion) and reduced by prior payments with respect
to the Exchange Debentures.
A Holder who acquires an Exchange Debenture at a market discount also may be
required to defer a portion of any interest expense that otherwise may be
deductible on any indebtedness incurred or maintained to purchase or carry such
Exchange Debenture until the Holder disposes of the Exchange Debenture in a
taxable transaction. Moreover, any partial principal payment with respect to
Exchange Debentures will be includible as ordinary income to the extent of any
accrued market discount on such Exchange Debentures. Such accrued market
discount will also generally be includible as ordinary income upon the
occurrence of certain otherwise non-taxable transfers (such as gifts). A Holder
of Exchange Debentures acquired at a market discount may elect for Federal
income tax purposes to include market discount in gross income as the discount
accrues, either on a straight-line basis or on a constant interest rate basis.
This current inclusion election, once made, applies to all market discount
obligations acquired on or after the first day of the first taxable year to
which the election applies, and may not be revoked without the consent of the
IRS. If a Holder of Exchange Debentures makes such an election, the foregoing
rules with respect to the recognition of ordinary income on sales and other
dispositions of such debt instruments, and with respect to the deferral of
interest deductions on indebtedness incurred or maintained to purchase or carry
such debt instruments, would not apply.
REDEMPTION OR SALE OF EXCHANGE DEBENTURES. Generally, any redemption or sale
of Exchange Debentures by a Holder would result in taxable gain or loss equal to
the difference between the sum of the amount of cash and the fair market value
of other property received (except to the extent that cash received is
attributable to accrued but previously untaxed interest, which portion of the
consideration would be taxed as ordinary income) and the Holder's adjusted tax
basis in the Exchange Debentures. The adjusted tax basis of a Holder who
receives an Exchange Debenture in exchange for New Exchangeable Preferred Stock
will generally be equal to the issue price of the Exchange Debenture increased
by any OID or market discount with respect to the Exchange Debenture included in
the Holder's income prior to sale or redemption of the Exchange Debenture,
reduced by any amortizable bond premium applied against the Holder's income
prior to sale or redemption of the Exchange Debenture and by payments on the
Exchange Debentures. Subject to the above discussion of market discount, such
gain or loss would be long-term capital gain or loss if the Holder's holding
period for the Exchange Debentures exceeds one year. The same principles with
respect to acquisition premium affect the Exchange Debentures as described in
"--Acquisition Premium" discussion with respect to the New Notes.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES TO THE COMPANY AND TO CORPORATE
HOLDERS. It is possible that the Exchange Debentures will be treated as AHYDOs
for Federal income tax purposes, especially if the Exchange Debentures are
issued on or before February 15, 2003. The Exchange Debentures will constitute
AHYDOs if they (i) have a term of more than five years, (ii) have a yield to
maturity equal to or greater than the sum of the applicable Federal rate (the
"AFR") at the time of issuance of the Exchange Debentures plus 500 basis
points and (iii) have "significant OID." The AFR is an interest rate,
announced monthly by the IRS, that is based on the yield of debt obligations
issued by the United States Treasury. A debt instrument is treated as having
"significant OID" if the aggregate amount that would be includible in gross
income with respect to such debt instrument for periods before the close of any
accrual period ending after the date five years after the date of issue exceeds
the sum of (i) the aggregate amount of interest to be paid in cash under the
debt instrument before the close of such accrual period and (ii) the product of
the initial issue price of such debt instrument and its yield to maturity. In
determining whether any Exchange Debentures issued on or prior to February 15,
2003 are AHYDOs, it will be presumed that interest will be paid in the form of
PIK Debentures to the maximum extent permitted under the terms of the Exchange
Debentures. Because the amount of OID, if any, attributable to the Exchange
Debentures will be determined at the time such Exchange Debentures are issued
and the AFR at that point in time is not predictable, it is impossible currently
to determine whether Exchange Debentures will be treated as AHYDOs.
If the Exchange Debentures are treated as AHYDOs, (i) as described in the
following paragraph, a portion of the OID that accrues on the Exchange
Debentures may be treated as a dividend generally eligible for the dividends-
received deduction in the case of corporate Holders, (ii) the Company would not
be entitled to deduct the
<PAGE>
"disqualified portion" of the OID that accrues on the Exchange Debentures and
(iii) the Company would be allowed to deduct the remainder of the OID only when
it pays amounts attributable to such OID in cash. (In particular, in the case of
a payment in cash of an interest payment payable on or before February 15, 2003
on an Exchange Debenture issued on or prior to February 15, 2003 and interest on
which (for purposes of accruing OID under applicable regulations) is presumed to
be paid in the form of PIK Debentures to the maximum extent permitted under the
terms of the Exchange Debentures, the Company may be able to deduct only a small
portion of such cash payment attributable to OID because the payment as a whole
would be treated as a prepayment of a ratable portion of the Exchange
Debentures.)
If an Exchange Debenture is treated as an AHYDO, a corporate Holder would be
treated as receiving dividend income to the extent of the lesser of (i) an
allocable portion of the Company's current and accumulated earnings and profits
and (ii) the "disqualified portion" of the OID of such AHYDO. The
"disqualified portion" of the OID is equal to the lesser of (x) the amount of
OID or (y) the portion of the "total return" (i.e., the excess of all payments
to be made with respect to the Exchange Debenture over its issue price) with
respect to the Exchange Debenture in excess of the AFR at issuance plus 600
basis points per annum.
BACKUP WITHHOLDING AND INFORMATION REPORTING
A Holder may be subject to backup withholding at the rate of 31 percent with
respect to interest on the New Notes, distributions (actual or constructive) on
the New Exchangeable Preferred Stock interest (including OID) on the Exchange
Debentures or sales proceeds of any of the foregoing, unless such Holder (i) is
a corporation or comes within certain other exempt categories and, when
required, demonstrates its exempt status or (ii) provides a correct taxpayer
identification number, certifies as to no loss of exemption from backup
withholding and otherwise complies with applicable requirements of the backup
withholding rules. A Holder who does not provide the Company with the Holder's
correct taxpayer identification number may be subject to penalties imposed by
the IRS. Any amount paid as backup withholding would be creditable against the
Holder's Federal income tax liability.
The Company will furnish annually to the IRS and to record Holders of the New
Exchangeable Preferred Stock (other than with respect to certain exempt holders)
information relating to dividends paid during the calendar year. In the case of
New Exchangeable Preferred Stock or PIK Shares subject to Section 305(c) of the
Code, such information may be based upon dividends accruing to the record Holder
of such New Exchangeable Preferred Stock or PIK Shares at the time of issuance.
The Company will furnish annually to the IRS and to record Holders of the New
Notes and Exchange Debentures (other than with respect to certain exempt
holders) information relating to the stated interest and the OID, if any,
accruing during the calendar year. Such information will be based on the amount
of OID that would have accrued to a Holder who acquired the New Note or the
Exchange Debenture on original issue. Accordingly, other Holders will be
required to determine for themselves whether they are eligible to report a
reduced amount of OID for Federal income tax purposes.
THE FOREGOING SUMMARY DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION
THAT MAY BE RELEVANT TO A PARTICULAR HOLDER OF NEW NOTES, NEW EXCHANGEABLE
PREFERRED STOCK OR EXCHANGE DEBENTURES IN LIGHT OF HIS PARTICULAR CIRCUMSTANCES
AND INCOME TAX SITUATION. EACH HOLDER OF NEW NOTES, NEW EXCHANGEABLE PREFERRED
STOCK OR EXCHANGE DEBENTURES SHOULD CONSULT SUCH HOLDER'S TAX ADVISOR AS TO THE
SPECIFIC TAX CONSEQUENCES TO SUCH HOLDER OF THE OWNERSHIP AND DISPOSITION OF THE
NEW NOTES, NEW EXCHANGEABLE PREFERRED STOCK OR EXCHANGE DEBENTURES, INCLUDING
THE APPLICATION AND EFFECT OF STATE, LOCAL, FOREIGN AND OTHER TAX LAWS, OR
SUBSEQUENT VERSIONS THEREOF.
<PAGE>
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Notes or shares of New Exchangeable
Preferred Stock for its own account pursuant to the Exchange Offer must
acknowledge that it will deliver a prospectus in connection with any resale of
such New Notes or shares of Exchangeable Preferred Stock. This Prospectus, as
it may be amended or supplemented from time to time, may be used by a broker-
dealer in connection with the resale of New Notes or shares of New Exchangeable
Preferred Stock received in exchange for Old Notes or shares of Old Exchangeable
Preferred Stock where such Old Notes or shares of Old Exchangeable Preferred
Stock were acquired as a result of market-making activities or other trading
activities. The Company has agreed that, starting on the Expiration Date and
ending on the close of business 180 days after the Expiration Date, it will make
this Prospectus, as amended or supplemented, available to any broker-dealer for
use in connection with any such resale. In addition, until [________, 1998] (90
days after the date of this Prospectus), all dealers effecting transactions in
the New Notes or shares of New Exchangeable Preferred Stock may be required to
deliver a prospectus.
The Company will not receive any proceeds from any sale of New Notes or shares
of New Exchangeable Preferred Stock by broker-dealers. New Notes and shares of
New Exchangeable Preferred Stock received by broker-dealers for their own
account pursuant to the Exchange Offer may be sold from time to time in one or
more transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the New Notes or New Exchangeable Preferred
Stock or a combination of such methods of resale, at market prices prevailing at
the time of resale, at prices related to such prevailing market prices or
negotiated prices. Any such resale may be made directly to purchasers or to or
through brokers or dealers who may receive compensation in the form of
commissions or concessions from any such broker-dealer or the purchasers of any
such New Notes or shares of New Exchangeable Preferred Stock. Any broker-dealer
that resells New Notes or shares of New Exchangeable Preferred Stock that were
received by it for its own account pursuant to the Exchange Offer and any broker
or dealer that participates in a distribution of such New Notes or shares of New
Exchangeable Preferred Stock may be deemed to be an "underwriter" within the
meaning of the Securities Act and any profit of any such resale of New Notes or
shares of New Exchangeable Preferred Stock and any commissions or concessions
received by any such persons may be deemed to be underwriting compensation under
the Securities Act. The Letters of Transmittal state that, by acknowledging
that it will deliver and by delivering a prospectus, a broker-dealer will not be
deemed to admit that it is an "underwriter" within the meaning of the Securities
Act.
For a period of 180 days after the Expiration Date, the Company will promptly
send additional copies of this Prospectus and any amendment or supplement to
this Prospectus to any broker-dealer that requests such documents in a Letter of
Transmittal. The Company has agreed to pay all expenses incident to the
Exchange Offer (including the reasonable fees and expenses, if any, of one
counsel for the Initial Purchasers of the Old Notes and the Old Exchangeable
Preferred Stock) other than commissions or concessions of any brokers or dealers
and will indemnify the Holders of the Notes and the Exchangeable Preferred Stock
(including any broker-dealers) against certain liabilities, including
liabilities under the Securities Act.
LEGAL MATTERS
The legality of the Securities offered hereby is being passed upon for the
Company by Piper & Marbury L.L.P., Washington, D.C., special counsel for the
Company. Mark Tauber, a partner of Piper & Marbury L.L.P., owns 68,056.0 shares
of the Company's Common Stock and options to acquire 34,730.4 shares of the
Company's Common Stock. In addition, in January 1998, Mr. Tauber acquired
beneficial ownership of 6.3 shares of Class A Convertible 8% Cumulative
Preferred Stock at a price of $15,793.84 per share, and warrants to purchase up
to 5,327.0 shares of Common Stock at a price of $.000001 per share. The Percent
of Aggregate Voting Rights excludes 2,250.261 shares of non-voting Common Stock
beneficially owned by Mr. Tauber which the Company has agreed to issue.
<PAGE>
EXPERTS
The balance sheets of 21st Century Telecom Group, Inc. as of March 31, 1996
and 1997 and the related statements of income, shareowner's equity and cash
flows for each of the three years in the period ended March 31, 1997 and for the
period from inception (October 29, 1992 to March 31, 1997) included in this
Prospectus have been audited by Arthur Andersen LLP, independent public
accountants, as stated in their report appearing herein.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission"), Washington, D.C. 20549, a Registration Statement on Form S-4
(including all amendments thereto, the "Registration Statement") under the
Securities Act of 1933, with respect to the New Notes and New Exchangeable
Preferred Stock offered in connection with the Exchange Offer. As permitted by
the rules and regulations of the Commission, this Prospectus omits certain
information contained in the Registration Statement. For further information
with respect to the Company and the New Notes and New Exchangeable Preferred
Stock offered in connection with the Exchange Offer, reference is made to the
Registration Statement and the exhibits and schedules filed therewith.
Statements contained in this Prospectus concerning the contents of any contract
or any other document referred to are not necessarily complete; reference is
made in each instance to the copy of such contract or document filed as an
exhibit to the Registration Statement. Each such statement is qualified in all
respects by such reference to such exhibits. The Registration Statement,
including exhibits and schedules thereto, may be inspected without charge at the
Commission's principal office in Washington, D.C., and copies of all or any part
thereof may be obtained from such office after payment of fees prescribed by the
Commission. The Commission also maintains a Web site that contains reports,
proxy statements and other information regarding registrants, including the
Company, that file such information electronically with the Commission. The
address of the Commission's Web site is http://www.sec.gov.
<PAGE>
GLOSSARY
ADI Area of Dominant Influence.
ADSL Asymmetrical Digital Subscriber Line. A modem technology that
enhances copper telephone wiring allowing for high-speed data
transmission over ordinary telephone lines.
ANSI American National Standards Institute. A standards-setting, non-
government organization founded in 1918, which develops and
publishes standards for "voluntary" use in the United States.
CLASS Custom Local Area Signalling Services. Consists of number
translation services, such as call-forwarding and caller
identification as well as services including automatic callback,
distinctive ringing, call-waiting and selective call rejection.
CLEC Competitive Local Exchange Carrier. A term coined for the
deregulated, competitive telecommunications environment
envisioned by the Telecommunications Act of 1996. The CLECs
compete for local and long distance service.
CPS Cable Program Service.
DBS Direct Broadcast Satellite. A term for a satellite which sends
relatively powerful signals to small dishes at homes.
DRS NETWORK Distributed Ring-Star Network. An advanced integrated fiber optic
network designed by the Company to provide voice, video and high-
speed data services. Key attributes of the network include (i)
distributive switching and traffic routing mechanics at specific
locations throughout the network (rather than being concentrated
at one point as in conventional networks), (ii) SONET-based,
self-healing ring architecture possessing both circuit and route
diversity and (iii) a large fiber capacity permitting delivery of
advanced two-way, fully interactive broadband and narrowband
services.
DTH Direct-to-home Satellite TV.
DOC Data Operations Center. The location for housing the equipment
necessary to provide subscribers with high-speed data and
Internet access.
ESMR Enhanced Specialized Mobile Radio. Two-way dispatch service with
the capability to provide wireless voice telephone service to
compete against cellular.
HFC Hybrid Fiber Coaxial. An outside plant distribution cabling
concept employing both fiber optic and coaxial cable. Fiber is
deployed as the backbone distribution medium, terminating in a
remote unit where optoelectric conversion takes place. At that
remote unit, the signal then is passed on to coaxial cables which
carry the data to the individual business or residence.
ILEC Incumbent Local Exchange Carrier. The existing local telephone
company in a market, which can be either a RBOC or an independent
telephone company that provides local transmission service.
<PAGE>
ISDN Integrated Services Digital Network. Connections that use
ordinary phone lines to transmit digital instead of analog
signals, allowing data to be transmitted at a much faster rate
than with a traditional modem.
ISP Internet Service Provider. A vendor who provides direct access to
the Internet and a core group of Internet utilities like E-mail,
News Group Readers and sometimes weather reports and local
restaurant reviews. The user reaches the ISP by dialing-up over
normal phone lines with its own computer and modems.
IXC Interexchange Carriers. A telephone company that provides long-
distance telephone service between LATAs.
KBPS Kilobits per second. Used to refer to data transmission speeds.
LATA Local Access and Transport Area. One of the 161 local
geographical areas in the United States within which a LEC may
offer local telecommunications services.
LEC Local Exchange Carrier. A local phone company which provides
local access and transmission.
LMDS Local Multipoint Distribution Services. The use of broadcast
microwave signals to contact dishes typically located on the top
of apartment buildings. The signal is then distributed to
individual units in the building.
MBPS Megabits per second. Used to refer to data transmission speeds.
One Mbps equals 1,000 Kbps.
MDU Multiple Dwelling Units. High-rise residential buildings.
MHZ Megahertz. Used to measure band and bandwidth.
MMDS Microwave Multipoint Distribution System. A means of distributing
cable television programming, through microwave, from a single
transmission point to multiple receiving points.
MTSO Mobile Telephone Switching Office. This central office houses the
field monitoring and relay stations for switching calls between
the cellular and wire-based (land-line) central office. It is a
sophisticated computer that monitors all cellular calls, keeps
track of the location of all cellular-equipped vehicles traveling
in the system, arranges handoffs and keeps track of billing
information.
MVPD Multichannel Video Programming Distribution.
NOC Network Operations Center. The location for housing the equipment
necessary to provide subscribers with voice, video and high-speed
data services and to monitor system performance.
PCS Personal Communications Service. A new, lower powered, higher-
frequency competitive technology to cellular that will consist
primarily of enhanced voice, two-way data and text messaging
services directed at the mass consumer wireless communications
market.
PEG Public, Educational or Government access. The local public access
channels.
POP Point of Presence. The place where a long-distance carrier
terminates long distance lines just before those lines are
connected to the local phone company's lines or a direct
connection to a targeted user.
POTS Plain Old Telephone Services. Basic single line telephone
service.
<PAGE>
RBOC Regional Bell Operating Company.
SBS Small Business Services.
SMATV Satellite Master Antenna Television. A distribution system that
feeds satellite signals to hotels, apartments, etc.
SONET Synchronous Optical NETwork. A family of fiber-optic transmission
rates from 51.84 Mbps to 13.22 Gbps, created to provide the
flexibility needed to transport many digital signals with
different capacities, and to provide a standard for which
manufacturers design. SONET is an optical interface standard that
allows interworking of transmission products from multiple
vendors.
STS Shared Tenant Services. Providing centralized telecommunications
services to tenants in a building or a complex.
VLAN Virtual Local Area Network. Work stations connected to an
intelligent device which provides the capabilities to define LAN
membership.
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
------
<S> <C>
AUDITED FINANCIAL STATEMENTS
Report of Independent Public Accountants F-2
Balance Sheets as of March 31, 1996 and 1997 F-3
Statements of Income for the years ended March 31, 1995, 1996, and 1997 and for the period from
inception (October 29, 1992) to March 31, 1997 F-4
Statements of Changes in Shareholders' Equity for the years ended March 31, 1995, 1996 and 1997
and for the period from inception (October 29, 1992) to March 31, 1997 F-5
Statements of Cash Flows for the years ended March 31, 1995, 1996 and 1997 and for the period
from inception (October 29, 1992) to March 31, 1997 F-6
Notes to Financial Statements for the years ended March 31, 1995, 1996 and 1997 and for the period
from inception (October 29, 1992) to March 31, 1997 F-7
UNAUDITED INTERIM FINANCIAL STATEMENTS
Balance Sheet as of December 31, 1997 F-15
Condensed Statements of Income for the nine months ended December 31, 1996 and 1997 and for the
period from inception (October 29, 1992) to December 31, 1997 F-16
Condensed Statements of Cash Flows for the nine months ended December 31, 1996 and 1997 and for
the period from inception (October 29, 1992) to December 31, 1997 F-17
Notes to Financial Statements for the nine months ended December 31, 1996 and 1997 and for the
period from inception (October 29, 1992) to December 31, 1997 F-18
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
21st Century Telecom Group, Inc.:
We have audited the accompanying balance sheets of 21st Century Telecom Group,
Inc. (an Illinois corporation in the development stage) as of March 31, 1997 and
1996, and the related statements of income, shareholders' equity and cash flows
for each of the three years in the period ended March 31, 1997, and for the
period from inception (October 29, 1992) to March 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of 21st Century Telecom Group,
Inc. as of March 31, 1997 and 1996, and the results of its operations and its
cash flows for each of the three years in the period ended March 31, 1997, and
for the period from inception to March 31, 1997, in conformity with generally
accepted accounting principles.
Arthur Andersen LLP
Chicago, Illinois
February 9, 1998
F-2
<PAGE>
21ST CENTURY TELECOM GROUP, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
AS OF MARCH 31, 1996 AND 1997
<TABLE>
<CAPTION>
ASSETS 1996 1997
------ --------------- ---------------
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 956 $ 8,230,942
Accounts receivable from shareholders 153,660 86,000
Accounts receivable from subscribers -- 27,480
Prepayments -- 149,250
----------- -----------
Total current assets 154,616 8,493,672
PROPERTY, PLANT AND EQUIPMENT:
Leasehold improvements -- 177,526
Vehicles and computer equipment -- 69,337
Less--Accumulated depreciation -- (6,934)
----------- -----------
-- 239,929
OTHER ASSETS:
Restricted cash collateral reserve -- 1,796,880
Accounts receivable from associated company 1,058,723 1,156,780
Prepaid franchise fees -- 3,216,575
Deferred franchise costs, net of amortization of $158,875 and $309,641,
respectively 451,538 587,615
Deferred mapping and design, net of amortization of $12,407 -- 62,037
----------- -----------
Total other assets 1,510,261 6,819,887
----------- -----------
Total assets $ 1,664,877 $15,553,488
=========== ===========
LIABILITIES AND PREFERRED AND COMMON EQUITY
-------------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 358,482 $ 238,775
Debentures payable 805,303 --
Interest payable 299,212 --
Accounts payable to associated company 1,569,622 1,294,860
Notes payable 226,930 --
----------- -----------
Total current liabilities 3,259,549 1,533,635
NONCURRENT LIABILITIES:
Debentures payable 81,551 81,551
Interest payable 68,333 103,676
----------- -----------
Total noncurrent liabilities 149,884 185,227
REDEEMABLE PREFERRED STOCK:
Class A convertible 8% cumulative preferred stock, no par value,
1,380 3 shares outstanding and 1,161,307 6 related common share
warrants outstanding -- 20,634,399
COMMON SHAREHOLDERS' EQUITY:
Common stock, no par value, 1,683,000 and 2,374,343 6 shares outstanding,
respectively 488,001 1,909,282
Deficit accumulated during development stage (2,226,557) (5,324,644)
Related party purchase, in excess of cost -- (3,381,300)
Unearned compensation (6,000) (3,111)
----------- -----------
Total common shareholders' equity (1,744,556) (6,799,773)
----------- -----------
Total liabilities and equity $ 1,664,877 $15,553,488
=========== ===========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-3
<PAGE>
21ST CENTURY TELECOM GROUP, INC
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF INCOME
FOR THE YEARS ENDED MARCH 31, 1995, 1996 AND 1997
AND FOR THE PERIOD FROM INCEPTION (OCTOBER 29, 1992) TO MARCH 31, 1997
<TABLE>
<CAPTION>
OCT. 29, 1992
Year Ended YEAR ENDED YEAR ENDED TO
MARCH 31, 1995 MARCH 31,1996 MARCH 31,1997 MARCH 31,1997
----------------- ----------------- --------------- ---------------
<S> <C> <C> <C> <C>
Subscriber revenues $ -- $ -- $ 27,480 $ 27,480
Operating expenses -- 9,617 200,911 210,528
Selling, general and administrative expenses 624,963 694,122 2,337,534 4,027,428
Depreciation and amortization 38,923 108,182 170,108 328,983
---------- ----------- ----------- -----------
Operating loss (663,886) (811,921) (2,681,073) (4,539,459)
Interest income -- -- 301,624 301,624
Interest expense 115,428 214,688 437,843 806,014
---------- ----------- ----------- -----------
Loss before income taxes (779,314) (1,026,609) (2,817,292) (5,043,849)
PROVISION (CREDIT) for INCOME
TAXES -- -- -- --
---------- ----------- ----------- -----------
NET LOSS (779,314) (1,026,609) (2,817,292) (5,043,849)
Preferred dividend requirements -- -- (280,795) (280,795)
---------- ----------- ----------- -----------
NET LOSS ATTRIBUTABLE to COMMON
SHARES $ (779,314) $(1,026,609) $(3,098,087) $(5,324,644)
========== =========== =========== ===========
Weighted average common shares outstanding 1,508,000 1,609,129 1,988,365 1,624,895
LOSS PER COMMON SHARE $(.52) $(.64) $(1.56) $(3.28)
========== =========== =========== ===========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-4
<PAGE>
21ST CENTURY TELECOM GROUP, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED MARCH 31, 1995, 1996 AND 1997
AND FOR THE PERIOD FROM INCEPTION (OCTOBER 29, 1992) TO MARCH 31, 1997
<TABLE>
<CAPTION>
PREFERRED DEFICIT
STOCK AND ACCUMULATED
RELATED DURING RELATED
COMMON COMMON DEVELOPMENT PARTY
TOTAL WARRANTS STOCK STAGE PURCHASE
------------ ------------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Balances, October 29, 1992 $ -- $ -- $ -- $ -- $ --
Net loss (420,634) -- -- (420,634) --
Stock issuances 138,001 -- 138,001 -- --
Unearned compensation (16,000) -- -- -- --
Amortization of unearned
compensation 11,600 -- -- -- --
----------- ------------ ---------- ----------- ------------
Balances, March 31, 1994 (287,033) -- 138,001 (420,634) --
Net loss (779,314) -- -- (779,314) --
Amortization of unearned
compensation 3,226 -- -- -- --
----------- ------------ ---------- ----------- ------------
Balances, March 31, 1995 (1,063,121) -- 138,001 (1,199,948) --
Net loss (1,026,609) -- -- (1,026,609) --
Stock issuances 350,000 -- 350,000 -- --
Unearned compensation (8,000) -- -- -- --
Amortization of unearned
compensation 3,174 -- -- -- --
----------- ------------ ---------- ----------- ------------
Balances, March 31, 1996 (1,744,556) -- 488,001 (2,226,557) --
Net loss (2,817,292) -- -- (2,817,292) --
Stock issuances 23,221,281 21,800,000 1,421,281 -- --
Preferred stock issuance costs (1,446,396) (1,446,396) -- -- --
Accrued preferred stock
dividend -- 280,795 -- (280,795) --
Amortization of unearned
compensation 2,889 -- -- -- --
Related party purchase, in excess
of cost (3,381,300) -- -- -- (3,381,300)
----------- ------------ ---------- ----------- ------------
Balances, March 31, 1997 $13,834,626 $20,634,399 $1,909,282 $(5,324,644) $(3,381,300)
=========== ============ ========== =========== ============
</TABLE>
<TABLE>
<CAPTION>
COMMON
UNEARNED PREFERRED COMMON SHARES
COMPENSATION SHARES SHARES WARRANTS
------------- --------- ----------- -----------
<S> <C> <C> <C> <C>
Balances, October 29, 1992 $ -- -- -- --
Net loss -- -- -- --
Stock issuances -- -- 1,508,000 --
Unearned compensation (16,000) -- -- --
Amortization of unearned
compensation 11,600 -- -- --
-------- --------- ----------- -----------
Balances, March 31, 1994 (4,400) -- 1,508,000 --
Net loss -- -- -- --
Amortization of unearned
compensation 3,226 -- -- --
-------- --------- ----------- -----------
Balances, March 31, 1995 (1,174) -- 1,508,000 --
Net loss -- -- -- --
Stock issuances -- -- 175,000 --
Unearned compensation (8,000) -- -- --
Amortization of unearned
compensation 3,174 -- -- --
-------- --------- ----------- -----------
Balances, March 31, 1996 (6,000) -- 1,683,000 --
Net loss -- -- -- --
Stock issuances -- 1,380.3 691,343.6 1,161,307.6
Preferred stock issuance costs -- -- -- --
Accrued preferred stock
dividend -- -- -- --
Amortization of unearned
compensation 2,889 -- -- --
Related party purchase, in excess
of cost -- -- -- --
-------- --------- ----------- -----------
Balances, March 31, 1997 $ (3,111) 1,380.3 2,374,343.6 1,161,307.6
======== ========= =========== ===========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-5
<PAGE>
21ST CENTURY TELECOM GROUP, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MARCH 31, 1995, 1996 AND 1997
AND FOR THE PERIOD FROM INCEPTION (OCTOBER 29, 1992) TO MARCH 31, 1997
<TABLE>
<CAPTION>
OCT. 29, 1992
Year Ended YEAR ENDED YEAR ENDED TO
MARCH 31, 1995 MARCH 31, 1996 MARCH 31, 1997 MARCH 31, 1997
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Net loss $(779,314) $(1,026,609) $(2,817,292) $(5,043,849)
Adjustments to reconcile net loss to net cash
provided by operating activities--
Amortization and depreciation 38,923 108,182 170,108 328,983
Compensation for professional services
through the issuance of common
stock -- -- 44,190 44,190
Interest expense related to debenture
conversions -- 168,762 147,533 427,257
Increase in accounts receivable -- -- (27,480) (27,480)
Increase in prepayments -- -- (3,365,825) (3,365,825)
Increase in deferred charges (153,825) (338,887) (361,287) (971,700)
Change in intercompany receivable and
payable, net 347,019 114,964 (372,819) 138,080
Increase in interest payable 115,428 45,926 15,612 103,676
(Decrease)/Increase in accounts payable 38,856 201,926 (119,707) 238,775
(Decrease)/Increase in notes payable 114,969 111,961 (226,930) --
Other 13,728 2,548 3,131 20,889
--------- ----------- ----------- -----------
Net cash used by operating
activities (264,216) (611,227) (6,910,766) (8,107,004)
Net cash used in investing activities--
Purchase of subscribers from affiliate -- -- (3,381,300) (3,381,300)
Capital expenditures -- -- (246,863) (246,863)
--------- ----------- ----------- -----------
Net cash used in investing
activities -- -- (3,628,163) (3,628,163)
Cash flows from financing activities--
Cash paid for letters of credit -- -- (1,796,880) (1,796,880)
Proceeds from issuance of debentures 266,429 266,765 153,660 886,854
Proceeds from issuance of preferred stock,
net of issuance costs -- -- 20,267,604 20,267,604
Proceeds from issuance of common
stock -- 342,000 144,531 608,531
--------- ----------- ----------- -----------
Net cash provided by financing
activities 266,429 608,765 18,768,915 19,966,109
--------- ----------- ----------- -----------
Net increase/(decrease) in cash 2,213 (2,462) 8,229,986 8,230,942
Cash at beginning of period 1,205 3,418 956 --
--------- ----------- ----------- -----------
Cash at end of period $ 3,418 $ 956 $ 8,230,942 $ 8,230,942
========= =========== =========== ===========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-6
<PAGE>
21ST CENTURY TELECOM GROUP, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 1995, 1996 AND 1997
AND FOR THE PERIOD FROM INCEPTION (OCTOBER 29, 1992) TO MARCH 31, 1997
1. DESCRIPTION OF BUSINESS:
21st Century Telecom Group, Inc. (the Company) is a Chicago-based company,
formed by shareholders of 21st Century Technology Group, Inc. (Technology) on
October 29, 1992. The Company was originally incorporated as 21st Century Cable
TV, Inc. and its name was subsequently changed to 21st Century Telecom Group,
Inc. on January 5, 1998. The Company was formed for the purpose of building a
cable and communication network in the Area 1 franchise of the City of Chicago.
Area 1 is the populous downtown and near downtown commercial and residential
districts. As part of its business plan, the Company intends to become a full
service communications provider via its installation of a state-of-the-art fiber
optic cable network. This distribution system is designed to provide a barrier-
free information super highway that can accommodate a wide range of
communication services, including interactive video, teleconferencing, business-
to-business connectivity, and 24-hour on-line computer interconnects, in
addition to basic telephony and an extensive selection of cable programming
options.
On March 26, 1996, the Company was awarded a non-exclusive franchise from the
City of Chicago to construct, install, maintain and operate a cable television
system within franchise Area 1. The franchise is for a period of 15 years. The
Company will be required to pay the City a franchise fee of 5% of the annual
gross revenues received, which it will pass through to its customers. The
Company was required to prepay $3,000,000 of franchise fees within 120 days of
being awarded the franchise. The payment was made in two equal installments, the
first payment was made on June 24, 1996, and the second payment was made on July
24, 1996.
The Company has reached an agreement with the Chicago Transit Authority (CTA)
for a 15-year license to attach its 15-mile fiber-optic trunk to the CTA's
overhead rail structures.
Financing the construction and initial start-up of the Company's system
remains an ongoing activity. On January 30, 1997, the Company sold $21.8 million
of convertible preferred stock. On November 25, 1997, the Company obtained a $15
million interim financing facility. The Company repaid this interim financing
facility upon the execution of a concurrent preferred equity and high yield debt
offering on February 9, 1998. These offerings resulted in gross proceeds of $200
million from the issuance of 12 1/4% Senior Discount Notes Due 2008 and $50
million from the issuance of 50,000 Units of 13 3/4% Senior Cumulative
Exchangeable Preferred Stock Due 2010 and Warrants to purchase 438,870 shares of
Common Stock. The net proceeds from these offerings will be used to assist the
Company in meeting its construction, development and working capital needs.
Although the Company has been successful in attracting the necessary financing
to complete the buildout of the franchise, the Company still needs to generate
sufficient revenues to service its debt and realize its investments in fixed
assets in future periods.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The Company's accounting and reporting principles conform to generally
accepted accounting principles.
Cash and Cash Equivalents
Cash and cash equivalents at March 31, 1997, consist of cash on hand at
certain banks as well as commercial paper investments. The commercial paper is
stated at cost, which approximates market value, and all mature within
F-7
<PAGE>
seven days of purchase. At March 31, 1996, cash and cash equivalents consist
solely of cash on hand at certain banks.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of expenses during the reporting period. Actual results
could differ from those estimates.
Property, Plant and Equipment
The Company has recorded vehicle and computer equipment purchases at their
original cost. The purchases are being depreciated on a straight-line basis over
five years.
The Company capitalized leasehold improvements incurred as of March 31, 1997.
However, as the associated lease begins July 1, 1997, no related depreciation
was recognized for the year ended March 31, 1997. Beginning in fiscal 1998,
leasehold improvements will be depreciated on a straight-line basis over the
term of the lease, fifteen years.
Deferred Franchise Costs
The Company has deferred franchise costs, including legal costs, associated
with the organization of its business and obtaining the franchise from the City.
Deferred franchise costs are being amortized over five years.
Deferred Mapping and Design Costs
The Company has deferred certain mapping and design costs associated with
strand mapping the Area 1 region within the City. Deferred mapping and design
costs are being amortized over three years.
Operating Expenses Other than Interest and Amortization
From inception to March 31, 1996, operating expenses, except interest and
amortization, had been allocated from Technology, a related party through some
common ownership and common management, based on estimates of time spent by
management and employees of Technology on Company activities. The Company's
Board of Directors approved these allocations. Technology's Board of Directors
did not formally approve these allocations. However, at the time the allocations
were made, the Company's and Technology's Boards contained substantially the
same individuals. For the years ended March 31, 1995 and 1996, the Company also
recognized 100% of expenses paid by Technology on behalf of the Company, as well
as 100% of expenses incurred by the Company. Effective April 1, 1996, the
Company began recognizing and paying substantially all of its own expenses.
Therefore, for the year ended March 31, 1997, there were no significant
allocations from Technology or payments made by Technology on the Company's
behalf.
Cash Flow Information
From inception to March 31, 1997, the Company has not paid any income taxes.
From inception to March 31, 1996, no interest was paid. For the year ending
March 31, 1997, the Company paid $274,993 in interest.
F-8
<PAGE>
Earnings Per Share
For the twelve months ended March 31, 1995, 1996 and 1997, and the period from
inception to March 31, 1997, per share amounts were based on weighted average
common shares outstanding of 1,508,000, 1,609,129, 1,988,365 and 1,624,895
shares, respectively. Convertible preferred stock, conversions of the Company's
convertible debt and the exercise of the Company's common stock options and
warrants were not included in the computation as the effects would have been
anti-dilutive.
3. INCOME TAXES:
The Company uses an asset and liability approach to account for income taxes.
Deferred income taxes (credit) reflect the impact of temporary differences
between amounts of assets and liabilities for financial reporting purposes and
such amounts as measured by tax laws. These temporary differences are determined
in accordance with Statement of Financial Accounting Standards (FAS) No. 109,
''Accounting for Income Taxes.'' The temporary difference and net operating loss
carryforward, which give rise to deferred tax assets at March 31, 1996 and 1997,
are as follows:
<TABLE>
<CAPTION>
March 31, 1996 MARCH 31, 1997
DEFERRED DEFERRED
TAX ASSET TAX ASSET
----------------- -----------------
<S> <C> <C>
Net operating loss carryforward $ 871,270 $ 1,969,962
Valuation allowance (871,270) (1,969,962)
--------- -----------
$ -- $ --
========= ===========
</TABLE>
The provision (credit) for income taxes is summarized as follows:
<TABLE>
<CAPTION>
Year Ended YEAR ENDED YEAR ENDED INCEPTION TO
MARCH 31, 1995 MARCH 31, 1996 MARCH 31, 1997 MARCH 31, 1997
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Current--
Federal $ -- $ -- $ -- $ --
State -- -- -- --
Deferred--
Federal (249,502) (327,033) (896,666) (1,607,966)
State (56,026) (73,683) (202,026) (361,996)
--------- --------- ----------- -----------
(305,528) (400,716) (1,098,692) (1,969,962)
Valuation allowance 305,528 400,716 1,098,692 1,969,962
--------- --------- ----------- -----------
$ -- $ -- $ -- $ --
========= ========= =========== ===========
</TABLE>
The income tax provision (credit) differs from amounts at the statutory
federal income tax rate as follows:
<TABLE>
<CAPTION>
Year Ended YEAR ENDED YEAR ENDED INCEPTION TO
MARCH 31, 1995 MARCH 31, 1996 MARCH 31, 1997 MARCH 31, 1997
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Income tax provision (credit) at
statutory rate $(272,760) $(359,313) $ (986,052) $(1,765,347)
Meals and entertainment 3,649 6,642 19,210 31,437
State income taxes (36,417) (48,045) (131,850) (236,052)
Valuation allowance 305,528 400,716 1,098,692 1,969,962
--------- --------- ---------- -----------
Income tax provision (credit) as
reported $ -- $ -- $ -- $ --
========= ========= ========== ===========
</TABLE>
At March 31, 1997, the Company has cumulative net operating loss carryforwards
aggregating $4,865,397 expiring between 2009 and 2012. At March 31, 1997, the
Company has recorded a valuation allowance related to its deferred tax assets
aggregating $1,969,962.
F-9
<PAGE>
4. DEBT:
A summary of debt outstanding at March 31, 1996 and 1997, is as follows:
<TABLE>
<CAPTION>
March 31, 1996 MARCH 31, 1997
-------------- --------------
<S> <C> <C>
Convertible Subordinated Debentures, Series 1, 25%, due 1998 $200,000 $52,702
Convertible Subordinated Debentures, Series 2, 25%, due 1999 140,000 28,849
Convertible Subordinated Debentures, Series 3, 25%, due 1998 150,000 --
Convertible Subordinated Debentures, Series 4, 25%, due 1999 200,000 --
Convertible Subordinated Debentures, Series 5, 25%, due 2000 196,854 --
-------- -------
Total $886,854 $81,551
======== =======
</TABLE>
All debentures are convertible to common stock based on a conversion ratio of
$2 to 1 share of common stock.
Conversion of $147,298 of the Series 1 convertible debentures occurred on May
17, 1996. Conversion of $111,151 of the Series 2 convertible debentures occurred
on April 28, 1996. Conversion of $150,000 of the Series 3 convertible debentures
occurred on November 14, 1996. Conversion of $200,000 of the Series 4
convertible debentures and $196,854 of the Series 5 convertible debentures
occurred on January 31, 1997.
Total debenture conversions to common stock for Series 1 through 5 convertible
debentures resulted in the issuance of 616,280 additional shares of common stock
between April 1996 and January 1997. (See ''Common Shares'' footnote for
conversion effects on common shares outstanding.)
During the period August 1994 to March 1996, the Company signed a series of
promissory notes aggregating $226,930 at March 31, 1996, with Kubasiak,
Cremieux, Flystra & Reigers, P.C. (Kubasiak). These notes accrued interest at a
rate of 9% and were due between February 1, 1995, and September 1, 1996. At
March 31, 1996, none of these promissory notes had been repaid and had accrued
interest aggregating $19,730. On July 1, 1996, Kubasiak canceled its notes that
were outstanding as of March 31, 1996, along with additional notes issued
through June 1996, and consolidated them into a single note, due January 2,
1997. This new note was paid in full on December 31, 1996.
5. COMMON SHARES:
On January 9, 1998, the common shareholders approved an amendment to the
Articles of Incorporation to increase the number of authorized common shares to
50,000,000 from 1,000,000. On the same date, the directors of the Company
declared a 1,000 for 1 share split of the Company's issued and outstanding
common shares. All common share amounts and per share amounts have been restated
to reflect this amendment and related split.
At March 31, 1996 and 1997, the Company has 50,000,000 shares of no par common
stock authorized, of which 1,683,000 and 2,374,343.6 are issued and outstanding,
respectively.
Changes in the Company's common shares and related amounts from the Company's
inception date through March 31, 1997, are as follows:
<TABLE>
<CAPTION>
COMMON
SHARES AMOUNT
------------- -------------
<S> <C> <C>
October 29, 1992 1,439,000.0 $ 1
January 4, 1993 8,000.0 16,000
August 29, 1993 15,000.0 30,000
December 6, 1993 46,000.0 92,000
----------- ----------
March 31, 1994 1,508,000.0 138,001
March 31, 1995 1,508,000.0 138,001
September 20, 1995 171,000.0 342,000
October 17, 1995 4,000.0 8,000
----------- ----------
March 31, 1996 1,683,000.0 488,001
April 28, 1996 84,490.0 168,980
May 17, 1996 146,540.0 293,080
November 14, 1996 115,410.0 230,820
January 28, 1997 75,063.6 188,721
January 31, 1997 269,840.0 539,680
----------- ----------
March 31, 1997 2,374,343.6 $1,909,282
=========== ==========
</TABLE>
F-10
<PAGE>
On October 29, 1992, the Company sold 1,439,000 shares to the shareholders of
21st Century Technology for an aggregate purchase price of $1. On January 4,
1993, the Company issued 8,000 shares of restricted stock, to officers of the
Company, at an estimated fair value of $2 per share. On August 29, 1993, the
Company exchanged 15,000 shares of common stock with an estimated fair value of
$2 per share for $30,000 of personal loans made to the Company by certain
directors of the Company. On December 6, 1993, the Company sold 46,000 shares of
common stock to certain shareholders of the Company at an estimated fair value
of $2 per share.
On September 20, 1995, the Company sold 171,000 shares of common stock to
various third-party investors for $342,000 at an estimated fair value of $2 per
share. On October 17, 1995, the Company issued 4,000 shares of restricted stock,
to an officer of the Company, at an estimated fair value of $2 per share.
As discussed earlier, Series 1 through 5 of the Company's convertible
debentures were converted to common stock throughout the year ended March 31,
1997. On April 28, 1996, debenture conversions of $111,151 in principal and
$57,829 in related interest resulted in the issuance of 84,490 shares of common
stock. On May 17, 1996, debenture conversions of $147,298 in principal and
$145,782 in related interest resulted in the issuance of 146,540 shares of
common stock. On November 14, 1996, debenture conversions of $150,000 in
principal and $80,820 in related interest resulted in the issuance of 115,410
shares of common stock. On January 31, 1997, debenture conversions of $396,854
in principal and $142,826 in related interest resulted in the issuance of
269,840 shares of common stock. The impacts of these noncash financing
activities are not included in the net cash provided or used by operating or
financing activities in the statements of cash flows.
The Company also had an arrangement with a law firm to compensate it for its
professional services by issuing 2,797.9 shares of common stock to it at a per
share price of $15.79, which was based upon the offering price of the Company's
preferred stock offering discussed below. The shares were issued on January 28,
1997.
Also on January 28, 1997, certain shareholders of Technology (a related party)
were allowed to purchase shares of the Company's common stock with the proceeds
from their loan repayment from Technology. This transaction resulted in the
issuance of 72,265.7 shares of additional common stock, at $2 per share.
In order to prepay the City's franchise fees, mentioned above, the Company
requested and received a $5 million Loan and Security Agreement on June 21,
1996, with LaSalle Northwest National Bank which expired on January 1, 1997. The
Company paid the loan including interest on January 31, 1997. Certain members of
the Company's Board of Directors had individually guaranteed the full line of
credit. The Company, in return for the Directors' guarantees, issued to the
Directors options to acquire 1,250,000 additional common shares of the Company,
at a price of $4 per share, exercisable until the expiration date of June 30,
2006. As of March 31, 1997, all options are outstanding.
In February 1997, the Company issued stock warrants representing 18,994.7
shares to its financial advisor at an exercise price of $15.79, aggregating
$300,000. The exercise price was based upon the offering price of the Company's
preferred stock offering discussed below. As of March 31, 1997, all warrants are
outstanding.
6. REDEEMABLE PREFERRED SHARES:
<TABLE>
<CAPTION>
PREFERRED
SHARES AMOUNT
--------- ---------------
March 31, 1996 -- --
January 30, 1997
<S> <C> <C>
Proceeds 1,380.3 $21,800,000
Issuance costs -- (1,446,396)
Accrued dividends -- 280,795
------- -----------
March 31, 1997 1,380.3 $20,634,399
======= ===========
</TABLE>
On January 30, 1997 several investors contracted with the Company to
purchase 1,380.3 shares of the Company's Class A Convertible 8% Cumulative
Preferred Stock and initial, secondary and debt warrants for a purchase price of
$15,793.84 per share, totaling $21.8 million. Issuance costs of $1,446,396 were
incurred in conjunction with the related stock purchase agreement. (The stock
purchase agreement was subsequently amended; see Note 11 ''Subsequent Events.'')
The Class A Convertible 8% Cumulative Preferred Stock and secondary warrants,
discussed below, are stated on the balance sheet at the original price paid by
the investors, less issuance costs, plus accrued and unpaid preferred stock
dividends. The initial purchase price of the Class A Convertible 8% Cumulative
Preferred Stock was never allocated between the preferred stock and the related
common stock warrants since management believes that the preferred stock will
ultimately be converted to common stock. Certain of the provisions of the
agreement are summarized below:
- -- Each preferred share is convertible into one thousand common shares.
- -- Dividends accrue daily on the aggregate amount paid at an annual rate of
8%. Unpaid dividends compound on a semi-annual basis on June 30 and
December 31. At the consummation of a qualified public offering, all
accrued and unpaid dividends would be converted into common stock without
the issuance of additional shares. A qualified public offering is one in
which (1) the public purchases at least $25 million of common stock, (2)
the price per share paid is at least twice the liquidation value per share
of the Class A Convertible 8% Cumulative Preferred Stock, (3) the common
stock is traded on a national exchange or The Nasdaq Stock Market, and (4)
the shares issued and sold represent at least 20% of the common stock
outstanding after the public offering.
- -- Upon consummation of a qualified public offering, all preferred shares are
required to be converted into common shares.
- -- At any time after the fourth anniversary of the date of the purchase and
before the earlier of the date of the consummation of a qualified public
offering or the seventh anniversary of the date of the purchase, each
holder of the stock has the right from time to time to require the Company
to repurchase all, but not less than all, of their shares held (the put
arrangement). The shares would be repurchased by the Company for the
greater of: (1) the purchase price paid by the holder of the stock, plus
all accrued and unpaid dividends, or (2) the market value of the shares.
- -- "Initial Warrants" were granted to the investors who may increase their
ownership percentage up to another 12%. These warrants expire on May 31,
2008. The warrants are exercisable at $.000001 per share of common stock
only if the Company does not meet certain pre-established performance
indicators. The Company has until May 31, 1998 to meet these performance
indicators.
- -- "Secondary Warrants" to purchase up to 1,331,774.8 shares of common stock
at $.000001 per share of common stock were also granted to the investors.
These secondary warrants expire on January 30, 2007.
- -- "Debt Warrants", in addition to the initial and secondary warrants
discussed above, will vest to the new investors if the Company does not
receive Board of Director approval by July 31, 1997, for a $50 million
senior debt financing arrangement. Under this provision the Company is to
issue warrants to purchase shares representing 2% of the outstanding common
stock on the first day of each month until the definitive document with
respect to such debt is in place. Any such warrants issued would expire ten
years from the date of issue. Any debt warrants would also be exercisable
at $.000001 per share of common stock.
F-11
<PAGE>
Of the $21.8 million, $21.7 million was received by March 31, 1997, with the
remainder received by April 22, 1997. The purchase resulted in the preferred
shareholders having an approximate 37% ownership interest in the Company on a
fully diluted basis excluding the contingently issuable common shares from the
exercise of the initial warrants and the debt warrants. The proceeds from this
preferred stock offering were used to (1) repay a $5 million revolving credit
note to LaSalle Northwest National Bank, (2) purchase the subscriber base of
Technology located in the Chicago franchise area for $3,381,000, (3) retire
existing Company debt and accounts payable in the amount of $541,166, and (4)
pay transaction costs of $1,446,396. The balance of the proceeds will be used
for working capital and capital expenditures to build the network, operating
center and network infrastructure.
The holders of the Class A Convertible 8% Cumulative Preferred Stock are
collectively in a position to control the taking of many significant corporate
actions by the Company, including the making of any significant capital
commitments, the incurrence of any significant indebtedness, mergers and the
payment of dividends on the Common Stock, pursuant to agreements which provide
that prior to taking such actions, the Company will need to obtain the approval
of the nominees to the Board of Directors of the holders of the Class A
Convertible 8% Cumulative Preferred Stock. These restrictions terminate upon the
consummation of a qualified public offering.
7. RESTRICTED STOCK AWARDS:
The Company has awarded restricted stock to certain officers. The restricted
shares vest over a 33-month period. Vested shares are subject to certain
transfer restrictions and forfeiture under certain circumstances. Unearned
compensation, representing the fair value of the stock on the date of award
(estimated at $2 by management), is amortized to salary expense over the vesting
period. During the period from inception to March 31, 1994, 8,000 shares of
restricted stock were issued and were fully vested at March 31, 1996. In October
1995, an additional 4,000 shares of restricted stock were awarded.
8. PREPAID FRANCHISE FEES:
As mentioned earlier, the Company was required to prepay $3,000,000 of
franchise fees within 120 days of being awarded the franchise by the City. In
accordance with the franchise agreement, the prepaid franchise fees earn
interest for the period outstanding at a rate equal to the Company's cost of
borrowed funds. The rate on the Company's $5 million loan with LaSalle Northwest
National Bank of approximately 10% was used to compute the interest earned on
the prepaid franchise fees. The interest accrued on the prepaid franchise fees
for the year ended March 31, 1997, amounted to $216,575. These prepaid franchise
fees will be reduced over time as revenues are billed to customers.
9. RELATED-PARTY TRANSACTIONS:
The Company is related through some common ownership and common management to
Technology.
Activities pertaining to the Company's development from its inception date to
March 31, 1996, have, for the most part, been intermingled with the activities
of Technology. As discussed in Note 2, from inception to March 31, 1996,
operating expenses, except interest and amortization, have been allocated to the
Company based on estimates of time spent on the Company's activities by
employees of Technology.
In January 1997, the Company purchased Technology's Area 1 subscriber base and
related equipment for $3,381,300. As this is considered to be a related party
transaction, the Company could only capitalize Technology's book value of the
purchased subscribers and the related equipment. As Technology's book value was
zero at the time of purchase, the entire purchase price is shown as a reduction
to common shareholders' equity.
In January 1997, the Company paid approximately $459,000 of accrued legal fees
to one of its directors, either individually or to entities controlled by him,
for legal services rendered by him to the Company in connection with the
Company's cable service offering and its obtaining the Chicago franchise.
F-12
<PAGE>
10. COMMITMENTS AND CONTINGENCIES:
The Company obtained two letters of credit totaling $1,796,880. The first
letter, for $500,000, was obtained as part of the franchise agreement mentioned
earlier and expires on February 10, 1998. The second letter is for the benefit
of the Merchandise Mart totaling $1,296,880 and was obtained in place of a
security deposit related to the Merchandise Mart lease. This letter
automatically renews on an annual basis for 1/15 less than the initial amount.
These letters of credit are fully collateralized by cash, which is reflected as
a restricted cash collateral reserve on the balance sheet. The Company invests
the cash in commercial paper which matures daily. As of March 31, 1997, the
commercial paper investments had earned $11,411 in interest income.
On January 31, 1997, the Company entered into a lease agreement with the
Merchandise Mart beginning July 1, 1997 for 32,422 square feet, which will
increase by 7,975 square feet within four years. The leased space will house all
video and head-end equipment, as well as serve as the corporate offices. The
term of the lease is fifteen years and will result in total lease payments of
$13,899,128 over the life of the lease. The Company has contracted with a
construction company for the buildout of the leased space, totaling
approximately $4.5 million. Of this amount, the Merchandise Mart is responsible
for $1,296,880 under the lease agreement. The Company is responsible for the
remainder.
11. SUBSEQUENT EVENTS:
On July 1, 1997, the Company entered into an open-ended master fleet lease
with Enterprise Leasing Company. The agreement allows the Company to lease
vehicles as they are needed. Total lease payments are therefore dependent upon
the types and quantities of vehicles leased.
Subsequent to March 31, 1997, the Company incurred approximately $15 million
in capital expenditures.
On September 23, 1997, the Company entered into an agreement for the issuance
of additional preferred stock representing 63.3 shares at a purchase price of
$15,793.84 per share, aggregating $1 million. The Company incurred issuance
costs of $60,000 in conjunction with this transaction. The agreement is based on
the same terms as the previously mentioned $21.8 million preferred stock
issuance.
On November 20, 1997, the Company entered into an agreement for the issuance
of additional preferred stock representing 9.5441 shares at a purchase price of
$15,793.84 per share, aggregating approximately $150,000. The agreement is based
on the same terms as the previously mentioned $21.8 million preferred stock
issuance.
On November 25, 1997, the Company entered into an agreement with Credit Suisse
First Boston Corporation (a Swiss bank), BankBoston, N.A. and Bank of America
NT&SA, establishing a $15 million interim credit facility. This interim credit
facility and accrued interest was repaid from the proceeds of a concurrent
preferred equity and high yield debt offering. The concurrent preferred equity
and high yield debt offering, executed on February 9, 1998, consists of $200
million of senior discount notes and $50 million of senior exchangeable
preferred stock. The interim credit facility provided for an interest rate based
on either (i) 5% plus a rate tied to the prime rate, a certificate-of-deposit
rate or the Federal funds rate or (ii) 6% plus the London interbank offered
rate. To secure this interim credit facility the Company granted the lender a
security interest in substantially all of its properties, and certain holders of
the Company's common stock pledged such stock for the benefit of the lenders.
This interim credit facility contained restrictive covenants typical for a
facility of this type.
Effective January 30, 1997, the Company established a common stock option
plan. No options were granted under the plan until October 14, 1997. The options
expire ten years from the date of grant. The exercise price of each option is
$1.12 per share and the Company estimated the fair market value of each option
to be $4.50 at the date of grant. As of December 31, 1997, the maximum number of
options, 728,667.7, were granted under the terms of the plan. The options vest
over 48 months and the vesting period starts from the date of employment. The
beginning vesting dates range from November 11, 1992, to December 26, 1997.
F-13
<PAGE>
During December 1997, the Company and its Class A Convertible 8% Cumulative
Preferred Stock shareholders negotiated a number of changes to the original
Stock Purchase Agreement. While these changes were formally ratified on January
8 and 14, 1998, the Company and the Class A preferred shareholders had reached
agreement on the substance of the changes prior to December 31, 1997. The
original put arrangement as discussed in Note 6 was removed and was replaced by
the right of the Class A preferred shareholders to require the sale of the
Company. The new provision provides that at any time and from time to time after
the fourth anniversary of the date of issuance of the senior discount notes and
senior cumulative exchangeable preferred stock (discussed in Note 1) and ending
on the earlier to occur of the consummation of a qualified public offering and
the seventh anniversary of the date of issuance of the senior discount notes,
the Class A preferred shareholders have the right to require the sale of the
Company. The liquidation value of the preferred stock is the sum of the original
cost plus any accrued and unpaid dividends. The right to obtain additional
common shares under the initial warrant and debt warrant provisions as discussed
in Note 6 was removed and was replaced by an agreement to increase the Class A
preferred shareholders ownership on a fully diluted basis by an additional 8% by
issuing additional common stock. One-half of this additional stock is voting and
the other half is non-voting. In addition, the holders of the Class A preferred
stock are collectively in a position to control the taking of many significant
corporate actions by the Company, including the making of any significant
capital commitments, the incurrence of any significant indebtedness, merger and
the payment of dividends on the common stock, pursuant to agreements which
provide that prior to taking such actions, the Company will need to obtain the
approval of the nominees to the Board of Directors of the holders of the Class A
preferred stock. These restrictions on corporate actions by the Company
terminate upon consummation of a qualified public offering.
Subsequent to year end, the Company obtained the approval of the common
shareholders for an amendment to the Articles of Incorporation to authorize
1,000,000 shares of non-voting common stock. Since the Company and its Class A
Convertible 8% Cumulative Preferred Stock shareholders had reached agreement on
the substance of the changes discussed above, the Company will reflect the
outstanding Class A Convertible 8% Cumulative Preferred Stock as permanent
equity as of December 31, 1997. In addition, the Company will reflect the
additional voting and non-voting common stock resulting from the change in the
initial and debt warrant provisions as outstanding at December 31, 1997.
12. NEW ACCOUNTING PRONOUNCEMENTS ISSUED BUT NOT YET EFFECTIVE:
In February 1997, the Financial Accounting Standards Board (FASB) issued FAS
No. 128, ''Earnings per Share.'' This statement establishes standards for
computing and presenting earnings per share (EPS). It requires dual presentation
of basic and diluted EPS and requires a reconciliation of the numerator and
denominator of the basic EPS computation to the numerator and denominator of the
diluted EPS computation. The statement is effective for financial statements
issued for periods ending after December 15, 1997, with early application
prohibited. The Company does not expect adoption of this standard to have an
impact on the basic loss per common share reflected in the financial statements
given the anti-dilutive effects of including potential common shares in the
denominator of the diluted EPS calculation.
F-14
<PAGE>
21ST CENTURY TELECOM GROUP, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
AS OF DECEMBER 31, 1997
<TABLE>
<CAPTION>
ASSETS December 31, 1997
------ ------------------
(Unaudited)
<S> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 1,404,975
Accounts receivable from subscribers 19,222
Prepayments 6,750
Inventory 678,866
------------
Total current assets 2,109,813
PROPERTY, PLANT AND EQUIPMENT:
Leasehold improvements 3,984,541
Other property, plant and equipment 11,270,073
Less--Accumulated depreciation (473,725)
------------
14,780,889
OTHER ASSETS:
Restricted cash collateral reserve 1,796,880
Accounts receivable from associated company 1,156,780
Prepaid franchise fees 3,442,603
Deferred franchise costs, net of amortization of $451,707 445,549
Deferred mapping and design, net of amortization of $46,977 90,974
Other deferred costs 12,000
------------
Total other assets 6,944,786
------------
Total assets $ 23,835,488
============
LIABILITIES AND PREFERRED AND COMMON EQUITY
-------------------------------------------
CURRENT LIABILITIES:
Accounts payable and other accrued liabilities $ 6,352,103
Debentures payable 52,702
Interest payable 107,677
Interim credit facility 8,000,000
Accounts payable to associated company 1,294,860
------------
Total current liabilities 15,807,342
NONCURRENT LIABILITIES:
Debentures payable 28,849
Interest payable 37,957
------------
Total noncurrent liabilities 66,806
SHAREHOLDERS' EQUITY:
Class A convertible 8% cumulative preferred stock, no par value, 1,453.1 shares
outstanding and 1,222,569.0 related common share warrants outstanding 23,074,331
Common stock, no par value, 2,910,776.5 shares outstanding 2,787,782
Non-Voting common stock, no par value, 522,032.3 shares outstanding --
Deficit accumulated during development stage (14,519,473)
Related party purchase, in excess of cost (3,381,300)
------------
Total common shareholders' equity 7,961,340
------------
Total liabilities and equity $ 23,835,488
============
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-15
<PAGE>
21ST CENTURY TELECOM GROUP, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED STATEMENTS OF INCOME
FOR THE NINE MONTHS ENDED DECEMBER 31, 1996 AND 1997
AND FOR THE PERIOD FROM INCEPTION (OCTOBER 29, 1992) TO DECEMBER 31, 1997
<TABLE>
<CAPTION>
OCT. 29, 1992
Nine Months Ended NINE MONTHS ENDED TO
DECEMBER 31, 1996 DECEMBER 31, 1997 DECEMBER 31, 1997
---------------------- ------------------- -------------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Subscriber revenues $ -- $ 123,532 $ 151,012
Operating expenses 190,817 413,979 624,507
Selling, general and administrative expenses 1,572,936 7,276,439 11,303,867
Depreciation and amortization 114,734 643,427 972,410
----------- ----------- ------------
Operating loss (1,878,487) (8,210,313) (12,749,772)
Interest income 142,603 484,678 786,302
Interest expense 376,828 119,226 925,240
----------- ----------- ------------
Loss before income taxes (2,112,712) (7,844,861) (12,888,710)
PROVISION (CREDIT) for INCOME TAXES -- -- --
----------- ----------- ------------
NET LOSS (2,112,712) (7,844,861) (12,888,710)
Preferred dividend requirements -- (1,349,934) (1,630,729)
----------- ----------- ------------
NET LOSS ATTRIBUTABLE to COMMON
SHARES $(2,112,712) $(9,194,795) $(14,519,439)
=========== =========== ============
Weighted average common shares outstanding 1,900,527 2,384,722 1,735,848
LOSS PER COMMON SHARE $(1.11) $(3.86) $(8.36)
=========== =========== ============
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-16
<PAGE>
21ST CENTURY TELECOM GROUP, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED DECEMBER 31, 1996 AND 1997
AND FOR THE PERIOD FROM INCEPTION (OCTOBER 29, 1992) TO DECEMBER 31, 1997
<TABLE>
<CAPTION>
OCT. 29, 1992
Nine Months Ended NINE MONTHS ENDED TO
DECEMBER 31, 1996 DECEMBER 31, 1997 DECEMBER 31, 1997
-------------------- ------------------- -------------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Net cash used by operating activities $(5,006,135) (5,987,369) (14,094,373)
Net cash used in investing activities--
Purchase of subscribers from affiliate -- -- (3,381,300)
Investment in subsidiaries -- (2,000) (2,000)
Investment in franchises -- (10,000) (10,000)
Capital expenditures (47,118) (10,002,597) (10,249,460)
----------- ------------ ------------
Net cash used in investing activities (47,118) (10,014,597) (13,642,760)
----------- ------------ ------------
Cash flows from financing activities--
Draw on loan 4,954,762 -- --
Proceeds from interim credit facility -- 8,000,000 8,000,000
Cash paid for letters of credit -- -- (1,796,880)
Proceeds from issuance of debentures 153,664 -- 886,854
Proceeds from issuance of preferred stock, net of
issuance costs -- 1,175,999 21,443,603
Proceeds from issuance of common stock -- -- 608,531
----------- ------------ ------------
Net cash provided by financing activities 5,108,426 9,175,999 29,142,108
----------- ------------ ------------
Net increase (decrease) in cash 55,173 (6,825,967) 1,404,975
Cash at beginning of period 956 8,230,942 --
----------- ------------ ------------
Cash at end of period $ 56,129 $ 1,404,975 $ 1,404,975
=========== ============ ============
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-17
<PAGE>
21ST CENTURY TELECOM GROUP, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED DECEMBER 31, 1996 AND 1997
AND FOR THE PERIOD FROM INCEPTION (OCTOBER 29, 1992) TO DECEMBER 31, 1997
1. PREPARATION OF INTERIM FINANCIAL STATEMENTS:
The interim financial statements included herein have been prepared by the
Company, without audit, pursuant to the rules and regulations of the Securities
and Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations. These financial statements include estimates and assumptions that
affect the reported amounts of assets and liabilities and the amounts of
revenues and expenses. Actual amounts could differ from those estimates.
However, in the opinion of management of the Company, the interim financial
statements include all adjustments, consisting only of normally recurring
adjustments, necessary for a fair statement of results for each period shown.
The interim financial statements should be read in conjunction with the
financial statements and notes thereto for the fiscal year ended March 31, 1997,
included in this Prospectus.
2. LEASING ACTIVITIES:
On July 1, 1997, the Company entered into an open-ended master fleet lease
with Enterprise Leasing Company. The agreement allows the Company to lease
vehicles as they are needed. Total lease payments are therefore dependent upon
the types and quantities of vehicles leased. Through December 31, 1997, eleven
vehicles had been leased at an annual cost of $130,913 for all eleven vehicles.
The respective leases range from three to four years.
3. STOCK OPTION PLAN:
As a result of the common stock option plan, under which the first options
were granted in October 1997, the Company recorded $849,700 of compensation
expense for the nine months ended December 31, 1997, to reflect the vesting
periods for the various individuals in the plan.
F-18
<PAGE>
No dealer, salesperson or other person has been authorized to give any
information or to make any representation not contained in this Prospectus and,
if given or made, such information or representation must not be relied upon as
having been authorized by the Company or any Initial Purchasers. This Prospectus
does not constitute an offer to sell or a solicitation of an offer to buy any of
the securities offered hereby in any jurisdiction to any person to whom it is
unlawful to make such offer in such jurisdiction. Neither the delivery of this
Prospectus nor any sale made hereunder shall, under any circumstances, create
any implication that the information herein is correct as of any time subsequent
to the date hereof or that there has been no change in the affairs of the
Company since such date.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary...................................
Risk Factors.........................................
Use of Proceeds......................................
Dividend Policy......................................
Capitalization.......................................
Selected Financial Data..............................
Management's Discussion and Analysis of Financial
Condition and Results of Operations................
The Exchange Offer...................................
Business.............................................
Industry Structure and Technology....................
Legislation and Regulation...........................
Management...........................................
Certain Transactions.................................
Principal Shareholders...............................
Description of Certain Indebtedness..................
Description of the New Notes.........................
Description of the New Exchangeable
Preferred Stock....................................
Description of the Exchange Debentures...............
Book-Entry, Delivery and Form........................
Description of Capital Stock.........................
Certain United States Federal Income
Tax Consequences...................................
Plan of Distribution.................................
Notice to Canadian Residents.........................
Legal Matters........................................
Experts..............................................
Additional Information...............................
Glossary.............................................
Index to Financial Statements........................
</TABLE>
LOGO
21ST CENTURY TELECOM GROUP, INC.
Offer to Exchange (i) 12 1/4% Senior Discount Notes Due 2008, which have been
registered under the Securities Act of 1933, as amended, for any and all of its
outstanding 12 1/4% Senior Discount Notes Due 2008 and (ii) 13 3/4% Senior
Cumulative Exchangeable Preferred Stock Due 2010, which has been registered
under the Securities Act of 1933, as amended, for any and all of its outstanding
13 3/4% Senior Cumulative Exchangeable Preferred Stock Due 2010
____________
PROSPECTUS
____________
March [__], 1998
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers
The Illinois Business Corporation Act (the "Act") empowers the Registrant,
subject to certain exceptions, to indemnify officers and directors against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement incurred by reason of the fact that he or she is or was an officer,
director, employee or agent of the Registrant, or is or was serving as such at
the request of the Registrant with respect to another corporation, partnership,
joint venture, trust, or other enterprise. The Act also empowers the Registrant
to purchase and maintain insurance on behalf of any such officer or director of
the Registrant against any liability asserted against or incurred by him or her
in any such capacity, whether or not the Registrant would have power to
indemnify such officer or director against such liability under the provisions
of the Act.
Article X, of the Company's Bylaws provides that the Company shall
indemnify, any person made a party to any action, suit or proceeding, by reason
of the fact that such person is or was a director, officer or employee of the
Company, or is or was serving at the request of the Company as a director,
officer or employee of another corporation, from and against all reasonable
expenses (including attorneys' fees), actually and necessarily incurred by him
in connection with the defense of such action, suit or proceeding or in
connection with any appeal therein, except in relation to matters as to which it
shall be adjudged in such action, suit or proceeding, or in connection with any
appeal therein that such officer, director or employee is liable for negligence
or misconduct in performance of his duties. The amount of such indemnification
shall be fixed by the Board of Directors, except in the case when there is no
disinterested majority of the Board available, that amount shall be fixed by
arbitration pursuant to the then existing rules of the American Arbitration
Association.
The Registrant has purchased and currently maintains liability coverage for
its officers and directors insuring them against losses arising from any
wrongful act in his or her capacity as an officer and director.
<PAGE>
Item 21. Exhibits and Financial Statement Schedules
(a) Exhibits
Exhibit
No.
Exhibit No. Document
1.1 Purchase Agreement dated as of February
2, 1998 by and among the Company and
Credit Suisse First Boston Corporation,
BancAmerica Robertson Stephens and
BancBoston Securities, Inc., as Initial
Purchasers.
3.1 Amended Articles of Incorporation of
the Company filed on February 9, 1998.
3.2 By-laws of the Company.
4.1 Indenture dated February 15, 1998
between the Company, as Issuer, and
State Street Bank and Trust, as
Trustee, with respect to the 12 1/4
Senior Discount Notes Due 2008.
4.2 Form of the 12 1/4 Senior Discount
Notes Due 2008.
4.3 Indenture dated as of February 15, 1998
between the Company and IBJ Schroder
Bank & Trust Company, as Trustee, with
respect to the Exchange Debenture.
4.4 Form of the 13 3/4% Senior Cumulative
Exchangeable Preferred Stock Due 2010.
4.5 Registration Rights Agreement dated as
of February 2, 1998 by and among the
Company and Credit Suisse First Boston
Corporation, BancAmerica Robertson
Stephens and BancBoston Securities,
Inc., as Initial Purchasers.
5.1 Opinion of Neal, Gerber and Eisenberg.
5.2 Opinion of Piper & Marbury LLP.
10.1 Franchise Agreement dated as of June
24, 1996 by and among the City of
Chicago and the Company.
10.2 License Agreement dated as of October
27, 1994 by and among the Chicago
Transit Authority and the Company.
10.3* CSG Master Subscriber Management System
Agreement dated as of May 28, 1997 by
and among CSG Systems, Inc. and the
Company.
10.4* Telemarketing Consultation Agreement
dated as of August 5, 1997 by and among
the Company and ITI Marketing Services,
Inc.
10.5* Pole Attachment Agreement dated as of
April 3, 1996 by and among the Company
and Commonwealth Edison Company.
10.6* Pole Attachment Agreement dated as of
November 14, 1996 by and among the
Company and Ameritech--Illinois.
10.7* Office Lease dated January 31, 1997 by
and among the Company and LaSalle
National Bank.
12.1 Statement regarding Computation of
Earnings Ratio to Fixed Charges.
21.1* Subsidiaries of the Company.
23.1 Consent of Arthur Andersen with Respect
to the Company.
23.2 Consent of Piper & Marbury LLP
(incorporated by reference to Exhibit
5.2).
24.1 Power of Attorney (included on the
signature page of this Registration
Statement).
25.1 Statement of Eligibility of State
Street Bank and Trust, as Trustee.
99.1 Form of Letter of Transmittal to 12 1/4%
Senior Discount Notes Due 2008 of the
Company.
99.2 Form of Letter of Transmittal to 13 3/4%
Senior Cumulative Exchangeable
Preferred Stock Due 2010 of the Company.
99.3 Form of Notice of Guaranteed Delivery
for 12-1/4% Senior Discount Notes Due
2008.
99.4 Form of Notice of Guaranteed Delivery
for 13-3/4% Senior Cumulative
Exchangeable Preferred Stock Due 2010.
99.5 Form of Letter to Brokers, Dealers,
Commercial Banks, Trust Companies and
Other Nominees for 12-1/4% Senior
Discount Notes Due 2008.
99.6 Form of Letter to Brokers, Dealers,
Commercial Banks, Trust Companies and
Other Nominees for 13-3/4% Senior
Cumulative Exchangeable Preferred Stock
Due 2010.
99.7 Form of Letter to Clients of Brokers,
Dealers, Commercial Banks, Trust
Companies and Other Nominees for
12-1/4% Senior Discount Notes Due 2008.
99.8 Form of Letter to Clients of Brokers,
Dealers, Commercial Banks, Trust
Companies and Other Nominees for
13-3/4% Senior Cumulative Exchangeable
Preferred Stock Due 2010.
99.9 Form of Instruction from Owner of 12
1/4% Senior Discount Notes Due 2008 of
the Company.
99.10 Form of Instruction from Owner of 13
3/4% Senior Cumulative Exchangeable
Preferred Stock of the Company.
- -------------
* To be filed by amendment.
<PAGE>
Item 22.
UNDERTAKINGS
(a) The undersigned Company hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement ; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(4) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Company pursuant to the foregoing provisions, or otherwise, the
Company has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company of expenses
incurred or paid by a director, officer or controlling person of the Company in
the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
(5) To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Item 4, 10(b), 11 or 13 of this form,
within on business day of receipt of such request, and to send the incorporated
documents by first class mail or other equally prompt means. This includes
information contained in documents filed subsequent to the effective date of the
registration statement through the date of responding to the request.
(6) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein, that
was not the subject of and included in the registration statement when it became
effective.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the city of Chicago,
state of Illinois, on March 2, 1998.
21st CENTURY TELECOM GROUP, INC.
/s/ Ronald D. Webster
-----------------------------------------------------
By: Ronald D. Webster, Chief Financial Officer
POWER OF ATTORNEY
Each person whose signature appears below in so signing also makes,
constitutes and appoints Ronald D. Webster and Edwin M. Martin, Jr., and each of
them acting alone, his true and lawful attorney-in-fact, with full power of
substitution, for him in any and all capacities, to execute and cause to be
filed with the Securities and Exchange Commission any and all amendments and
post-effective amendments to this Registration Statement on Form S-4, with
exhibits thereto and other documents in connection therewith, and hereby
ratifies and confirms all that said attorney-in-fact or his substitute or
substitutes may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Glenn W. Milligan Chief Executive Officer and
- ----------------------------- Chairman of the Board of Directors March 2, 1998
Glenn W. Milligan (Principal Executive Officer)
President, Chief Operating March 2, 1998
/s/ Robert J. Currey Officer and Director
- -----------------------------
Robert J. Currey
/s/ Ronald D. Webster Chief Financial Officer March 2, 1998
- -----------------------------
Ronald D. Webster
/s/ Jay E. Carlson Chief Technical Officer March 2, 1998
- -----------------------------
Jay E. Carlson
/s/ Edward T. Joyce Director March 2, 1998
- -----------------------------
Edward T. Joyce
/s/ Dr. Charles E. Kaegi Director March 2, 1998
- -----------------------------
Dr. Charles E. Kaegi
/s/ James H. Lowry Director March 2, 1998
- -----------------------------
James H. Lowry
/s/ David Kronfeld Director March 2, 1998
- -----------------------------
David Kronfeld
/s/ Thomas Neustaetter Director March 2, 1998
- -----------------------------
Thomas Neustaetter
</TABLE>
<PAGE>
EXHIBIT INDEX
Exhibit No. Document
1.1 Purchase Agreement dated as of February
2, 1998 by and among the Company and
Credit Suisse First Boston Corporation,
BancAmerica Robertson Stephens and
BancBoston Securities, Inc., as Initial
Purchasers.
3.1 Amended Articles of Incorporation of
the Company filed on February 9, 1998.
3.2 By-laws of the Company.
4.1 Indenture dated February 15, 1998
between the Company, as Issuer, and
State Street Bank and Trust, as
Trustee, with respect to the 12 1/4
Senior Discount Notes Due 2008.
4.2 Form of the 12 1/4 Senior Discount
Notes Due 2008.
4.3 Indenture dated as of February 15, 1998
between the Company and IBJ Schroder
Bank & Trust Company, as Trustee, with
respect to the Exchange Debenture.
4.4 Form of the 13 3/4% Senior Cumulative
Exchangeable Preferred Stock Due 2010.
4.5 Registration Rights Agreement dated as
of February 2, 1998 by and among the
Company and Credit Suisse First Boston
Corporation, BancAmerica Robertson
Stephens and BancBoston Securities,
Inc., as Initial Purchasers.
5.1 Opinion of Neal, Gerber and Eisenberg.
5.2 Opinion of Piper & Marbury LLP.
10.1 Franchise Agreement dated as of June
24, 1996 by and among the City of
Chicago and the Company.
10.2 License Agreement dated as of October
27, 1994 by and among the Chicago
Transit Authority and the Company.
10.3* CSG Master Subscriber Management System
Agreement dated as of May 28, 1997 by
and among CSG Systems, Inc. and the
Company.
10.4* Telemarketing Consultation Agreement
dated as of August 5, 1997 by and among
the Company and ITI Marketing Services,
Inc.
10.5* Pole Attachment Agreement dated as of
April 3, 1996 by and among the Company
and Commonwealth Edison Company.
10.6* Pole Attachment Agreement dated as of
November 14, 1996 by and among the
Company and Ameritech--Illinois.
10.7* Office Lease dated January 31, 1997 by
and among the Company and LaSalle
National Bank.
12.1 Statement regarding Computation of
Earnings Ratio to Fixed Charges.
21.1* Subsidiaries of the Company.
23.1 Consent of Arthur Andersen with Respect
to the Company.
23.2 Consent of Piper & Marbury LLP
(incorporated by reference to Exhibit
5.2).
24.1 Power of Attorney (included on the
signature page of this Registration
Statement).
<PAGE>
25.1 Statement of Eligibility of State
Street Bank and Trust, as Trustee.
99.1 Form of Letter of Transmittal to 12 1/4%
Senior Discount Notes Due 2008 of the
Company.
99.2 Form of Letter of Transmittal to 13 3/4%
Senior Cumulative Exchangeable
Preferred Stock Due 2010 of the Company.
99.3 Form of Notice of Guaranteed Delivery
for 12-1/4% Senior Discount Notes Due
2008.
99.4 Form of Notice of Guaranteed Delivery
for 13-3/4% Senior Cumulative
Exchangeable Preferred Stock Due 2010.
99.5 Form of Letter to Brokers, Dealers,
Commercial Banks, Trust Companies and
Other Nominees for 12-1/4% Senior
Discount Notes Due 2008.
99.6 Form of Letter to Brokers, Dealers,
Commercial Banks, Trust Companies and
Other Nominees for 13-3/4% Senior
Cumulative Exchangeable Preferred Stock
Due 2010.
99.7 Form of Letter to Clients of Brokers,
Dealers, Commercial Banks, Trust
Companies and Other Nominees for
12-1/4% Senior Discount Notes Due 2008.
99.8 Form of Letter to Clients of Brokers,
Dealers, Commercial Banks, Trust
Companies and Other Nominees for
13-3/4% Senior Cumulative Exchangeable
Preferred Stock Due 2010.
99.9 Form of Instruction from Owner of 12
1/4% Senior Discount Notes Due 2008 of
the Company.
99.10 Form of Instruction from Owner of 13
3/4% Senior Cumulative Exchangeable
Preferred Stock of the Company.
- -------------
* To be filed by amendment.
<PAGE>
Exhibit 1.1
21ST CENTURY TELECOM GROUP, INC.
$200,000,000 (Gross Proceeds) 12 1/4% Senior Discount Notes Due 2008
$50,000,000 Representing 50,000 Units
consisting of
13 3/4 % Senior Cumulative Exchangeable Preferred Stock Due 2010
and
Warrants to Purchase 438,870 Shares of Common Stock
PURCHASE AGREEMENT
------------------
February 2, 1998
Credit Suisse First Boston Corporation
BancAmerica Robertson Stephens
BancBoston Securities Inc.
c/o Credit Suisse First Boston Corporation
Eleven Madison Avenue
New York, N.Y. 10010-3629
Dear Sirs:
1. Introductory. 21st Century Telecom Group, Inc., an Illinois
corporation (the "Company"), proposes, subject to the terms and conditions
stated herein, to issue and sell to the several initial purchasers named in
Schedule A hereto (the "Purchasers") U.S. $200,000,000 (Gross Proceeds) in
aggregate initial principal amount of its 12 1/4% Senior Discount Notes Due 2008
(the "Notes") with a principal amount at maturity of $363,135,000 and 50,000
Units (the "Units"), each Unit consisting of one share of its 13 3/4% Senior
Cumulative Exchangeable Preferred Stock Due 2010 (the "Exchangeable Preferred
Stock") and one Warrant (each, a "Warrant") to purchase 8.7774 shares of common
stock, no par value (the "Common Stock") of the Company at an exercise price of
$.01 per share. The Company may, at its option (on any scheduled dividend
payment date) exchange all but not less than all the shares of Exchangeable
Preferred Stock then outstanding for the Company's 13 3/4% Subordinated
Exchange Debentures Due 2010 (the "Exchange Debentures"). The Notes and the
Units are collectively referred to herein as the "Offered Securities" and are
offered on a private placement basis pursuant to the exemption provided by
Section 4(2) and Regulation S of the United States Securities Act of 1933 (the
"Securities Act"). The Notes are to be issued under an indenture dated as of
February 1, 1998 (the "Notes Indenture"), between the Company and State Street
Bank and Trust Company, as trustee (the "Notes Trustee"). The Exchangeable
Preferred Stock will be issued pursuant to an amendment to the Articles of
Incorporation of the Company (the "Amended Charter"). Boston EquiServe Trust
Company shall act as transfer agent (the "Transfer Agent") for the
<PAGE>
2
Exchangeable Preferred Stock. The Exchange Debentures, if issued, will be issued
under the Exchange Indenture dated as of February 1, 1998 (the "Exchange
Indenture" and, together with the Notes Indenture, the "Indentures"), between
the Company and State Street Bank and Trust Company, as trustee (the "Exchange
Debenture Trustee"and, together with the Notes Trustee, the "Trustees"). The
Warrants will be issued pursuant to a warrant agreement dated as of February 1,
1998 (the "Warrant Agreement") between the Company and Boston EquiServe Trust
Company, as warrant agent (the "Warrant Agent").
Holders of the Notes and the Exchangeable Preferred Stock will be entitled
to the benefits of a Registration Rights Agreement (the "Registration Rights
Agreement") dated the date hereof, among the Company and the Purchasers.
This Agreement, the Indentures, the Amended and Restated Charter, the
Warrant Agreement and the Registration Rights Agreement are referred to herein
collectively as the "Operative Documents."
The Company hereby agrees with the several Purchasers as follows:
2. Representations and Warranties of the Company. The Company represents
and warrants to, and agrees with, the several Purchasers that:
(a) A preliminary offering circular and an offering circular relating to
the Offered Securities have been prepared by the Company. Such preliminary
offering circular and offering circular, as both are supplemented as of the date
of this Agreement, together with any other document approved by the Company for
use in connection with the contemplated resale of the Offered Securities, are
hereinafter collectively referred to as the "Offering Document." On the date of
this Agreement, the Offering Document does not include any untrue statement of a
material fact or omit to state any material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading. The preceding sentence does not apply to statements in or
omissions from the Offering Document based upon written information furnished to
the Company by any Purchaser through Credit Suisse First Boston Corporation
("CSFBC") specifically for use therein, it being understood and agreed that the
only such information is that described as such in Section 7(b) hereof.
(b) The Exchangeable Preferred Stock has been duly authorized and, when
the shares of Exchangeable Preferred Stock have been delivered and paid for in
accordance with this Agreement on the Closing Date (as defined below), such
shares of Exchangeable Preferred Stock will have been validly issued, fully paid
and nonassessable and will conform to the description thereof contained in the
Offering Document; shares of Exchangeable Preferred Stock have been duly and
validly authorized and reserved for issuance upon payment of dividends on the
Exchangeable Preferred Stock in additional shares of Exchangeable Preferred
Stock and when so issued will be fully paid and nonassessable; the issuance of
any shares of Exchangeable Preferred Stock is not subject to preemptive or other
similar rights.
(c) The Notes Indenture has been duly authorized; the Notes have been duly
authorized; on the Closing Date, the Notes Indenture will have been duly
executed and delivered by the Company; and when the Notes are delivered and paid
for pursuant to this Agreement on the Closing Date, such Notes will have been
duly executed, authenticated, issued and delivered and will conform to the
description thereof contained in the Offering Document and will be entitled
<PAGE>
3
to the benefits of the Notes Indenture, and the Notes Indenture and such Notes
will constitute valid and legally binding obligations of the Company,
enforceable in accordance with their terms, subject to bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium and similar laws of general
applicability relating to or affecting creditors' rights and to general equity
principles (regardless of whether enforceability is considered in a proceeding
at law or in equity).
(d) The Exchange Indenture has been duly authorized; the Exchange
Debentures have been duly authorized; on the Closing Date, the Exchange
Indenture will have been duly executed and delivered by the Company; and if and
when the Exchange Debentures are delivered and paid for pursuant to this
Agreement, such Exchange Debentures will be duly executed, authenticated, issued
and delivered and will conform to the description thereof contained in the
Offering Document and will be entitled to the benefits of the Exchange
Indenture, and the Exchange Indenture and such Exchange Debentures will
constitute valid and legally binding obligations of the Company, enforceable in
accordance with their terms, subject to bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium and similar laws of general applicability
relating to or affecting creditors' rights and to general equity principles
(regardless of whether enforceability is considered in a proceeding at law or in
equity).
(e) The Warrant Agreement has been duly authorized by the Company; the
Warrants have been duly authorized by the Company; on the Closing Date, the
Warrant Agreement will have been duly executed and delivered by the Company; and
when the Warrants are delivered and paid for pursuant to this Agreement on the
Closing Date, such Warrants will conform to the description thereof contained in
the Offering Document and the Warrant Agreement and the Warrants will constitute
valid and legally binding obligations of the Company, enforceable in accordance
with their terms, subject to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar laws of general applicability relating to
or affecting creditors' rights and to general equity principles.
(f) When the Warrants are delivered and paid for pursuant to this
Agreement on the Closing Date, such Warrants will be convertible into the shares
of Common Stock, no par value ("Underlying Shares") of the Company in accordance
with the terms of the Warrant Agreement; the Underlying Shares initially
issuable upon conversion of such Warrants have been duly authorized and reserved
for issuance upon such conversion and, when issued upon such conversion, will be
validly issued, fully paid and nonassessable and will conform to the description
thereof contained in the Offering Document; and the holders of capital stock of
the Company or instruments convertible into or exercisable for shares of capital
stock of the Company have no preemptive rights or rights to have "anti-dilution"
or similar adjustments made in connection with the issuance of the Warrants or
the Underlying Shares.
(g) The Registration Rights Agreement has been duly authorized, executed
and delivered by the Company, and conforms to the description thereof contained
in the Offering Document. Assuming the due authorization, execution and
delivery thereof by all parties other than the Company , the Registration Rights
Agreement constitutes a valid and legally binding obligation of the Company, and
is enforceable in accordance with its terms, subject to bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium and similar laws of general
applicability relating to or affecting creditors' rights and to general equity
principles (regardless of whether enforceability is considered in a proceeding
at law or in equity).
(h) Each of the Company and its subsidiaries has been duly incorporated
and is a validly
<PAGE>
4
existing corporation in good standing under the laws of the jurisdiction of its
incorporation, with power and authority (corporate and other) to own its
properties and conduct its business as described in the Offering Document; and
each of the Company and its subsidiaries is duly qualified to do business as a
foreign corporation in good standing in all other jurisdictions in which its
ownership or lease of property or the conduct of its business requires such
qualification.
(i) All the issued and outstanding capital stock of each subsidiary of the
Company has been duly authorized and validly issued and is fully paid and
nonassessable and is owned, directly or indirectly, by the Company; and the
capital stock of each subsidiary is owned free from liens, encumbrances and
defects.
(j) Except as disclosed in the Offering Document, there are no contracts,
agreements or understandings between the Company and any person that would give
rise to a valid claim against the Company or any Purchaser for a brokerage
commission, finder's fee or other like payment in connection with the
transactions contemplated by the Operative Documents.
(k) No consent, approval, authorization or order of, or filing with, any
governmental agency or body or any court is required for the consummation of the
transactions contemplated by the Operative Documents or for the execution,
delivery and performance by the Company of any of the Operative Documents, other
than those that have been obtained or made, or as may be required under the
Securities Act and the Rules and Regulations of the Commission thereunder with
respect to the Registration Rights Agreement and the transactions contemplated
thereunder and such as may be required by securities or blue sky laws of any
state of the United States or of any foreign jurisdiction in connection with the
offer and sale of the Offered Securities.
(l) The execution, delivery and performance by the Company of the
Operative Documents, and the issuance and sale of the Offered Securities and
compliance with the terms and provisions thereof, will not result in a breach or
violation of (I) any of the terms and provisions of, or constitute a default
under, any statute, rule, regulation or order of any governmental agency or body
or any court, domestic or foreign, having jurisdiction over the Company or any
subsidiary of the Company or any of their properties, (II) any agreement or
instrument to which the Company or any such subsidiary is a party or by which
the Company or any such subsidiary is bound or to which any of the properties of
the Company or any such subsidiary is subject, or (III) the charter or by-laws
or other organizational documents of the Company or any such subsidiary, and the
Company has full power and authority to authorize, issue and sell the Offered
Securities as contemplated by this Agreement.
(m) This Agreement has been duly authorized, executed and delivered by the
Company.
(n) Except as disclosed in the Offering Document, the Company and its
subsidiaries have good and marketable title to all real properties and all other
properties and assets owned by each of them, in each case free from liens,
encumbrances and defects that would materially affect the value thereof or
materially interfere with the use made or to be made thereof by them; and except
as disclosed in the Offering Document, the Company and its subsidiaries hold any
leased real or personal property under valid and enforceable leases with no
exceptions that would materially interfere with the use made or to be made
thereof by them.
(o) The Company and its subsidiaries possess adequate certificates,
authorities,
<PAGE>
5
franchises or permits issued by appropriate governmental agencies or bodies
necessary to conduct the business now operated by each of them and have not
received any notice of proceedings relating to the revocation or modification of
any such certificate, authority, franchise or permit.
(p) No labor dispute with the employees of the Company or any of its
subsidiaries exists or, to the knowledge of the Company, is imminent that might
have a material adverse effect on the Company and its subsidiaries taken as a
whole.
(q) The Company and its subsidiaries own, possess or can acquire on
reasonable terms, adequate trademarks, trade names and other rights to
inventions, know-how, patents, copyrights, confidential information and other
intellectual property (collectively, "intellectual property rights") necessary
to conduct the business now operated by each of them, or presently utilized by
each of them, and have not received any notice of infringement of or conflict
with asserted rights of others with respect to any intellectual property rights
that, if determined adversely to the Company or any of its subsidiaries, would,
individually or in the aggregate, have a material adverse effect on the Company
and its subsidiaries taken as a whole.
(r) Neither the Company nor any of its subsidiaries is in violation of any
statute, rule, regulation, decision or order of any governmental agency or body
or any court, domestic or foreign, relating to the use, disposal or release of
hazardous or toxic substances or relating to the protection or restoration of
the environment or human exposure to hazardous or toxic substances
(collectively, "environmental laws"), owns or operates any real property
contaminated with any substance that is subject to any environmental laws, is
liable for any off-site disposal or contamination pursuant to any environmental
laws, or is subject to any claim relating to any environmental laws, which
violation, contamination, liability or claim would, individually or in the
aggregate, have a material adverse effect on the Company and its subsidiaries
taken as a whole; and the Company is not aware of any pending investigation
which might lead to such a claim.
(s) There are no pending actions, suits or proceedings against or
affecting the Company, any of its subsidiaries or any of their respective
properties that, if determined adversely to the Company or any of its
subsidiaries, would, individually or in the aggregate, have a material adverse
effect on the condition (financial or other), business, properties or results of
operations of the Company and its subsidiaries taken as a whole, or would
materially and adversely affect the ability of the Company to perform its
obligations under any of the Operative Documents, or which are otherwise
material in the context of the sale of the Offered Securities; and no such
actions, suits or proceedings are threatened or, to the Company's knowledge,
contemplated.
(t) The financial statements included in the Offering Document present
fairly the financial position of the Company and its consolidated subsidiaries
as of the dates shown and their results of operations and cash flows for the
periods shown, and such financial statements have been prepared in conformity
with the generally accepted accounting principles in the United States applied
on a consistent basis.
(u) Since the date of the latest audited financial statements included in
the Offering Document, there has been no material adverse change, nor any
development or event involving a prospective material adverse change, in the
condition (financial or other), business, properties or results of operations of
the Company and its subsidiaries taken as a whole, and, except as
<PAGE>
6
disclosed in or contemplated by the Offering Document, there has been no
dividend or distribution of any kind declared, paid or made by the Company on
any class of its capital stock.
(v) The Company is not an open-end investment company, unit investment
trust or face-amount certificate company that is or is required to be registered
under Section 8 of the United States Investment Company Act of 1940 (as amended,
the "Investment Company Act"), and the Company is not and, after giving effect
to the offering and sale of the Offered Securities and the application of the
proceeds thereof as described in the Offering Document, will not be an
"investment company" as defined in the Investment Company Act.
(w) No securities of the same class (within the meaning of Rule 144A(d)(3)
under the Securities Act) as any of the Offered Securities are listed on any
national securities exchange registered under Section 6 of the Exchange Act or
quoted in a U.S. automated inter-dealer quotation system.
(x) The offer and sale of the Offered Securities by the Company to the
several Purchasers in the manner contemplated by this Agreement will be exempt
from the registration requirements of the Securities Act by reason of Section
4(2) thereof and Regulation S; and it is not necessary to qualify an indenture
in respect of the Notes or the Exchange Debentures under the United States Trust
Indenture Act of 1939, as amended (the "Trust Indenture Act").
(y) None of the Company, any of its affiliates and any person acting on
its or their behalf (i) has, within the six-month period prior to the date
hereof, offered or sold in the United States or to any U.S. person (as such
terms are defined in Regulation S under the Securities Act) the Offered
Securities or any security of the same class or series as any of the Offered
Securities (A) in the United States by means of any form of general solicitation
or general advertising within the meaning of Rule 502(c) under the Securities
Act or (B) with respect to any such securities sold in reliance on Rule 903 of
Regulation S, by means of any directed selling efforts within the meaning of
Rule 902(b) of Regulation S. The Company, its affiliates and any person acting
on their behalf have complied and will comply with the offering restrictions
requirement of Regulation S. The Company has not entered and will not enter
into any contractual arrangement with respect to the distribution of the Offered
Securities except for this Agreement and the Registration Rights Agreement.
(z) The proceeds to the Company from the offering of the Offered
Securities will be used as described in the Offering Document.
(aa) The Company and its subsidiaries are, and will remain, in compliance
in all material respects with the Communications Act of 1934, as amended by the
Telecommunications Act of 1996 (the "Communications Act"), with all applicable
rules, regulations and policies of the Federal Communications Commission (the
"FCC") and with all other applicable Federal and state laws and regulations.
(bb) The Company is in compliance with its obligations under the pole
attachment agreements with Commonwealth Edison Company and a subsidiary of
Ameritech Corporation and the attachment agreement with the Chicago Transit
Authority.
(cc) The Company and its subsidiaries are, and will remain, in compliance
in all material respects with all material terms and conditions of each license,
franchise and other
<PAGE>
7
governmental authorization.
(dd) All licenses, franchises and other governmental authorization are
currently valid and in full force and effect, and there is no investigation,
notice of apparent liability, violation, forfeiture or other order or complaint
issued by or before any court or regulatory body, or of any other proceedings
(other than proceedings relating to the telecommunications industry generally)
which could in any manner materially threaten or adversely affect the validity
or continued effectiveness of any of the licenses, franchises or other
governmental authorization.
(ee) No event has occurred which (i) results in, or after notice or lapse
of time or both would result in, revocation, suspension, adverse modification,
non-renewal, impairment, restriction or termination of, or order of forfeiture
with respect to, any license, franchise or other governmental authorization or
(ii) materially and adversely affects or could reasonably be expected in the
future to materially adversely affect any of the rights of the Company or any of
its subsidiaries thereunder.
(ff) The Company and its subsidiaries have duly filed in a timely manner
all material filings, reports, applications, documents, instruments and
information required to be filed by them under the Communications Act pertaining
to the licenses, franchises and other governmental authorization.
(gg) There is no "substantial U.S. market interest" as defined in Rule
902(n) of Regulation S in the Company's debt securities, the Exchangeable
Preferred Stock or any security of the same class or series as the Exchangeable
Preferred Stock or in the Common Stock to be purchased upon exercise of the
Warrants.
3. Purchase, Sale and Delivery of Offered Securities. On the basis of the
representations, warranties and agreements herein contained, but subject to the
terms and conditions herein set forth, the Company agrees to sell to the
Purchasers, and each of the Purchasers agrees, severally and not jointly, to
purchase from the Company, (i) Notes having an aggregate principal amount at
maturity set forth opposite the name of such Purchaser on Schedule A hereto at a
purchase price of 51.5759 of the principal amount at maturity thereof plus
accrual of Accreted Value, if any, from February 9, 1998 to the Closing Date,
and (ii) the number of Units set forth opposite the name of such Purchasers on
Schedule A hereto at a purchase price of $965 per Unit plus accumulated
dividends, if any, from February 9, 1998 to the Closing Date.
The Company will deliver against payment of the purchase price the Notes
and the Units in the form of one or more permanent global Notes and one or more
global Units (each of which will consist of one or more global certificates for
shares of Exchangeable Preferred Stock and one or more global Warrants) in
definitive form (collectively, the "Global Securities") which will be deposited
with the applicable Trustee or Transfer Agent, as the case may be, as custodian
for The Depository Trust Company ("DTC") and registered in the name of Cede &
Co., as nominee for DTC. Interests in any permanent Global Securities will be
held only in book-entry form through DTC, except in the limited circumstances
described in the Offering Document. Payment for the Offered Securities shall be
made by the Purchasers in Federal (same-day) funds by official check or checks
or wire transfer to an account at a bank acceptable to CSFBC drawn to the order
of the Company, at the office of Cravath, Swaine & Moore, Worldwide Plaza, 825
Eighth Avenue, New York, NY 10019-7475 at 10:00 A.M. (New York time), on
February 9,
<PAGE>
8
1998, or at such other time not later than seven full business days thereafter
as CSFBC and the Company determine, such time being herein referred to as the
"Closing Date," against delivery to the applicable Trustee or Transfer Agent, as
the case may be, as custodian for DTC of the applicable Global Securities
representing in the aggregate all the Offered Securities. The Global Securities
will be made available for checking at the above office of Cravath, Swaine &
Moore at least 24 hours prior to the Closing Date.
4. Representations by Purchasers; Resale by Purchasers. (a) Each
Purchaser severally represents and warrants to the Company that it is an
"accredited investor" within the meaning of Regulation D under the Securities
Act.
(b) Each Purchaser severally acknowledges that the Offered Securities have
not been registered under the Securities Act and may not be offered or sold
within the United States or to, or for the account or benefit of, U.S. persons
except to "qualified institutional buyers" in reliance on Rule 144A ("Rule
144A") under the Securities Act, and to certain persons in offshore transactions
in reliance on Regulation S. Each Purchaser severally represents and agrees
that it will not offer, sell or deliver the Offered Securities as part of its
distribution at any time within the United States or to, or for the account or
benefit of, United States persons, except to "qualified institutional buyers" in
reliance on Rule 144A under the Securities Act, and to certain persons in
offshore transactions in reliance on Regulation S. Terms used in this
subsection (b) have the meanings given to them by Regulation S.
(c) Each Purchaser severally agrees that it and each of its affiliates has
not entered and will not enter into any contractual arrangement with respect to
the distribution of the Offered Securities except for any such arrangements with
the other Purchasers or affiliates of the other Purchasers or with the prior
written consent of the Company.
(d) Each Purchaser severally agrees that it and each of its affiliates
will not offer or sell the Offered Securities in the United States by means of
any form of general solicitation or general advertising within the meaning of
Rule 502(c) under the Securities Act, including (i) any advertisement, article,
notice or other communication published in any newspaper, magazine or similar
media or broadcast over television or radio, or (ii) any seminar or meeting
whose attendees have been invited by any general solicitation or general
advertising. Each Purchaser severally agrees, with respect to resales made in
reliance on Rule 144A of any of the Offered Securities, to deliver either with
the confirmation of such resale or otherwise prior to settlement of such resale
a notice to the effect that the resale of such Offered Securities has been made
in reliance upon the exemption from the registration requirements of the
Securities Act provided by Rule 144A.
(e) Each of the Purchasers severally represents and agrees that (i) it has
not offered or sold and prior to the date six months after the date of issue of
the Offered Securities will not offer or sell any Offered Securities to persons
in the United Kingdom except to persons whose ordinary activities involve them
in acquiring, holding, managing or disposing of investments (as principal or
agent) for the purposes of their businesses or otherwise in circumstances which
have not resulted and will not result in an offer to the public in the United
Kingdom within the meaning of the Public Offers of Securities Regulations 1995;
(ii) it has complied and will comply with all applicable provisions of the
Financial Services Act 1986 with respect to anything done by it in relation to
the Offered Securities in, from or otherwise involving the United Kingdom; and
(iii) it has only issued or passed on and will only issue or pass on in the
<PAGE>
9
United Kingdom any document received by it in connection with the issue of the
Offered Securities to a person who is of a kind described in Article 11(3) of
the Financial Services Act 1986 (Investment Advertisements) (Exemptions) Order
1996 or is a person to whom such document may otherwise lawfully be issued or
passed on.
5. Certain Agreements of the Company. The Company agrees with the several
Purchasers that:
(a) The Company will advise CSFBC promptly of any proposal to amend or
supplement the Offering Document and will not effect such amendment or
supplementation without CSFBC's consent. If, at any time prior to the
completion of the resale of the Offered Securities by the Purchasers, any event
occurs as a result of which the Offering Document as then amended or
supplemented would include an untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not misleading, or if
it is necessary at any such time to amend or supplement the Offering Document to
comply with any applicable law, the Company promptly will notify CSFBC of such
event and promptly will prepare, at its own expense, an amendment or supplement
which will correct such statement or omission or effect such compliance.
Neither CSFBC's consent to, nor the Purchasers' delivery to offerees or
investors of, any such amendment or supplement shall constitute a waiver of any
of the conditions set forth in Section 6.
(b) The Company will furnish to CSFBC copies of any preliminary offering
circular, the Offering Document and all amendments and supplements to such
documents, in each case as soon as available and in such quantities as CSFBC
requests, and the Company will furnish to CSFBC on the Closing Date four copies
of the Offering Document signed by a duly authorized officer of the Company, one
of which will include the independent accountants' reports therein manually
signed by such independent accountants. At any time when the Company is not
subject to Section 13 or 15(d) of the Exchange Act, the Company will promptly
furnish or cause to be furnished to the Purchasers and, upon request of holders
and prospective purchasers of the Offered Securities, to such holders and
purchasers, copies of the information required to be delivered to holders and
prospective purchasers of the Offered Securities pursuant to Rule 144A(d)(4)
under the Securities Act (or any successor provision thereto) in order to permit
compliance with Rule 144A in connection with resales by such holders of the
Offered Securities. The Company will pay the expenses of printing and
distributing to the Purchasers all such documents.
(c) The Company will arrange for the qualification of the Offered
Securities for sale and the determination of their eligibility for investment
under the laws of such jurisdictions in the United States and Canada as CSFBC
designates and will continue such qualifications in effect so long as required
for the resale of the Offered Securities by the Purchasers; provided that the
Company will not be required to qualify as a foreign corporation or to file a
general consent to service of process in any such jurisdiction.
(d) During the period of ten years hereafter, the Company will furnish to
CSFBC and, upon request, to each of the other Purchasers, as soon as practicable
after the end of each fiscal year, a copy of its annual report to stockholders
for such year; and the Company will furnish to CSFBC and, upon request, to each
of the other Purchasers (i) as soon as available, a copy of each report, notice
or communication sent to stockholders, and (ii) from time to time, such other
information concerning the Company as CSFBC may reasonably request.
<PAGE>
10
(e) During the period of two years after the Closing Date, the Company
will, upon request, furnish to CSFBC, each of the other Purchasers and any
holder of Offered Securities a copy of the restrictions on transfer applicable
to the Offered Securities.
(f) During the period of two years after the Closing Date, the Company
will not, and will not permit any of its affiliates (as defined in Rule 144
under the Securities Act) to, resell any of the Offered Securities that have
been reacquired by any of them.
(g) During the period of two years after the Closing Date, the Company
will not be or become, an open-end investment company, unit investment trust or
face-amount certificate company that is or is required to be registered under
Section 8 of the Investment Company Act.
(h) The Company will pay all expenses incidental to the performance of its
obligations under the Operative Documents, including (i) the fees and expenses
of the Trustees, the Transfer Agent, the Warrant Agent and their professional
advisers; (ii) all expenses in connection with the execution, issue,
authentication, packaging and initial delivery of the Offered Securities, the
preparation and printing of this Agreement, the Offered Securities, the Offering
Document and amendments and supplements thereto, and any other document relating
to the issuance, offer, sale and delivery of the Offered Securities; (iii) the
cost of qualifying the Offered Securities for trading in the Private Offerings,
Resale and Trading through Automated Linkages (PORTAL) market of the Nasdaq
Stock Market, Inc. and any expenses incidental thereto; (iv) any expenses
(including fees and disbursements of counsel) incurred in connection with
qualification of the Offered Securities for sale under the laws of such
jurisdictions in the United States and Canada as CSFBC designates and the
printing of memoranda relating thereto; (v) any fees charged by investment
rating agencies for the rating of any of the Offered Securities; and (vi)
expenses incurred in distributing preliminary offering circulars and the
Offering Document (including any amendments and supplements thereto) to the
Purchasers. The Company will reimburse the Purchasers, to the extent incurred
by them, for all travel expenses of the Purchasers and the Company's officers
and employees and any other expenses of the Purchasers and the Company in
connection with attending or hosting meetings with prospective purchasers of the
Offered Securities.
(i) In connection with the offering, until CSFBC shall have notified the
Company and the other Purchasers of the completion of the resale of the Offered
Securities, neither the Company nor any of its affiliates has or will, either
alone or with one or more other persons, bid for or purchase for any account in
which it or any of their affiliates has a beneficial interest any Offered
Securities or attempt to induce any person to purchase any Offered Securities;
and neither it nor any of its affiliates will make bids or purchases for the
purpose of creating actual, or apparent, active trading in, or of raising the
price of, the Offered Securities.
(j) For a period of 180 days after the initial offering of the Offered
Securities by the Purchasers, the Company will not offer, sell, contract to
sell, pledge or otherwise dispose of, directly or indirectly, in a public
offering or a private placement, (a) any United States dollar-denominated debt
securities (exclusive of bank borrowings and purchase money indebtedness) issued
or guaranteed by the Company and having a maturity of more than one year from
the date of issue, (b) any shares of Common Stock of the Company or securities
convertible into or exchangeable or exercisable for shares of Common Stock of
the Company or warrants or other rights to purchase shares of Common Stock of
the Company, (c) any preferred stock or any other
<PAGE>
11
securities of the Company having terms which are substantially similar to the
Exchangeable Preferred Stock, or (d) any other securities which are convertible
into, or exercisable or exchangeable for, preferred stock or such substantially
similar securities of the Company, without the prior written consent of CSFBC,
or publicly disclose the intention to make any such offer, sale, pledge or
disposition, except the offer, sale, contract to sell, or other disposition of
(i) the Offered Securities, (ii) the Exchange Debentures issued or delivered
upon exchange of the Exchangeable Preferred Stock, (iii) securities issued or
delivered upon conversion, exchange or exercise of any other securities of the
Company outstanding on the date of the Offering Document, (iv) capital stock and
options of the Company issued pursuant to benefit or incentive plans maintained
for its officers, directors, employees or persons providing services to the
Company, or (v) securities issued in connection with mergers, acquisitions or
similar transactions. The Company will not at any time offer, sell, contract to
sell, pledge or otherwise dispose of, directly or indirectly, any securities
under circumstances where such offer, sale, pledge, contract or disposition
would cause the exemption afforded by Section 4(2) of the Securities Act or the
safe harbor of Regulation S thereunder to cease to be applicable to the offer
and sale of the Offered Securities.
6. Conditions of the Obligations of the Purchasers. The obligations of
the several Purchasers to purchase and pay for the Offered Securities will be
subject to the accuracy of the representations and warranties on the part of the
Company herein, to the accuracy of the statements of officers of the Company
made pursuant to the provisions hereof, to the performance by the Company of its
obligations hereunder and to the following additional conditions precedent:
(a) The Purchasers shall have received a letter, dated the date of this
Agreement, of Arthur Anderson LLP in form and substance satisfactory to the
Purchasers concerning the financial information with respect to the Company set
forth in the Offering Document.
(b) Subsequent to the execution and delivery of this Agreement, there
shall not have occurred (i) a change in U.S. or international financial,
political or economic conditions or currency exchange rates or exchange controls
as would, in the judgment of CSFBC, be likely to prejudice materially the
success of the proposed issue, sale or distribution of any of the Offered
Securities, whether in the primary market or in respect of dealings in the
secondary market, or (ii) (A) any change, or any development or event involving
a prospective change, in the condition (financial or other), business,
properties or results of operations of the Company or its subsidiaries which, in
the judgment of a majority in interest of the Purchasers, including CSFBC, is
material and adverse and makes it impractical or inadvisable to proceed with
completion of the offering or the sale of and payment for the Offered
Securities; (B) any downgrading in the rating of any debt securities or
preferred stock of the Company or any of its subsidiaries by any "nationally
recognized statistical rating organization" (as defined for purposes of Rule
436(g) under the Securities Act), or any public announcement that any such
organization has under surveillance or review its rating of any debt securities
or preferred stock of the Company or any of its subsidiaries (other than an
announcement with positive implications of a possible upgrading, and no
implication of a possible downgrading, of such rating); (C) any suspension or
limitation of trading in securities generally on the New York Stock Exchange or
any setting of minimum prices for trading on such exchange, or any suspension of
trading of any securities of the Company on any exchange or in the over-the-
counter market; (D) any banking moratorium declared by U.S. Federal or New York
authorities; or (E) any outbreak or escalation of major hostilities in which the
United States is involved, any declaration of war by Congress or any
<PAGE>
12
other substantial national or international calamity or emergency if, in the
judgment of a majority in interest of the Purchasers including CSFBC, the effect
of any such outbreak, escalation, declaration, calamity or emergency makes it
impractical or inadvisable to proceed with completion of the offering or sale of
and payment for the Offered Securities.
(c) The Purchasers shall have received an opinion, dated the Closing Date,
of Piper & Marbury LLP (or Neal Gerber & Eisenberg), counsel for the Company,
that:
(i) The Company has been duly incorporated and is an existing
corporation in good standing under the laws of the State of Illinois, with
corporate power and authority to own its properties and conduct its
business as described in the Offering Document; and the Company is duly
qualified to do business as a foreign corporation in good standing in all
other jurisdictions in which its ownership or lease of property or the
conduct of its business requires such qualification;
(ii) Each of the Indentures, the Warrant Agreement and the
Registration Rights Agreement has been duly authorized, executed and
delivered by the Company and conforms in all material respects to the
descriptions thereof contained in the Offering Document; the Notes have
been duly authorized, executed, authenticated, issued and delivered and
conform to the description thereof contained in the Offering Document; and
the Indentures, the Warrant Agreement, the Registration Rights Agreement
and the Notes constitute valid and legally binding obligations of the
Company enforceable in accordance with their terms, subject to bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium and similar
laws of general applicability relating to or affecting creditors' rights
and to general equity principles;
(iii) The Warrants are convertible into Common Stock of the Company
in accordance with the terms of the Warrant Agreement, the shares of such
Common Stock initially issuable upon conversion of the Offered Securities
have been duly authorized and reserved for issuance upon such conversion
and, when issued upon such conversion, will be validly issued, fully paid
and nonassessable; the Capital Stock of the Company conforms to the
description thereof contained in the Offering Document; and the holders of
capital stock of the Company or instruments convertible into or exercisable
for shares of capital stock of the Company have no preemptive rights or
rights to have "anti-dilution" or similar adjustments made in connection
with the issuance of the Warrants or the Common Stock;
(iv) The Exchangeable Preferred Stock has been duly authorized and
validly issued, is fully paid and nonassessable and conforms to the
description thereof contained in the Offering Document; and the
stockholders of the Company have no preemptive rights with respect to the
Offered Securities or the Common Stock;
(v) No consent, approval, authorization or order of, or filing with,
any U.S. Federal, New York or Illinois governmental agency or body or any
court is required for the execution, delivery and performance of the
Operative Documents by the respective parties thereto or for the
consummation of the transactions contemplated by the Operative Documents by
the Company, except those that have been obtained and except such as may be
required under state securities laws and other than as may be required
under the Securities Act and the Rules and Regulations of the Commission
thereunder
<PAGE>
13
with respect to the Registration Rights Agreement;
(vi) The execution, delivery and performance of the Operative
Documents and the issuance and sale of the Offered Securities and
compliance with the terms and provisions thereof will not result in a
breach or violation of any of the terms and provisions of, or constitute a
default under, any statute, any rule, regulation or order of any U.S.
Federal, New York or Illinois governmental agency or body or any court
having jurisdiction over the Company or any subsidiary of the Company or
any of their properties, or any agreement or instrument to which the
Company or any such subsidiary is a party or by which the Company or any
such subsidiary is bound or to which any of the properties of the Company
or any such subsidiary is subject, or the charter or by-laws (or other
organizational documents) of the Company or any such subsidiary, and the
Company has full power and authority to authorize, issue and sell the
Offered Securities as contemplated by this Agreement;
(vii) Such counsel has no reason to believe that the Offering
Document, or any amendment or supplement thereto, as of the date hereof and
as of such the Closing Date, contained any untrue statement of a material
fact or omitted to state any material fact necessary to make the statements
therein not misleading; the descriptions in the Offering Document of
statutes, legal and governmental proceedings and contracts and other
documents are accurate and fairly present the information, it being
understood that such counsel need express no opinion as to the financial
statements or other financial data contained in the Offering Document;
(viii) This Agreement has been duly authorized, executed and
delivered by the Company;
(ix) It is not necessary in connection with (A) the offer, sale and
delivery of the Offered Securities by the Company to the several Purchasers
pursuant to this Agreement or (B) the initial resales of the Offered
Securities by the several Purchasers in the manner contemplated hereby to
register the Offered Securities under the Securities Act or to qualify an
indenture in respect thereof under the Trust Indenture Act;
(x) The description under the heading "Legislation and Regulation" in
the Offering Document constitutes a fair summary of the information
contained therein;
(xi) To the best of such counsel's knowledge, the Company is in
compliance with its obligations under the pole attachment agreements with
Commonwealth Edison Company and a subsidiary of Ameritech Corporation and
the attachment agreement with the Chicago Transit Authority;
(xii) To the best of such counsel's knowledge, the Company and its
subsidiaries are in compliance in all material respects with the
Communications Act, with all applicable rules, regulations and policies of
the FCC and with all other applicable Federal and state laws and
regulations;
(xiii) To the best of such counsel's knowledge, the Company and its
subsidiaries are in compliance in all material respects with all material
terms and conditions of each license, franchise and other governmental
authorization;
<PAGE>
14
(xiv) To the best of such counsel's knowledge, the licenses,
franchises and other governmental authorization of the Company and its
subsidiaries are currently valid and in full force and effect, and there is
no investigation, notice of apparent liability, violation, forfeiture or
other order or complaint issued by or before any court or regulatory body,
or of any other proceedings (other than proceedings relating to the
telecommunications industry generally) which could in any manner materially
threaten or adversely affect the validity or continued effectiveness of any
of the licenses, franchises or other governmental authorization;
(xv) To the best of such counsel's knowledge, no event has occurred
which (i) results in, or after notice or lapse of time or both would result
in, revocation, suspension, adverse modification, non-renewal, impairment,
restriction or termination of, or order of forfeiture with respect to, any
license, franchise or other governmental authorization or (ii) materially
and adversely affects or could reasonably be expected in the future to
materially adversely affect any of the rights of the Company or any of its
subsidiaries thereunder; and
(xvi) To the best of such counsel's knowledge, the Company and its
subsidiaries have duly filed in a timely manner all material filings,
reports, applications, documents, instruments and information required to
be filed by them under the Communications Act pertaining to the licenses,
franchises and other governmental authorization.
(d) The Purchasers shall have received from Cravath, Swaine & Moore,
counsel for the Purchasers, such opinion or opinions, dated the Closing Date,
with respect to the incorporation of the Company, the validity of the Offered
Securities, the Offering Document, the exemption from registration for the offer
and sale of the Offered Securities by the Company to the several Purchasers and
the initial resales by the several Purchasers as contemplated hereby and other
related matters as CSFBC may require, and the Company shall have furnished to
such counsel such documents as they request for the purpose of enabling them to
pass upon such matters. In rendering such opinion, Cravath, Swaine & Moore may
rely as to the incorporation of the Company and all other matters governed by
Illinois law upon the opinion of Neal Gerber & Eisenberg.
(e) The Purchasers shall have received a certificate, dated the Closing
Date, of the President or any Vice President and a principal financial or
accounting officer of the Company in which such officers, to the best of their
knowledge after reasonable investigation, shall state that the representations
and warranties of the Company in this Agreement are true and correct, that the
Company has complied with all agreements and satisfied all conditions on its
part to be performed or satisfied hereunder at or prior to the Closing Date, and
that, subsequent to the date of the most recent financial statements in the
Offering Document there has been no material adverse change, nor any development
or event involving a prospective material adverse change, in the condition
(financial or other), business, properties or results of operations of the
Company and its subsidiaries taken as a whole, except as set forth in or
contemplated by the Offering Document or as described in such certificate.
(f) The issuance and sale of the Notes and the Units by the Company shall
have been consummated concurrently in accordance with the terms of this
Agreement and the description thereof in the Offering Document.
<PAGE>
15
(g) The Purchasers shall have received a letter, dated the Closing Date,
of Arthur Andersen LLP which meets the requirements of subsection (a) of this
Section, except that the specified date referred to in such subsection will be a
date not more than three business days prior to the Closing Date for the
purposes of this subsection.
(h) The Company shall have filed with the Secretary of State of the State
of Illinois the Amended and Restated Charter.
(i) The Purchasers shall have received, on the Closing Date, four copies
of the Offering Document signed by a duly authorized officer of the Company, one
of which includes the independent accountants' reports therein manually signed
by such independent accountants.
(j) The Company shall have a commitment for $50 million from one or more
banks on the Closing Date on the terms existing on the date of execution of this
Agreement or other terms agreed to by the Purchasers.
(k) The Company and the Purchasers shall have executed the Registration
Rights Agreement.
(l) The Purchasers shall be reasonably satisfied that, as of the Closing
Date, all holders of equity securities of the Company who are entitled to anti-
dilution protection under such securities in the event of the issuance of
securities such as the Warrants shall have waived such rights.
The Company will furnish the Purchasers with such conformed copies of such
opinions, certificates, letters and documents as the Purchasers reasonably
request. CSFBC may in its sole discretion waive on behalf of the Purchasers
compliance with any conditions of the Purchasers hereunder, whether in respect
of the Closing Date or otherwise.
7. Indemnification and Contribution. (a) The Company will indemnify and
hold harmless each Purchaser against any losses, claims, damages or liabilities,
joint or several, to which such Purchaser may become subject, under the
Securities Act or the Exchange Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon any breach of any of the representations and warranties of the Company
contained herein or any untrue statement or alleged untrue statement of any
material fact contained in the Offering Document, or any amendment or supplement
thereto, or any related preliminary offering circular, or arise out of or are
based upon the omission or alleged omission to state therein a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading, and will reimburse
each Purchaser for any legal or other expenses reasonably incurred by such
Purchaser in connection with investigating or defending any such loss, claim,
damage, liability or action as such expenses are incurred; provided, however,
that the Company will not be liable in any such case to the extent that any such
loss, claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement in or omission or alleged omission from
any of such documents in reliance upon and in conformity with written
information furnished to the Company by any Purchaser through CSFBC specifically
for use therein, it being understood and agreed that the only such information
consists of the information described as such in subsection (b) below.
<PAGE>
16
(b) Each Purchaser will severally and not jointly indemnify and hold
harmless the Company against any losses, claims, damages or liabilities to which
the Company may become subject, under the Securities Act or the Exchange Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the Offering Document, or any
amendment or supplement thereto, or any related preliminary offering circular,
or arise out of or are based upon the omission or the alleged omission to state
therein a material fact necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not misleading, in
each case to the extent, but only to the extent, that such untrue statement or
alleged untrue statement or omission or alleged omission was made in reliance
upon and in conformity with written information furnished to the Company by such
Purchaser through CSFBC specifically for use therein, and will reimburse any
legal or other expenses reasonably incurred by the Company in connection with
investigating or defending any such loss, claim, damage, liability or action as
such expenses are incurred, it being understood and agreed that the only such
information furnished by any Purchaser consists of the following information in
the Offering Document furnished on behalf of each Purchaser: the last paragraph
at the bottom of the cover page concerning the terms of the offering by the
Purchasers, the legend concerning over-allotments and stabilizing on the inside
front cover page and the final sentence of the second paragraph and the eighth
and ninth paragraphs under the caption "Plan of Distribution".
(c) Promptly after receipt by an indemnified party under this Section of
notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under
subsection (a) or (b) above, notify the indemnifying party of the commencement
thereof; but the omission so to notify the indemnifying party will not relieve
it from any liability which it may have to any indemnified party otherwise than
under subsection (a) or (b) above. In case any such action is brought against
any indemnified party and it notifies the indemnifying party of the commencement
thereof, the indemnifying party will be entitled to participate therein and, to
the extent that it may wish, jointly with any other indemnifying party similarly
notified, to assume the defense thereof, with counsel satisfactory to such
indemnified party (who shall not, except with the consent of the indemnified
party, be counsel to the indemnifying party), and after notice from the
indemnifying party to such indemnified party of its election so to assume the
defense thereof, the indemnifying party will not be liable to such indemnified
party under this Section for any legal or other expenses subsequently incurred
by such indemnified party in connection with the defense thereof other than
reasonable costs of investigation. No indemnifying party shall, without the
prior written consent of the indemnified party, effect any settlement of any
pending or threatened action in respect of which any indemnified party is or
could have been a party and indemnity could have been sought hereunder by such
indemnified party unless such settlement includes an unconditional release of
such indemnified party from all liability on any claims that are the subject
matter of such action.
(d) If the indemnification provided for in this Section is unavailable or
insufficient to hold harmless an indemnified party under subsection (a) or (b)
above, then each indemnifying party shall contribute to the amount paid or
payable by such indemnified party as a result of the losses, claims, damages or
liabilities referred to in subsection (a) or (b) above (i) in such proportion as
is appropriate to reflect the relative benefits received by the Company on the
one hand and the Purchasers on the other from the offering of the Offered
Securities or (ii) if the
<PAGE>
17
allocation provided by clause (i) above is not permitted by applicable law, in
such proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) above but also the relative fault of the Company on
the one hand and the Purchasers on the other in connection with the statements
or omissions which resulted in such losses, claims, damages or liabilities as
well as any other relevant equitable considerations. The relative benefits
received by the Company on the one hand and the Purchasers on the other shall be
deemed to be in the same proportion as the total net proceeds from the offering
(before deducting expenses) received by the Company bear to the total discounts
and commissions received by the Purchasers from the Company under this
Agreement. The relative fault shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company or the Purchasers and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
untrue statement or omission. The amount paid by an indemnified party as a
result of the losses, claims, damages or liabilities referred to in the first
sentence of this subsection (d) shall be deemed to include any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any action or claim which is the subject of this
subsection (d). Notwithstanding the provisions of this subsection (d), no
Purchaser shall be required to contribute any amount in excess of the amount by
which the total price at which the Offered Securities purchased by it were
resold exceeds the amount of any damages which such Purchaser has otherwise been
required to pay by reason of such untrue or alleged untrue statement or omission
or alleged omission. The Purchasers' obligations in this subsection (d) to
contribute are several in proportion to their respective purchase obligations
and not joint.
(e) The obligations of the Company under this Section shall be in addition
to any liability which the Company may otherwise have and shall extend, upon the
same terms and conditions, to each person, if any, who controls any Purchaser
within the meaning of the Securities Act or the Exchange Act; and the
obligations of the Purchasers under this Section shall be in addition to any
liability which the respective Purchasers may otherwise have and shall extend,
upon the same terms and conditions, to each person, if any, who controls the
Company within the meaning of the Securities Act or the Exchange Act.
8. Default of Purchasers. If any Purchaser or Purchasers default in their
obligations to purchase any Offered Securities hereunder and the aggregate
percentage of all such Offered Securities that such defaulting Purchaser or
Purchasers agreed but failed to purchase does not exceed 10%, CSFBC may make
arrangements satisfactory to the Company for the purchase of such Offered
Securities by other persons, including any of the Purchasers, but if no such
arrangements are made by the Closing Date, the non-defaulting Purchasers shall
be obligated severally, in proportion to their respective commitments hereunder,
to purchase the Offered Securities that such defaulting Purchasers agreed but
failed to purchase. If any Purchaser or Purchasers so default and the aggregate
percentage of all such Offered Securities with respect to which such default or
defaults occur exceeds 10% and arrangements satisfactory to CSFBC and the
Company for the purchase of such Offered Securities by other persons are not
made within 36 hours after such default, this Agreement will terminate without
liability on the part of any non-defaulting Purchaser or the Company, except as
provided in Section 9. As used in this Agreement, the term "Purchaser" includes
any person substituted for a Purchaser under this Section. Nothing herein will
relieve a defaulting Purchaser from liability for its default.
9. Survival of Certain Representations and Obligations. The respective
indemnities, agreements, representations, warranties and other statements of the
Company or its officers and
<PAGE>
18
of the several Purchasers set forth in or made pursuant to this Agreement will
remain in full force and effect, regardless of any investigation, or statement
as to the results thereof, made by or on behalf of any Purchaser, the Company or
any of their respective representatives, officers or directors or any
controlling person, and will survive delivery of and payment for the Offered
Securities. If this Agreement is terminated pursuant to Section 8 or if for any
reason the purchase of the Offered Securities by the Purchasers is not
consummated, the Company shall remain responsible for the expenses to be paid or
reimbursed by it pursuant to Section 5 and the respective obligations of the
Company and the Purchasers pursuant to Section 7 shall remain in effect . If the
purchase of the Offered Securities by the Purchasers is not consummated for any
reason other than solely because of the termination of this Agreement pursuant
to Section 8 or the occurrence of any event specified in clause (C), (D) or (E)
of Section 6(b)(ii), the Company will reimburse the Purchasers for all out-of-
pocket expenses (including fees and disbursements of counsel) reasonably
incurred by them in connection with the offering of the Offered Securities.
10. Notices. All communications hereunder will be in writing and, if sent
to the Purchasers will be mailed, delivered or telecopied and confirmed to the
Purchasers, c/o Credit Suisse First Boston Corporation, Eleven Madison Avenue,
New York, N.Y. 10010-3629, Attention: Investment Banking Department-
Transactions Advisory Group, telephone: (212) 325-2107, telecopy: (212) 325-8278
or, if sent to the Company, will be mailed, delivered or telecopied and
confirmed to it at:
21st Century Telecom Group, Inc.
World Trade Center - Chicago
350 N Orleans, Suite 600
Chicago, Illinois 60654
Attention: Chief Financial Officer
Telephone: (312) 470-2100
Telecopy: (312) 470-2111
with copies to:
Piper & Marbury LLP
1200 Nineteenth Street, N.W.
Washington, D.C. 20036-2430
Attention: Edward M. Martin, Jr.
Telephone: (202) 861-6315
Telecopy: (202) 223-2085
provided, however, that any notice to a Purchaser pursuant to Section 7 will be
mailed, delivered or telegraphed and confirmed to such Purchaser.
11. Successors. This Agreement will enure to the benefit of and be
binding upon the parties hereto and their respective successors and the
controlling persons referred to in Section 7, and no other person will have any
right or obligation hereunder, except that holders of Offered Securities shall
be entitled to enforce the agreements for their benefit contained in the second
sentence of Section 5(b) hereof against the Company as if such holders were
parties thereto.
12. Counterparts. This Agreement may be executed in any number of
counterparts,
<PAGE>
19
each of which shall be deemed to be an original, but all such counterparts shall
together constitute one and the same Agreement.
13. Representation of Purchasers. In connection with this purchase, any
action taken by Credit Suisse First Boston Corporation as representative of the
Purchasers will be binding upon all Purchasers.
14. Applicable Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of New York without regard to principles
of conflicts of laws.
The Company hereby submits to the non-exclusive jurisdiction of the
Federal and state courts in the Borough of Manhattan in The City of New York in
any suit or proceeding arising out of or relating to this Agreement or the
transactions contemplated hereby.
<PAGE>
20
If the foregoing is in accordance with the Purchasers' understanding
of our agreement, kindly sign and return to us one of the counterparts hereof,
whereupon it will become a binding agreement between the Company and the several
Purchasers in accordance with its terms.
Very truly yours,
21ST CENTURY TELECOM GROUP, INC.
By:__________/S/ Ronald D. Webster_________
Name: Ronald D. Webster
Title: CFO
The foregoing Purchase Agreement is hereby
confirmed and accepted as of the date first
above written.
CREDIT SUISSE FIRST BOSTON CORPORATION
BANKAMERICA ROBERTSON STEPHENS
BANCBOSTON SECURITIES INC.
By: CREDIT SUISSE FIRST BOSTON CORPORATION
By:______/S/Kaukab Chaundry________
Name: Kaukab Chaundry
Title: Director
<PAGE>
21
Schedule A
<TABLE>
<CAPTION>
Principal Amount at
Maturity of Senior
Purchaser Discount Notes Number of Units
- --------- ------------------- --------------
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Credit Suisse First Boston Corporation $236,039,000 32,500
- -----------------------------------------------------------------------------------------------------
BancAmerica Robertson Stephens 63,548,000 8,750
- -----------------------------------------------------------------------------------------------------
BancBoston Securities Inc. 63,548,000 8,750
------------ ------
- -----------------------------------------------------------------------------------------------------
$363,135,000 50,000
============ ======
</TABLE>
<PAGE>
EXHIBIT 3.1
21ST CENTURY TELECOM GROUP, INC.
RESOLVED, that Article 4 of the Articles of Incorporation is hereby deleted in
its entirety and the following is substituted thereof:
4. Paragraph 1: Authorized Shares, Issued Shares and Consideration
Received:
<TABLE>
<CAPTION>
NUMBER OF
PAR VALUE SHARES
CLASS PER SHARE AUTHORIZED
----- --------- ----------
<S> <C> <C>
Common:
Voting NPV 50,000,000
Non-Voting NPV 1,000,000
13-3/4% Senior
Cumulative
Exchangeable Preferred $0.01 100,000
Stock
Class A Convertible 8%
Cumulative Preferred NPV 500,000
Stock
Class B Convertible
8% Cumulative NPV 500,000
Preferred Stock
</TABLE>
Paragraph 2: The preferences, qualifications, limitations,
restrictions, and special or relative rights in respect of the shares of each
class are:
13-3/4% SENIOR CUMULATIVE EXCHANGEABLE PREFERRED STOCK TERMS
------------------------------------------------------------
Section 1. Dividends.
---------
1A. General Obligation. When and as declared by the Board of
------------------
Directors and to the extent permitted under the Illinois Business Corporation
Act of 1983, as amended (the "ILBCA"), or these Articles, the Corporation shall
-----
pay preferential dividends to the holders of its 13-3/4% Senior Cumulative
Exchangeable Preferred Stock Due 2010 (the "Exchangeable Preferred Stock") as
----------------------------
provided in this Section 1.
-1-
<PAGE>
The number of shares constituting the Exchangeable Preferred Stock
shall be 100,000 of which 50,000 shares (the "Initial Exchangeable Preferred
------------------------------
Stock") shall be issuable initially and of which 50,000 shares (the
- -----
"Registerable Exchangeable Preferred Stock") shall be issuable in exchange for
- ------------------------------------------
the Initial Exchangeable Preferred Stock pursuant to the Registration Rights
Agreement. The Initial Exchangeable Preferred Stock and the Registerable
Exchangeable Preferred Stock are referred to collectively as the "Exchangeable
------------
Preferred Stock". Dividends on each share of the Exchangeable Preferred Stock
- ---------------
(a "Share") shall accrue at a rate of 13-3/4% per annum of the sum of the
-----
Liquidation Preference thereof plus all accumulated and unpaid dividends thereon
from and including the Date of Issuance (defined below) of such Share to and
including the first to occur of (i) the date on which the Liquidation Preference
of such Share (plus all accrued and unpaid dividends thereon) is paid to the
holder thereof in connection with the liquidation of the Corporation in
accordance with Section 5 hereof, or (ii) the date on which such Share is
acquired by the Corporation. Such dividends shall accrue whether or not they
have been declared and whether or not there are profits, surplus or other funds
of the Corporation legally available for the payment of dividends. Dividends
shall be payable in cash, quarterly in arrears on February 15, May 15, August 15
and November 15 of each year or, if such date is not a Business Day, then on the
next succeeding Business Day (each, a "Dividend Payment Date") to the holders of
---------------------
record as of the next preceding February 1, May 1, August 1 and November 1,
commencing on May 15, 1998, except that on each Dividend Payment Date occurring
on or prior to February 15, 2003, dividends may be paid, at the Corporation's
option, by the issuance of additional Shares (including fractional Shares)
having an aggregate Liquidation Preference equal to the amount of such
dividends. The issuance of such additional Shares shall constitute "payment" of
the related dividend. The date on which the Corporation initially issues any
Share shall be deemed to be its "Date of Issuance" regardless of the number of
----------------
times transfer of such Share is made on the stock records maintained by or for
the Corporation and regardless of the number of certificates which may be issued
to evidence such Share. The Corporation will take all actions required or
permitted under the ILBCA to permit the payment of dividends on the Shares,
including through the revaluation of its assets in accordance with the ILBCA.
1B. Dividend Payment Dates. To the extent not paid on a Dividend
----------------------
Payment Date, all dividends which have accrued on each Share outstanding during
the three-month period (or other period in the case of the initial Dividend
Payment Date) ending upon each such Dividend Payment Date shall be accumulated
and shall remain accumulated and accrued dividends with respect to such Share
until paid to the holder thereof, whether or not there are funds legally
available for the payment of such dividends and whether or not such dividends
are declared. Dividends payable on each Share shall be computed on the basis of
a 360-day year consisting of twelve 30-day months and will be deemed to accrue
on a daily basis.
1C. Prohibitions on Declaration of Dividends.
----------------------------------------
-2-
<PAGE>
(i) No dividend, whatsoever, shall be declared or paid upon,
or any sum set apart for the payment of dividends upon, any outstanding Share
with respect to any dividend period unless all dividends for all preceding
dividend periods have been declared and paid or declared and a sufficient sum
set apart (or, on or prior to February 15, 2003, Shares for which have been
issued and are held for holders by the Transfer Agent) for the payment of such
dividend, upon all outstanding Shares.
(ii) Except as provided in the next sentence, no dividends will
be declared or paid on any Parity Stock, unless full cumulative dividends have
been paid on the Shares for all prior dividend periods. If accrued dividends on
the Shares for all prior dividend periods have not been paid in full, then any
dividend declared on the Shares for any dividend period and on any Parity Stock
will be declared ratably in proportion to accrued and unpaid dividends on the
Shares and the Parity Stock.
(iii) The Corporation will not (a) declare, pay or set apart
funds for the payment of any dividend or other distribution with respect to any
Junior Stock or (b) redeem, purchase or otherwise acquire for consideration any
Junior Stock through a sinking fund or otherwise, unless (I) all accrued and
unpaid dividends with respect to the Shares and any Parity Stock at the time
such dividends are payable have been paid or funds have been set apart (or, on
or prior to February 15, 2003, Shares for which have been issued and are held
for holders by the Transfer Agent) for payment of such dividends and (II)
sufficient funds have been paid or set apart (or, on or prior to February 15,
2003, Shares for which have been issued and are held for holders by the Transfer
Agent) for the payment of the dividend for the current dividend period with
respect to the Shares and any Parity Stock.
1D. Distribution of Partial Dividend Payments. Except as otherwise
-----------------------------------------
provided herein, if at any time the Corporation pays less than the total amount
of dividends then accrued with respect to the outstanding Shares, such payment
shall be distributed pro rata among the holders thereof based upon the number of
Shares held by each such holder.
Section 2. Optional Redemption.
-------------------
2A. Generally. Except as set forth Section 2C below, the Shares will
---------
not be redeemable at the Corporation's option prior to February 15, 2003.
Thereafter, the Shares will be redeemable, at the Corporation's option, in whole
or in part, at any time or from time to time, upon not less than 30 days' but no
more than 60 days' prior notice mailed by first-class mail to the registered
address of each holder of a Share (the "Holder(s)").
---------
2B. Redemption Price. Upon giving written notice to the Holders, as
----------------
set forth in Section 2A above, the Corporation shall redeem the Shares at the
following
-3-
<PAGE>
redemption prices (expressed in percentages of the Liquidation Preference
thereof), plus accumulated and unpaid dividends (including an amount in cash
equal to a prorated dividend for any partial dividend period) (subject to the
rights of holders of record on the relevant record date to receive dividends due
on the relevant Dividend Payment Date), if redeemed during the 12-month period
commencing on February 15 of the years set forth below:
<TABLE>
<CAPTION>
PERIOD REDEMPTION PRICE (%)
- ------ --------------------
<S> <C>
2003 106.8750%
2004 104.5833%
2005 102.2917%
2006 and thereafter 100.0000%
</TABLE>
In the case of any partial redemption, selection of Shares for redemption shall
be made on a pro rata basis.
2C. Equity Offering. At any time prior to February 15, 2001, the
---------------
Corporation may redeem all of the Shares issued and outstanding with some or all
of the proceeds (to the extent received by the Corporation) of an Equity
Offering, at a redemption price of 113-3/4% of the Liquidation Preference
thereof, plus accumulated and unpaid dividends (including an amount in cash
equal to a prorated dividend for any partial dividend period) (subject to the
rights of holders of record on the relevant record date to receive dividends due
on the relevant Dividend Payment Date). If the Corporation elects to effect such
redemption, then the Corporation will take all actions required or permitted
under the ILBCA to permit such redemption.
Section 3. Mandatory Redemption.
--------------------
On February 15, 2010, the Board of Directors shall take all actions
required or permitted under the ILCBA to redeem (subject to the legal
availability of funds therefor) all issued and outstanding Shares, at a price
per Share in cash equal to the Liquidation Preference thereof, plus accumulated
and unpaid dividends (including an amount in cash equal to a prorated dividend
for any partial dividend period), if any, to the date of redemption (subject to
the rights of holders of record on the relevant record date to receive dividends
on the relevant Dividend Payment Date). The Corporation will not be required to
make sinking fund payments with respect to the Shares.
Section 4. The Exchange.
------------
4A. Generally. At the option of the Corporation, the Corporation may,
---------
on any scheduled Dividend Payment Date, subject to the terms and conditions of
this Section 4, exchange (the "Exchange") the Shares, in whole, but not in part,
--------
for 13-3/4% Subordinated Exchange Debentures Due 2010 of the Corporation (the
"Exchange Debentures") in an aggregate principal amount equal to the sum of the
-------------------
Liquidation
-4-
<PAGE>
Preference of the Shares, plus a payment in cash (or, if on or prior to February
15, 2003, in Exchange Debentures) equal to accumulated and unpaid dividends
thereon to the date of the Exchange; provided, however, that (a) on the date of
-------- -------
the Exchange there are no accumulated and unpaid dividends on the Shares
(including the dividend payable on such date) or other contractual impediments
to the Exchange; (b) there shall be funds legally available sufficient for such
payment in cash, if any, and (c) immediately after giving effect to the
Exchange, the Corporation shall not be in default under the terms and conditions
of the Exchange Debentures Indenture as in effect on the date of these Articles
(the "Exchange Debentures Indenture"), as amended as permitted by the terms of
-----------------------------
the Exchange Debentures Indenture.
Upon any exchange pursuant to the preceding sentence, holders of
outstanding Shares will be entitled to receive, subject to the second succeeding
sentence, $1.00 principal amount of Exchange Debentures for each $1.00 in
Liquidation Preference of Exchangeable Preferred Stock held by them. The
Exchange Debentures will be issued in registered form, without coupons. Exchange
Debentures issued in exchange for Exchangeable Preferred Stock will be issued in
principal amounts of $1,000 and integral multiples thereof to the extent
possible, and will also be issued in principal amounts less than $1,000 so that
each holder of Exchangeable Preferred Stock will receive certificates
representing the entire amount of Exchange Debentures to which such holder's
shares of Exchangeable Preferred Stock entitle such holder; provided, however,
-------- -------
that the Corporation may pay cash in lieu of issuing an Exchange Debenture in a
principal amount less than $1,000.
4B. Notification of Exchange. The Corporation will send a written
------------------------
notice of exchange by mail to each holder of record of Shares, not fewer than 30
days nor more than 60 days, before the date fixed for such Exchange. On and
after the date of the Exchange, dividends will cease to accrue on the
outstanding Shares and all rights of the holders of the Shares (except the right
to receive the Exchange Debentures, an amount in cash (or, prior to February 15,
2003, at the option of the Corporation, in Exchange Debentures), in each case,
to the extent applicable, equal to the accumulated and unpaid dividends to the
exchange date and, if the Corporation so elects, cash in lieu of any Exchange
Debenture that is in a principal amount not in an integral multiple of $1,000)
will terminate.
Section 5. Liquidation.
-----------
5A. Generally. Upon any liquidation, dissolution or winding up of the
---------
Corporation (whether voluntary or involuntary) (a "Liquidation"), the holder of
-----------
each then outstanding Share shall be entitled to be paid with respect to each
Share, before any distribution or payment is made upon any Junior Stock, an
amount in cash equal to the Liquidation Preference per Share, plus accumulated
and unpaid dividends thereon to the date fixed for Liquidation. After payment
of the full amount of the Liquidation Preference and accumulated and unpaid
dividends to which they are entitled, the
-5-
<PAGE>
holders of Shares will not be entitled to any further participation in any
distribution of assets of the Corporation.
5B. Pro Rata Liquidation Preference. If upon any such Liquidation the
-------------------------------
Corporation's assets to be distributed among the holders of the Shares and any
Parity Stock are insufficient to permit payment to such holders of the aggregate
amount which they are entitled to be paid under this Section 5, then the entire
assets available to be distributed to the Corporation's stockholders shall be
distributed pro rata among such holders of the Shares and the holders of Parity
Stock in proportion to the aggregate Liquidation Preference (plus all accrued
and unpaid dividends) and the liquidation value to which each is entitled.
5C. Notice of Liquidation. Not less than 60 days prior to the payment
---------------------
date stated therein, the Corporation shall mail written notice of any
Liquidation to each record holder of Shares and any Parity Stock, setting forth
in reasonable detail the amount of proceeds to be paid with respect to each
Share and share of Parity Stock and each share of Common Stock, voting and non-
voting, in connection with such Liquidation.
5D. Consolidation, Merger, etc. Neither the sale, conveyance,
--------------------------
exchange or transfer (for cash, shares of stock, securities or other
consideration) of all or substantially all the property or assets of the
Corporation, nor the consolidation or merger of the Corporation into or with any
other entity or entities (whether or not the Corporation is the surviving
entity), nor the reduction of the capital stock of the Corporation, nor any
other form of recapitalization or reorganization affecting the Corporation shall
be deemed to be a Liquidation within the meaning of this Section 5.
Section 6. Voting Rights.
-------------
6A. Generally. The holders of Shares, except as otherwise required
---------
under Illinois law or as provided for herein, shall not be entitled or permitted
to vote on any matter required or permitted to be voted upon by the stockholders
of the Corporation.
6B. Voting Rights Triggering Events. If: (a) dividends on the Shares
-------------------------------
are in arrears and unpaid for six or more dividend periods (whether or not
consecutive); (b) the Corporation fails to redeem the Shares on or before
February 15, 2010, or fails to otherwise discharge any redemption obligation
with respect to the Exchangeable Preferred Stock; (c) a breach or violation of
any of the provisions described under Section 7 or 11 hereof occurs and the
breach or violation continues for a period of 30 days or more after the
Corporation receives notice thereof specifying the default from the holders of
at least 25% of the Shares then outstanding or (d) the Corporation fails to pay
at final maturity (giving effect to any applicable grace period) the principal
amount of any Indebtedness of the Corporation or any subsidiary or the final
maturity of any
-6-
<PAGE>
such Indebtedness is accelerated because of a default and the total amount of
such Indebtedness unpaid or accelerated exceeds $10 million and such nonpayment
continues, or such acceleration is not rescinded, within 10 days (the events
described in (a) through (d) being hereinafter referred to as "Voting Rights
-------------
Triggering Events"), then the holders of the outstanding Shares, voting together
- -----------------
as a single class, will be entitled to elect to serve on the Board of Directors
the lesser of: (i) two additional members to the Board of Directors or (ii) that
number of directors constituting 25% of the members of the Board of Directors,
and the number of members of the Board of Directors will be immediately or
automatically increased by such number.
6C. Term of Voting Rights. The voting rights contained in Section 6B
---------------------
above will continue until such time as, in the case of a dividend default, all
dividends in arrears on the Shares are paid in full in cash (or, if on or prior
to February 15, 2003, in Shares) and, in all other cases, any failure, breach or
default giving rise to such voting rights is remedied or waived by the holders
of a majority of the Shares then outstanding, at which time the term of any
directors elected pursuant to the provisions of Section 6B (subject to the
rights of holders of any other preferred stock to elect such directors) shall
terminate.
6D. Unlimited Voting Rights. The Corporation shall not: (a)
-----------------------
authorize, create or increase the authorized amount of any class of Senior Stock
or any Parity Stock without the affirmative vote or consent of the holders of a
majority of the Shares then outstanding, voting or consenting, as the case may
be, as one class (the "Shares Majority") (b) authorize the issuance of any
---------------
additional Shares or amend these Articles of Incorporation, including the
covenants described under Section 11, so as to affect adversely the specified
rights, preferences, privileges or voting rights of Holders of the Shares
without the affirmative vote or consent of the Shares Majority .
6E. No Vote Required. Except as set forth in this Section 6, (a) the
----------------
creation, authorization or issuance of any shares of Junior Stock or (b) the
increase or decrease in the amount of authorized Capital Stock of any class,
including Preferred Stock, shall not require the consent of the holders of
Shares and shall not be deemed to affect adversely the rights, preferences,
privileges or voting rights of Shares.
Section 7. Change of Control.
-----------------
7A. Generally. After the occurrence of a Change in Control, as
---------
defined below, as provided in Section 7C, the Corporation shall offer to
repurchase the Shares at a purchase price in cash equal to 101% of the
Liquidation Preference thereof, plus accumulated and unpaid dividends, if any,
to the date of purchase (subject to the right of holders of record on the
relevant record date to receive dividends due on the relevant Dividend Payment
Date).
-7-
<PAGE>
7B. "Change of Control". A Change of Control will be deemed to have
-------------------
occurred upon the occurrence of any of the following events (each a "Change of
---------
Control"):
- -------
(a) Prior to the earlier to occur of (i) the first public
offering of the common stock of Parent or (ii) the first public offering of
Common Stock, the Permitted Holders cease to be the "beneficial owner" (as
defined in Rules 13d-3 and 13d-5 under the Exchange Act), directly or
indirectly, of a majority in the aggregate of the total voting power of the
Voting Stock of the Corporation, whether as a result of the issuance of
securities of the Parent or the Corporation, any merger, consolidation,
liquidation or dissolution of the Parent or the Corporation, any direct or
indirect transfer of securities by the Parent or otherwise (for purposes of this
clause (a) and clause (b) below, the Permitted Holders shall be deemed to
beneficially own any Voting Stock of a corporation (the "specified corporation")
--------- -----------
held by any other corporation (the "parent corporation" so long as the Permitted
------------------
Holders beneficially own, directly or indirectly, in the aggregate a majority of
the voting power of the Voting Stock of the parent corporation);
(b) Any "person" (as such term is used in Section 13(d) and
14(d) of the Exchange Act), other than one or more Permitted Holders, is or
becomes the beneficial owner (as defined in clause (a) above, except that for
purposes of this clause (b) such person shall be deemed to have "beneficial
ownership" of all shares that any such person has the right to acquire, whether
such right is exercisable immediately or only after the passage of time),
directly or indirectly, of more than 35% of the total voting power of the Voting
Stock of the Corporation; provided, however, that the Permitted Holders
-------- -------
beneficially own (as defined in clause (a) above), directly or indirectly, in
the aggregate a lesser percentage of the total voting power of the Voting Stock
of the Corporation than such other person and do not have the right or ability
by voting power, contract or otherwise to elect or designate for election a
majority of the Board of Directors (for the purposes of this clause (b), such
other person shall be deemed to beneficially own any Voting Stock of a specified
corporation held by a parent corporation, if such person is the beneficial owner
(as defined in this clause (b)), directly or indirectly, of more than 35% of the
voting power of the Voting Stock of such parent corporation and the Permitted
Holders beneficially own (as defined in clause (a) above), directly or
indirectly, in the aggregate a lesser percentage of the voting power of the
Voting Stock of such parent corporation and do not have the right or ability by
voting power, contract or otherwise to elect or designate for election a
majority of the board of directors of such parent corporation);
(c) during any period of two consecutive years, individuals who
at the beginning of such period constituted the Board of Directors (together
with any new directors whose election or appointment by such Board of Directors
or whose nomination for election by the shareholders of the Corporation was
approved by a vote of 66 2/3% of the directors of the Corporation then still in
office who were either
-8-
<PAGE>
directors at the beginning of such period or whose election or nomination for
election was previously so approved) cease for any reason to constitute a
majority of the Board of Directors then in office; or
(d) the merger or consolidation of the Corporation with or into
another Person or the merger of another Person with or into the Corporation, or
the sale of all or substantially all the assets of the Corporation to another
Person (other than a Person that is controlled by the Permitted Holders), and,
in the case of any such merger or consolidation, the securities of the
Corporation that are outstanding immediately prior to such transaction and which
represent 100% of the aggregate voting power of the Voting Stock of the
Corporation are changed into or exchanged for cash, securities or property,
unless pursuant to such transaction such securities are changed into or
exchanged for, in addition to any other consideration, securities of the
surviving corporation that represent immediately after such transaction, at
least a majority of the aggregate voting power of the Voting Stock of the
surviving Person.
7C. Notice of Change of Control. (a) Within 30 days after any Change
---------------------------
of Control, the Corporation shall mail notice to each Holder (the "Change of
---------
Control Offer") stating: (i) that a Change of Control has occurred and that such
- -------------
Holder has the right to require the Corporation to purchase such Holder's Shares
at the purchase price set forth in this Section 7; (ii) the circumstances and
relevant facts regarding such Change of Control (including information with
respect to pro forma historical income, cash flow and capitalization after
giving effect to such Change of Control); (iii) the purchase date (which shall
be no earlier than 30 days nor later than 60 days from the date such notice is
mailed) and (iv) the instructions determined by the Corporation, consistent with
this Section 7, that a Holder must follow in order to have its Shares purchased.
(b) Holders electing to have a Share purchased will be required
to surrender the Share, with an appropriate form duly completed, to the
Corporation at the address specified in the notice at least three Business Days
prior to the purchase date. Holders will be entitled to withdraw their election
if the Transfer Agent or the Corporation receives not later than one Business
Day prior to the purchase date, a telegram, telex, facsimile transmission or
letter setting forth the name of the Holder, the number of Shares the Holder
delivered for purchase and a statement that such Holder is withdrawing his
election to have such Shares purchased.
(c) On the purchase date, all Shares purchased by the
Corporation under this Section shall be delivered by the Transfer Agent for
cancellation, and the Corporation shall pay the purchase price to the Holders
entitled thereto. Upon surrender of a Share certificate which represents Shares
that are repurchased under this Section in part, the Corporation shall execute
and the Transfer Agent shall authenticate for the Holder thereof (at the
Corporation's expense) a new certificate representing the unpurchased Shares.
-9-
<PAGE>
(d) Notwithstanding the foregoing provisions of this Section,
the Corporation will not be required to make a Change of Control Offer after a
Change of Control if a third party makes the Change of Control Offer in the
manner and at the times and otherwise in compliance with the requirements set
forth in this Section applicable to a Change of Control Offer made by the
Corporation and purchases all Shares validly tendered and not withdrawn under
such Change of Control Offer.
7D. Prohibitions Against Purchasing.
-------------------------------
(a) If the Corporation is prohibited by applicable law or by the
terms of Indebtedness of the Corporation from making the offer described in this
Section 7 or from purchasing Shares pursuant to such offer, then, within 60 days
after the occurrence of the Change of Control, holders of a majority of the
Shares may designate an Independent Financial Advisor to determine, within 20
days after such designation, in the opinion of such firm, the appropriate
dividend rate (the "reset rate") that the Shares should bear so that, after the
----------
dividend rate on the Shares is reset to such reset rate, the Shares would have a
market value of 101% of the Liquidation Preference; provided, however, that no
-------- -------
such reset shall be required to be made if such Independent Financial Advisor
determines that the Shares, after giving effect to the Change of Control, have a
market value of 101% of the Liquidation Preference or greater.
(b) Upon the determination of the reset rate, the Shares shall
accrue and accumulate dividends at the reset rate from and after the date of
occurrence of the Change of Control; provided, however, that the reset rate
------- --------
shall in no event be less than 13-3/4% per annum or greater than 15% per annum.
The Corporation shall bear the reasonable fees and expenses, including
reasonable fees and expenses of legal counsel, if any, and customary
indemnification, of the above-referenced Independent Financial Advisor.
7E. Compliance. The Corporation shall comply, to the extent
----------
applicable, with the requirements of Section 14(e) of the Exchange Act and any
other securities laws or regulations in connection with the purchase of the
Shares pursuant to this Section 7. To the extent that the provisions of any
securities laws or regulations conflict with the provisions of this Section 7,
the Corporation shall comply with the applicable securities laws and regulations
and shall not be deemed to have breached its obligations under this Section 7 by
virtue thereof.
Section 8. Rank. The Exchangeable Preferred Stock will, with respect to
----
dividend rights and rights on liquidation, winding-up and dissolution, rank (i)
senior to Junior Stock (including the Class A Preferred Stock and the Class B
Preferred Stock); (ii) on a parity with Parity Stock; and (iii) junior to Senior
Stock. While any Shares are outstanding, the Corporation may not authorize,
create or increase the authorized
-10-
<PAGE>
amount of any class or series of stock that ranks senior to or on parity with
the Exchangeable Preferred Stock with respect to the payment of dividends or
amounts upon liquidation, dissolution or winding up without the consent of the
holders of a majority of the outstanding shares of Exchangeable Preferred Stock.
However, without the consent of any holder of Exchangeable Preferred Stock, the
Corporation may create additional classes of stock, increase the authorized
number of shares of preferred stock or issue series of a stock that ranks junior
to the Exchangeable Preferred Stock with respect in each case to the payment of
dividends and amounts upon liquidation, dissolution and winding up. All claims
of the holders of the Exchangeable Preferred Stock, including claims with
respect to dividend payments, redemption payments, mandatory repurchase payments
or rights upon liquidation, winding-up or dissolution, shall rank junior to the
claims of creditors (including trade creditors) and preferred stockholders (if
any) of the subsidiaries of the Corporation.
Section 9. Replacement.
-----------
Upon receipt of evidence reasonably satisfactory to the Corporation (an
affidavit of the registered holder shall be satisfactory) of the ownership and
the loss, theft, destruction or mutilation of any certificate evidencing Shares,
and in the case of any such loss, theft or destruction, upon receipt of
indemnity reasonably satisfactory to the Corporation (provided that if the
holder is a financial institution or other institutional investor its own
agreement shall be satisfactory), or, in the case of any such mutilation upon
surrender of such certificate, the Corporation or the Transfer Agent (as the
case may be) shall (at the Corporation's expense) execute and deliver in lieu of
such certificate a new certificate of like kind representing the number of
Shares represented by such lost, stolen, destroyed or mutilated certificate and
dated the date of such lost, stolen, destroyed or mutilated certificate, and
dividends shall accrue on the Shares represented by such new certificate from
the date to which dividends have been fully paid on the Shares represented by
such lost, stolen, destroyed or mutilated certificate.
Section 10. Notices.
-------
Any notice or communication shall be in writing and delivered by hand or
overnight courier service, mailed by certified or registered mail or sent by
telecopy, as follows: if to the Corporation, to 21st Century Telecom Group,
Inc., 350 North Orleans, Suite 600, Chicago, IL 60654, attention of Chief
Financial Officer (or by telecopy to the same at: (312) 470-2111), with a copy
to Piper & Marbury L.L.P., 1200 Nineteenth Street, N.W., Washington, D.C.
20036-2430, attention of Edwin M. Martin, Jr. (or by telecopy to the same at:
(202) 223-2085).
All notices and other communications in accordance with the provisions
herein shall be deemed to have been given on the date of receipt if delivered by
hand or overnight courier service or sent by telecopy or on the date five
Business Days after dispatch by certified or registered mail if mailed, in each
case delivered, sent or mailed
-11-
<PAGE>
(properly addressed) to a Person as provided in this Section 10 or in accordance
with the latest unrevoked direction from such Person given in accordance with
this Section 10.
Any notice or communication mailed to a Holder shall be mailed to the
Securityholder at such Holder's address as it appears in the stock records of
the Corporation and shall be sufficiently given if so mailed within the time
prescribed.
Failure to mail a notice or communication to a Holder or any defect in it
shall not affect its sufficiency with respect to other Holders. If a notice or
communication is mailed in the manner provided above, it is duly given, whether
or not the addressee receives it.
Section 11. Certain Restrictions.
--------------------
Until such time that no Shares remain issued and outstanding, the
Corporation hereby covenants:
11A. Limitation on Indebtedness.
--------------------------
(a) The Corporation shall not Incur, and shall not permit any of
its Restricted Subsidiaries to Incur, directly or indirectly, any Indebtedness,
except that the Corporation may Incur Indebtedness if, on the date of such
Incurrence and after giving effect thereto, the Consolidated Leverage Ratio
would be less than 6.0 to 1.0, for Indebtedness Incurred prior to or on December
31, 1999, and less than 5.0 to 1.0 for Indebtedness Incurred thereafter.
(b) Notwithstanding Section 11A(a), the Corporation and (except
as specified below) any Restricted Subsidiary may Incur any or all of the
following Indebtedness:
(i) Indebtedness Incurred pursuant to the Credit Agreement;
provided, however, that the aggregate amount of such Indebtedness, when taken
- -------- -------
together with all other Indebtedness Incurred pursuant to this clause (i) and
then outstanding, does not exceed the remainder of (x) $50 million minus (y) the
sum of all principal payments with respect to the permanent retirement of such
Indebtedness pursuant to Section 11D; (a)(ii)(A)
(ii) Indebtedness owed to and held by the Corporation or a
Restricted Subsidiary; provided, however, that any subsequent issuance or
-------- -------
transfer of any Capital Stock which results in any such Restricted Subsidiary
ceasing to be a Restricted Subsidiary or any subsequent transfer of such
Indebtedness (other than to the Corporation or another Restricted Subsidiary)
shall be deemed, in each case, to constitute the Incurrence of such Indebtedness
by the issuer thereof;
-12-
<PAGE>
(iii) the Notes to be issued on the Issue Date and any
Exchange Notes issued in exchange therefor pursuant to the Registration Rights
Agreement, in each case including the accretion of original issue discount
thereon;
(iv) Indebtedness outstanding on the Issue Date (other than
Indebtedness described in clause (i), (ii) or (iii) of this Section 11A(b));
(v) Refinancing Indebtedness in respect of Indebtedness
Incurred pursuant to Section 11A(a) or pursuant to clause (iii) or (iv) of this
Section 11A(b), this clause (v) or clauses (vii), (viii) or (xi) of this Section
11A(b); provided, however, that to the extent such Refinancing Indebtedness
-------- -------
directly or indirectly Refinances Indebtedness of a Restricted Subsidiary
described in clause (xi), such Refinancing Indebtedness shall be Incurred only
by such Restricted Subsidiary;
(vi) Hedging Obligations consisting of Interest Rate
Agreements directly related to Indebtedness permitted to be Incurred by the
Corporation or any Restricted Subsidiary pursuant to Section 11A(a) or this
Section 11(A)(b);
(vii) Indebtedness, including Indebtedness of a Restricted
Subsidiary Incurred and outstanding on or prior to the date on which such
Subsidiary was acquired by the Corporation, Incurred to finance the cost
(including the cost of design, development, acquisition, construction,
installation, improvement, transportation or integration) to acquire equipment,
inventory or network assets, including real estate (including acquisitions by
way of capital lease and acquisitions of the Capital Stock of a Person that
becomes a Restricted Subsidiary to the extent of the fair market value of the
equipment, inventory or networks assets so acquired), by the Corporation or a
Restricted Subsidiary after the Issue Date for use in a Related Business;
(viii) Indebtedness of the Corporation in an amount which,
when taken together with the amount of Indebtedness Incurred pursuant to this
clause (viii) and then outstanding, does not exceed two times the Net Cash
Proceeds received by the Corporation after the Issue Date as a capital
contribution from, or from the issuance and sale of its Capital Stock (other
than Disqualified Stock) to, a Person that is not a Subsidiary of the
Corporation, to the extent such Net Cash Proceeds have not been used pursuant to
Section 11B(a)(C)(ii) or Section 11B(b)(i) to make a Restricted Payment;
provided, however, that such Indebtedness does not mature prior to the Stated
- -------- -------
Maturity of the Shares and has an Average Life longer than the Average Life of
the Shares;
(ix) Indebtedness in respect of performance, surety or
appeal bonds or similar obligations, in each case Incurred in the ordinary
course of business of the Corporation and its Restricted Subsidiaries and
Indebtedness due and
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<PAGE>
owing to governmental entities in connection with any licenses and franchises
issued by a governmental entity and necessary or desirable to conduct a Related
Business;
(x) Guarantees of the Notes issued by any Restricted
Subsidiary:
(xi) Indebtedness of a Restricted Subsidiary Incurred and
outstanding on or prior to the date on which such Subsidiary was acquired by the
Corporation (other than Indebtedness Incurred in connection with, or to provide
all or any portion of the funds or credit support utilized to consummate, the
transaction or series of related transactions pursuant to which such Subsidiary
became a Subsidiary or was acquired by the Corporation); provided, however, that
-------- -------
on the date of such acquisition and after giving effect thereto, the Corporation
would have been able to Incur at least $1.00 of additional Indebtedness pursuant
to Section 11A(a); and
(xii) Indebtedness Incurred in an aggregate amount which,
when taken together with the aggregate amount of all other Indebtedness of the
Corporation and its Restricted Subsidiaries outstanding on the date of such
Incurrence (other than Indebtedness permitted by clauses (i) through (xi) of
this Section 11A(b) or by Section 11A(a) does not exceed the greater of (A) $10
million and (B) an amount equal to 5% of the Corporation's Consolidated Net
Tangible Assets as of such date.
(c) For purposes of determining compliance with the foregoing
covenant, (i) in the event that an item of Indebtedness meets the criteria of
more than one of the types of Indebtedness described above, the Corporation, in
its sole discretion, will classify such item of Indebtedness and only be
required to include the amount and type of such Indebtedness in one of the above
clauses and (ii) an item of Indebtedness may be divided and classified in more
than one of the types of Indebtedness describe above.
(d) For the purposes of determining the amount of Indebtedness
outstanding at any time, Guarantees with respect to Indebtedness otherwise
included in the determination of such amount shall not be included.
11B. Limitation on Restricted Payments.
---------------------------------
(a) The Corporation shall not, and shall not permit any
Restricted Subsidiary, directly or indirectly, to (i) declare or pay any
dividend or make any distribution (including any payment in connection with any
merger or consolidation involving the Corporation) on or in respect of, in the
case of the Corporation, any Junior Stock or, in the case of any Restricted
Subsidiary, any Capital Stock, in each case held by Persons other than the
Corporation or any Restricted Subsidiary or similar payment to the direct or
indirect holders (other than the Corporation or a Restricted Subsidiary) of any
such Stock (other than dividends or distributions payable solely in Junior Stock
-14-
<PAGE>
(other than Disqualified Stock) and other than pro rata dividends or other
distributions made by a Subsidiary that is not a Wholly Owned Subsidiary to
minority stockholders (or owners of an equivalent interest in the case of a
Subsidiary that is an entity other than a corporation)), (ii) purchase, redeem
or otherwise acquire or retire for value any Junior Stock of the Corporation or
any Capital Stock of any direct or indirect parent of the Corporation or (iii)
make any Investment (other than a Permitted Investment) in any Person (any such
dividend, distribution, purchase, redemption, other acquisition, retirement or
investment being herein referred to as a "Restricted Payment") if at the time
------------------
the Corporation or such Restricted Subsidiary makes such Restricted Payment: (A)
any accrued and payable dividends (including dividends for the then current
dividend period) with respect to the Shares or any Parity Stock have not been
paid in full and funds for such payment have not been set apart (or, if on or
prior to February 15, 2003, Shares have not been issued in payment of such
dividends and are not held by the Transfer Agent); (B) the Corporation is not
able to Incur an additional $1.00 of Indebtedness pursuant to Section 11A(a) or
(C) the aggregate amount of such Restricted Payment and all other Restricted
Payments (the amount of any Restricted Payments, if other than in cash, to be
determined in good faith by the Board of Directors and to be evidenced by a
resolution of such Board set forth in an Officer's Certificate delivered to the
transfer agent) since the Issue Date would exceed the sum of, without
duplication:
(i) the remainder of (x) cumulative EBITDA during the period
(taken as a single accounting period) beginning on the first day of the fiscal
quarter of the Corporation beginning after the Issue Date and ending on the last
day of the most recent fiscal quarter for which financial statements have been
made publicly available but in no event ending more than 135 days prior to the
date of such determination minus (y) the product of 1.5 times cumulative
Consolidated Interest Expense during such period;
(ii) the aggregate Net Cash Proceeds received by the Corporation
from the issuance or sale of its Junior Stock (in each case other than
Disqualified Stock) subsequent to the Issue Date (other than an issuance or sale
to a Subsidiary of the Corporation and other than an issuance or sale to an
employee stock ownership plan or to a trust established by the Corporation or
any its Subsidiaries for the benefit of their employees);
(iii) the amount by which Indebtedness of the Corporation is
reduced on the Corporation's balance sheet upon the conversion or exchange
(other than by a Subsidiary of the Corporation) subsequent to the Issue Date of
any Indebtedness of the Corporation convertible or exchangeable for Junior Stock
(in each case other than Disqualified Stock) of the Corporation (less the amount
of any cash, or the fair value of any other property, distributed by the
Corporation upon such conversion or exchange); and
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<PAGE>
(iv) an amount equal to the sum of (A) the net reduction in
Investments in Unrestricted Subsidiaries resulting from payments of interest,
dividends, repayments of loans or advances or other transfers of assets, in each
case to the Corporation or any Restricted Subsidiary from Unrestricted
Subsidiaries, and (B) the portion (proportionate to the Corporation's equity
interest in such Subsidiary) of the fair market value of the net assets of an
Unrestricted Subsidiary at the time such Unrestricted Subsidiary is designated a
Restricted Subsidiary; provided, however, that the foregoing sum shall not
-------- -------
exceed, in the case of any Unrestricted Subsidiary, the amount of Investments
previously made (and treated as a Restricted Payment) by the Corporation or any
Restricted Subsidiary in such Unrestricted Subsidiary.
(b) The provisions of the foregoing paragraph (a) shall not prohibit:
(i) any acquisition of Junior Stock made out of the proceeds of
the substantially concurrent sale of, or any acquisition of any Junior Stock of
the Corporation made by exchange for, other Junior Stock of the Corporation (in
each case other than Disqualified Stock and other than Junior Stock issued or
sold to a Subsidiary of the Corporation or any employee stock ownership plan or
to a trust established by the Corporation or any of its Subsidiaries for the
benefit of their employees); provided, however, that (A) such acquisition of
-------- -------
Junior Stock shall be excluded in the calculation of the amount of Restricted
Payments pursuant to Section 11B(a)(C) and (B) the Net Cash Proceeds from such
sale shall be excluded from the calculation of amounts under Section
11B(a)(C)(ii);
(ii) dividends paid within 60 days after the date of declaration
thereof if at such date of declaration such dividend would have complied with
this Section 11B; provided, however, that at the time of payment of such
-------- -------
dividend, all accumulated dividends on the Shares have been paid in full and no
other Default shall have occurred and be continuing (or result therefrom);
provided further, however, that such dividend shall be included in the
- -------- ------- -------
calculation of the amount of Restricted Payments;
(iii) the purchase, redemption, retirement, repurchase of
other acquisition of shares of, or options to purchase shares of, Junior Stock
(other than Disqualified Stock) of the Corporation or Capital Stock (other than
Preferred Stock) of any of its Subsidiaries from employees, former employees,
directors or former directors of the Corporation or any of its Subsidiaries (or
permitted transferees of such employees, former employees, directors or former
directors including their estates or beneficiaries under their estates), (A)
upon their death, disability, retirement or termination of employment or (B)
otherwise pursuant to the terms of agreements (including employment agreements)
or plans (or amendments thereto) approved by the Board of Directors under which
such individuals received such Capital Stock; provided, however, that the
-------- -------
aggregate amount of consideration paid for such purchases,
-16-
<PAGE>
redemptions, retirements, repurchases and other acquisitions made pursuant to
this clause (iv) shall not exceed $500,000 in any calendar year; provided
--------
further, however, that such purchases, redemptions, retirements, repurchases and
- ------- -------
other acquisitions pursuant to this clause shall be excluded in the calculation
of the amount of Restricted Payments pursuant to Section 11(B)(a)(C);
(iv) the purchase, redemption, acquisition, cancellation or other
retirement for value of shares of Junior Stock of the Corporation or Capital
Stock of any of its Restricted Subsidiaries to the extent necessary, as
determined in good faith by a majority of the disinterested members of the Board
of Directors, to prevent the loss or to secure the renewal or reinstatement of
any license or franchise held by the Corporation or any Restricted Subsidiary
from any governmental entity; provided, however, that such purchase or
-------- -------
redemption shall be included in the calculation of the amount of Restricted
Payments pursuant to Section 11B(a)(C); or
(v) any purchase or redemption of Junior Stock following a
Change of Control pursuant to an obligation in the instruments governing such
Junior Stock to purchase or redeem such Junior Stock as a result of such Change
of Control; provided, however, that no such purchase or redemption shall be
-------- -------
permitted until the Corporation has completely discharged its obligations upon a
Change of Control (including the purchase of all Shares tendered for purchase by
holders) arising as a result of such Change of Control; provided further,
-------- -------
however, that such purchase or redemption shall be included in the calculation
of the amount of Restricted Payments pursuant to Section 11B(a)(C).
11C. Limitation on Restrictions on Distributions from Restricted
-----------------------------------------------------------
Subsidiaries. The Corporation shall not, and shall not permit any Restricted
- ------------
Subsidiary to, create or otherwise cause or permit to exist or become effective
any consensual encumbrance or restriction on the ability of any Restricted
Subsidiary to (a) pay dividends or make any other distributions on its Capital
Stock to the Corporation or a Restricted Subsidiary, (b) pay any Indebtedness
owed to the Corporation, (c) make any loans or advances to the Corporation or
(d) transfer any of its property or assets to the Corporation, except:
(i) any encumbrance or restriction pursuant to the Notes
Indenture, these Articles or any other agreement in effect at or entered into on
the Issue Date;
(ii) any encumbrance or restriction with respect to a Restricted
Subsidiary pursuant to an agreement relating to any Indebtedness Incurred by
such Restricted Subsidiary on or prior to the date on which such Restricted
Subsidiary was acquired by the Corporation (other than Indebtedness Incurred as
consideration in, or to provide all or any portion of the funds or credit
support utilized to consummate, the transaction or series of related
transactions pursuant to which such Restricted
-17-
<PAGE>
Subsidiary became a Restricted Subsidiary or was acquired by the Corporation)
and outstanding on such date;
(iii) any encumbrance or restriction pursuant to an agreement
effecting a Refinancing of Indebtedness Incurred pursuant to an agreement or
instrument referred to in clause (i) or (ii) of this Section 11C or this clause
(iii) or contained in any amendment to an agreement or instrument referred to in
clause (i) or (ii) of this Section 11C or this clause (iii); provided, however,
-------- -------
that the encumbrances and restrictions with respect to such Restricted
Subsidiary contained in any such refinancing agreement or amendment are no less
favorable to the holders of Shares than encumbrances and restrictions with
respect to such Restricted Subsidiary contained in such predecessor agreements;
(iv) any such encumbrance or restriction consisting of customary
non-assignment or anti-alienation provisions in (A) leases governing leasehold
interests to the extent such provisions restrict the transfer of the lease or
the property leased thereunder or subletting and (B) licenses or franchises to
the extent such provisions restrict the transfer of the license or franchise;
(v) in the case of clause (d) above, restrictions contained in
security agreements or mortgages securing Indebtedness of a Restricted
Subsidiary to the extent such restrictions restrict the transfer of the property
subject to such security agreement or mortgages;
(vi) any restriction with respect to a Restricted Subsidiary imposed
pursuant to an agreement entered into for the sale or disposition of all or
substantially all the Capital Stock or assets of such Restricted Subsidiary
pending the closing of such sale or disposition; and
(vii) any encumbrance or restriction contained in the terms of any
Indebtedness or any agreement pursuant to which such Indebtedness was Incurred
if the Board of Directors determines in good faith that any such encumbrance or
restriction will not materially affect the Corporation's ability to pay the
mandatory redemption price and dividends on the Shares when due and such
encumbrance or restriction by its terms expressly permits such Restricted
Subsidiary, (A) in the absence of a payment default in respect of such
Indebtedness or other agreement, to make cash payments to the Corporation (in
any form) sufficient to pay when due all amounts of the mandatory redemption
price and dividends on the Shares and (B) following the occurrence and during
the continuance of a payment default in respect of such Indebtedness or other
agreement, to resume making cash payments to the Corporation (in any form)
sufficient to pay when due all amounts of the mandatory redemption price and
dividends on the Shares upon the earlier of the cure of such payment default and
the lapse of 179 consecutive days following the date when such encumbrance or
restriction became operative to prohibit or limit such Restricted Subsidiary
from making
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<PAGE>
such payments to the Corporation; provided, however, that no Restricted
-------- -------
Subsidiary shall be affected by the operation of such encumbrances or
restrictions following the occurrence of a payment default on more than one
occasion in any consecutive 360-day period.
11D. Limitation on Sales of Assets and Subsidiary Stock.
--------------------------------------------------
(a) The Corporation shall not, and shall not permit any
Restricted Subsidiary to, directly or indirectly, consummate any Asset
Disposition unless (i) the Corporation or such Restricted Subsidiary receives
consideration at the time of such Asset Disposition at least equal to the fair
market value (including as to the value of all non-cash consideration), as
determined in good faith by the Board of Directors, of the shares and assets
subject to such Asset Disposition and at least 75% of the consideration thereof
received by the Corporation or such Restricted Subsidiary is in the form of cash
or cash equivalents and (ii) an amount equal to 100% of the Net Available Cash
from such Asset Disposition is applied by the Corporation (or such Restricted
Subsidiary, as the case may be)
(A) first, to the extent the Corporation elects in its sole
discretion (or is required by the terms of any Indebtedness), to prepay, repay,
redeem or purchase Indebtedness (other than any Disqualified Stock) of the
Corporation or a Restricted Subsidiary (in each case other than Indebtedness
owed to the Corporation or an Affiliate of the Corporation) within one year from
the later of the date of such Asset Disposition or the receipt of such Net
Available Cash;
(B) second, to the extent of the balance of such Net
Available Cash after application in accordance with clause (A), to the extent
the Corporation elects in its sole discretion, to acquire Additional Assets
within one year after the receipt of such Net Available Cash;
(C) third, to the extent of the balance of such Net
Available Cash after application in accordance with clauses (A) and (B), to make
an offer to the holders of the Shares (and to holders of Parity Stock designated
by the Corporation) to purchase Shares (and such Parity Stock) pursuant to and
subject to the conditions contained in Section 11D(c); and
(D) fourth, to the extent of the balance of such Net
Available Cash after application in accordance with clauses (A), (B) and (C),
for the general corporate and working capital purposes of the Corporation and
its Restricted Subsidiaries; provided, however, that in connection with any
-------- -------
prepayment, repayment or purchase of Indebtedness pursuant to clause (A) above,
the Corporation or such Restricted Subsidiary shall permanently retire such
Indebtedness and shall cause the related loan commitment (if any) to be
permanently reduced in an amount equal to the principal amount so prepaid,
repaid or purchased. Notwithstanding the foregoing
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<PAGE>
provisions of this Section 11D(a), the Corporation and the Restricted
Subsidiaries shall not be required to apply any Net Available Cash in accordance
with this Section 11D(a) except to the extent that the aggregate Net Available
Cash from all Asset Dispositions occurring after the Issue Date which are not
applied in accordance with this Section 11D(a) exceeds $5 million. Pending
application of Net Available Cash pursuant to this Section 11D, such Net
Available Cash shall be invested in Permitted Investments.
For the purposes of this Section 11D, the following are deemed to be cash
or cash equivalents; (x) the assumption of Indebtedness of the Corporation or
any Restricted Subsidiary and the release of the Corporation or such Restricted
Subsidiary from all liability on such Indebtedness in connection with such Asset
Disposition, (y) securities received by the Corporation or any Restricted
Subsidiary from the transferee that are promptly converted by the Corporation or
such Restricted Subsidiary into cash; and (z) Temporary Cash Investments.
(b) In the event of an Asset Disposition that requires the purchase of
Shares (and Parity Stock) pursuant to Section 11D(a)(ii)(C) above, the
Corporation will be required to purchase Shares tendered pursuant to an offer by
the Corporation for the Shares (and Parity Stock) (the "Offer") at a purchase
-----
price of 100% of their Liquidation Preference plus accrued but unpaid dividends,
if any, to the date of purchase (or, in respect of such Parity Stock, such
lesser price, if any, as may be provided for by the terms of such Parity Stock)
in accordance with the procedures (including prorating in the event of
oversubscription) set forth in Section 11D(c). If the aggregate purchase price
of the Shares (and any Parity Stock) tendered pursuant to such offer is less
than the Net Available Cash allotted to the purchase thereof, the Corporation
will be required to apply the remaining Net Available Cash in accordance with
Section 11D(a)(ii)(D) above. The Corporation shall not be required to make such
an offer to purchase Shares (and Parity Stock) pursuant to Section 11D if the
Net Available Cash available therefor is less than $5.0 million (which lesser
amount shall be carried forward for purposes of determining whether such an
offer is required by this Section 11D).
(c) (1) Promptly, and in any event within 10 days after the
Corporation becomes obligated to make an Offer, the Corporation shall be
obligated to deliver to the Transfer Agent and send, by first-class mail to each
Holder, a written notice stating that the Holder may elect to have his Shares
purchased by the Corporation either in whole or in part (subject to prorating as
hereinafter described in the event the Offer is oversubscribed), at the
applicable purchase price. The notice shall specify a purchase date not less
than 30 days nor more than 60 days after the date of such notice (the "Purchase
--------
Date") and shall contain such information concerning the business of the
- ----
Corporation which the Corporation in good faith believes will enable such
Holders to make an informed decision (which at a minimum will include (i) the
most recently filed Annual Report on Form 10-K (including audited consolidated
financial statements) of the Corporation, the most recent subsequently filed
Quarterly
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<PAGE>
Report on Form 10-Q and any Current Report on Form 8-K of the Corporation filed
subsequent to such Quarterly Report, other than Current Reports describing Asset
Dispositions otherwise described in the offering materials (or corresponding
successor reports), (ii) a description of material developments in the
Corporation's business subsequent to the date of the latest of such Reports, and
(iii) if material, appropriate pro forma financial information) and all
instructions and materials necessary to tender Shares pursuant to the Offer,
together with the information contained in clause (3).
(2) Not later than the date upon which written notice of an Offer is
delivered to the Transfer Agent as provided below, the Corporation shall deliver
to the Transfer Agent an Officers' Certificate as to (i) the amount of the Offer
(the "Offer Amount"), (ii) the allocation of the Net Available Cash from the
------------
Asset Dispositions pursuant to which such Offer is being made and (iii) the
compliance of such allocation with the provisions of Section 11D(a). On such
date, the Corporation shall also irrevocably deposit with the Transfer Agent or
with a paying agent (or, if the Corporation is acting as its own paying agent,
segregate and hold in trust) in Temporary Cash Investments, maturing on the last
day prior to the Purchase Date or on the Purchase Date if funds are immediately
available by open of business, an amount equal to the Offer Amount to be held
for payment in accordance with the provisions of this Section. Upon the
expiration of the period for which the Offer remains open (the "Offer Period"),
------------
the Corporation shall deliver to the Transfer Agent for cancellation the Shares
or portions thereof which have been properly tendered to and are to be accepted
by the Corporation. The Transfer Agent shall, on the Purchase Date, mail or
deliver payment to each tendering Holder in the amount of the purchase price.
In the event that the aggregate purchase price of the Shares delivered by the
Corporation to the Transfer Agent is less than the Offer Amount, the Transfer
Agent shall deliver the excess to the Corporation immediately after the
expiration of the Offer Period for application in accordance with this Section.
(3) Holders electing to have a Share purchased shall be required to
surrender the Share, with an appropriate form duly completed, to the Corporation
at the address specified in the notice at least three Business Days prior to the
Purchase Date. Holders shall be entitled to withdraw their election if the
Transfer Agent or the Corporation receives not later than one Business Day prior
to the Purchase Date, a telex, facsimile transmission or letter setting forth
the name of the Holder, the number of the Shares which were delivered for
purchase by the Holder and a statement that such Holder is withdrawing his
election to have such Shares purchased. If at the expiration of the Offer
Period the aggregate number of Shares surrendered by holders thereof exceeds the
Offer Amount, the Corporation shall select the Shares to be purchased on a pro
rata basis. Holders whose Shares are purchased only in part shall be issued new
certificates representing the unpurchased Shares.
(4) At the time the Corporation delivers Shares to the Transfer Agent
which are to be accepted for purchase, the Corporation shall also
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<PAGE>
deliver an Officers' Certificate stating that such Shares are to be accepted by
the Corporation pursuant to and in accordance with the terms of this Section. A
Share shall be deemed to have been accepted for purchase at the time the
Transfer Agent, directly or through an agent, mails or delivers payment therefor
to the surrendering Holder.
(d) The Corporation shall comply, to the extent applicable, with
the requirements of Section 14(e) of the Exchange Act and any other securities
laws or regulations in connection with the repurchase of the Shares pursuant to
this Section 11D. To the extent that the provisions of any securities laws or
regulations conflict with provisions of this Section 11D, the Corporation shall
comply with the applicable securities laws and regulations and shall not be
deemed to have breached its obligations under this Section 11D by virtue
thereof.
11E. Limitation on Affiliate Transactions.
------------------------------------
(a) The Corporation shall not, and shall not permit any
Restricted Subsidiary to, enter into or permit to exist any transaction
(including the purchase, sale, license, lease or exchange of any property,
employee compensation arrangements or the rendering of any service) with any
Affiliate of the Corporation) (an "Affiliate Transaction") unless the terms
---------------------
thereof (i) are no less favorable to the Corporation or such Restricted
Subsidiary than those that could be obtained at the time of such transaction in
arm's-length dealings with a Person who is not such an Affiliate, (ii) if such
Affiliate Transaction involves an amount in excess of $1.0 million, (A) are set
forth in writing and (B) have been approved by a majority of the members of the
Board of Directors having no personal stake in such Affiliate Transaction and
(iii) if such Affiliate Transaction involves an amount in excess of $5.0
million, have been determined by a nationally recognized investment banking firm
or other qualified appraiser under the relevant circumstances to be fair, from a
financial standpoint, to the Corporation and its Restricted Subsidiaries.
(b) The provisions of Section 11E(a) shall not prohibit (i) any
Permitted Investment or any Restricted Payment permitted to be paid pursuant to
the provisions of Section 11B, (ii) any issuance of securities, or other
payments, awards or grants in cash, securities or otherwise pursuant to, or the
funding of, employment arrangements, stock options and stock ownership plans
approved by the Board of Directors, (iii) the grant of stock options or similar
rights to employees and directors of the Corporation pursuant to plans approved
by the Board of Directors, (iv) loans or advances to employees in the ordinary
course of business in accordance with the past practices of the Corporation or
its Restricted Subsidiaries, but in any event not to exceed $500,000 in the
aggregate outstanding at any one time, (v) the payment of reasonable fees to
directors of the Corporation and its Restricted Subsidiaries who are not
employees of the Corporation or its Restricted Subsidiaries, (vi) any Affiliate
Transaction between the Corporation and a Restricted Subsidiary or between
Restricted Subsidiaries; provided, however, that no beneficial owner (as defined
-------- -------
in Rule
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<PAGE>
13d-1 and 13d-5 of the Exchange Act) of 5% or more of the Capital Stock of the
Corporation holds, directly or indirectly, any Investments in any such
Restricted Subsidiary (other than indirectly through the Corporation), (vii) the
issuance or sale of any Capital Stock (other than Disqualified Stock) of the
Corporation and (viii) any transaction pursuant to an agreement or arrangement
in effect on the Issue Date.
11F. Limitation on the Sale or Issuance of Capital Stock of Certain
--------------------------------------------------------------
Restricted Subsidiaries. The Corporation shall not sell or otherwise dispose of
- -----------------------
any Capital Stock (other than Qualified Preferred Stock) of an Existing
Restricted Subsidiary, and shall not permit any Existing Restricted Subsidiary,
directly or indirectly, to issue or sell or otherwise dispose of any of its
Capital Stock (other than Qualified Preferred Stock), except (a) to the
Corporation or a Wholly Owned Subsidiary, (b) if, immediately after giving
effect to such issuance, sale or other disposition, neither the Corporation nor
any of its Subsidiaries own any Capital Stock of such Restricted Subsidiary, (c)
if, immediately after giving effect to such issuance, sale or other disposition,
such Existing Restricted Subsidiary would no longer constitute a Restricted
Subsidiary and any Investment in such Person remaining after giving effect
thereto would have been permitted to be made under the provisions of Section 11B
hereof if made on the date of such issuance, sale or other disposition, (d) to
directors of directors' qualifying shares of common stock of any Restricted
Subsidiary, to the extent mandated by applicable law or (e) the issuance or sale
of Capital Stock of a Restricted Subsidiary that has a class of equity security
registered under Section 12 of the Exchange Act pursuant to an employee stock
option plan approved by the Board of Directors.
11G. Limitation on Market Swaps. The Corporation will not, and will
--------------------------
not permit any Restricted Subsidiary to, engage in any Market Swaps, unless:
(a) at the time of entering into the agreement to swap markets
and immediately after giving effect to the proposed Market Swap, no Default
shall have occurred and be continuing;
(b) the respective fair market values of the markets and other
assets (to be determined in good faith by the Board of Directors and to be
evidenced by a resolution of such Board set forth in an Officer's Certificate
delivered to the Transfer Agent) being purchased and sold by the Corporation or
any of its Restricted Subsidiaries are substantially the same at the time of
entering into the agreement to swap markets; and
(c) the cash payments, if any, received by the Corporation or
such Restricted Subsidiary in connection with such Market Swap are treated as
Net Available Cash received from an Asset Disposition.
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<PAGE>
11H. Limitation on Lines of Business. The Corporation shall not, and
-------------------------------
shall not permit any Restricted Subsidiary to, engage in any trade or business
other than a Related Business.
11I. Merger and Consolidation. The Corporation shall not consolidate
------------------------
with or merge with or into, or convey, transfer or lease, in one transaction or
a series of transactions, all or substantially all its assets to, any Person,
unless:
(a) the resulting, surviving or transferee Person (the "Successor
---------
Person") shall be a Person organized and existing under the laws of the United
- ------
States of America, any State thereof or the District of Columbia and the
Successor Person (if not the Corporation) shall expressly assume all the
obligations of the Corporation under the Shares and these Articles;
(b) immediately after giving effect to such transaction (and
treating any Indebtedness which becomes an obligation of the Successor Person or
any Subsidiary as a result of such transaction as having been Incurred by such
Successor Person or such Subsidiary at the time of such transaction), no Default
shall have occurred and be continuing,
(c) immediately after giving affect to such transaction, the
Successor Person would be able to Incur an additional $1.00 of Indebtedness
pursuant to Section 11A(a);
(d) immediately after giving effect to such transaction, the
Successor Person shall have Consolidated Net Worth in an amount that is not less
than the Consolidated Net Worth of the Corporation immediately prior to such
transaction;
(e) the Corporation shall have delivered to the Transfer Agent an
Officers' Certificate and an Opinion of Counsel, each stating that such
consolidation, merger or transfer comply with these Articles; and
(f) the Corporation shall have delivered to the Transfer Agent an
Opinion of Counsel to the effect that the holders of the Shares will not
recognize income, gain or loss for Federal income tax purposes as a result of
such transaction and will be subject to Federal income tax on the same amounts,
in the same manner and at the same times as would have been the case if such
transaction had not occurred.
The Successor Person shall be the successor to the Corporation and shall
succeed to, and be substituted for, and may exercise ever right and power of,
the Corporation under these Articles, but the predecessor Corporation in the
case of a conveyance, transfer or lease shall not be released from the
obligation to pay the
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<PAGE>
liquidation preference of, the mandatory redemption price of and dividends on
the Shares.
11J. SEC Reports. Notwithstanding that the Corporation may not be
-----------
subject to the reporting requirements of Section 13 or 15(d) of the Exchange
Act, the Corporation shall file with the SEC and provide the holders of the
Shares with such annual reports and such information, documents and other
reports as are specified in Sections 13 and 15(d) of the Exchange Act and
applicable to a U.S. corporation subject to such Sections, such information,
documents and other reports to be so filed and provided at the times specified
for the filing of such information, documents and reports under such Sections if
it were subject thereto (unless the SEC will not accept such a filing, in which
case the Corporation shall provide such documents to the Transfer Agent). In
addition, for so long as any of the Shares are outstanding, the Corporation will
make available to any prospective purchaser of the Shares or beneficial owner
thereof (upon written request to the Corporation) in connection with any sales
thereof the information required by Rule144A(d) (4) under the Securities Act.
Section 12. Certificates.
------------
12A. Form and Dating. The Exchangeable Preferred Stock and the
---------------
Transfer Agent's certificate of authentication shall be substantially in the
form of Exhibit 1, which is hereby incorporated in and expressly made a part of
these Articles of Incorporation. The Exchangeable Preferred Stock certificate
may have notations, legends, or endorsements required by law, stock exchange
rule, agreements to which the Corporation is subject, if any, or usage (provided
that any such notation, legend or endorsement is in a form acceptable to the
Corporation). Each Exchangeable Preferred Stock certificate shall be dated the
date of its authentication. The terms of the Exchangeable Preferred Stock
certificate set forth in Exhibit 1 are part of the terms of these Articles of
Incorporation.
(i) Global Exchangeable Preferred Stock. Exchangeable
-----------------------------------
Preferred Stock shall be issued initially in the form of one or more permanent
global certificates in definitive, fully registered form without interest
coupons with the global securities legend and restricted securities legend set
forth in Exhibit A hereto (each, a "Global Security"), which shall be deposited
---------------
on behalf of the purchasers of the Exchangeable Preferred Stock represented
thereby with the Securities Custodian, and registered in the name of the
Depository or a nominee of the Depository, duly executed by the Corporation and
authenticated by the Transfer Agent as hereinafter provided. The aggregate
number of shares of Exchangeable Preferred Stock represented by the Global
Securities may from time to time be increased or decreased by adjustments made
on the records of the Transfer Agent and the Depository or its nominee as
hereinafter provided.
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<PAGE>
(ii) Book-Entry Provisions. This Section 12A(ii) shall apply
---------------------
only to a Global Security deposited with or on behalf of the Depository. The
Corporation shall execute and the Transfer Agent shall, in accordance with this
Section 12A(ii), authenticate and deliver initially one or more Global
Securities that (a) shall be registered in the name of the Depository for such
Global Security or Global Securities or the nominee of such Depository and (b)
shall be delivered by the Transfer Agent to such Depository or pursuant to such
Depository's instructions or held by the Transfer Agent as Securities Custodian.
Members of, or participants in, the Depository ("Agent Members")
-------------
shall have no rights under these Articles of Incorporation with respect to any
Global Security held on their behalf by the Depository or by the Transfer Agent
as the Securities Custodian or under such Global Security. The Depository may be
treated by the Corporation, the Transfer Agent and any agent of the Corporation
or the Transfer Agent as the absolute owner of such Global Security for all
purposes whatsoever. Notwithstanding the foregoing, nothing herein shall prevent
the Corporation, the Transfer Agent or any agent of the Corporation or the
Transfer Agent from giving effect to any written certification, proxy or other
authorization furnished by the Depository or impair, as between the Depository
and its Agent Members, the operation of customary practices of such Depository
governing the exercise of the rights of a holder of a beneficial interest in
any Global Security.
(iii) Definitive Exchangeable Preferred Stock. Except as
---------------------------------------
otherwise provided by applicable law or as provided in Section 12C or Section
12D, owners of beneficial interests in Global Securities will not be entitled to
receive physical delivery of shares of Exchangeable Preferred Stock in
certificated form ("Certificated Exchangeable Preferred Stock").
-----------------------------------------
12B. Authentication. The Transfer Agent shall authenticate and
--------------
deliver: (i) 50,000 shares of Initial Exchangeable Preferred Stock for original
issue and (ii) Exchange Securities or Private Exchange Securities for issue only
in a Registered Exchange Offer or a Private Exchange pursuant to the
Registration Rights Agreement, upon a written order of the Corporation signed by
two Officers of the Corporation. Such order shall specify the amount of the
Securities to be authenticated and the date on which the original issue of
Securities is to be authenticated and whether the Securities are to be Initial
Exchangeable Preferred Stock, Exchange Securities or Private Exchange
Securities.
12C. Transfer and Exchange.
---------------------
(i) Transfer and Exchange of Global Securities. (a) The transfer
and exchange of Global Securities or beneficial interests therein shall be
effected through the Depository, in accordance with these Articles of
Incorporation (including applicable restrictions on transfer set forth herein,
if any) and the procedures
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<PAGE>
of the Depository therefor. A transferor of a beneficial interest in a Global
Security shall deliver a written order given in accordance with the Depository,s
procedures containing information regarding the participant account of the
Depository to be credited with a beneficial interest in the Global Security and
such account shall be credited in accordance with such instructions with a
beneficial interest in the Global Security and the account of the Person making
the transfer shall be debited by an amount equal to the beneficial interest in
the Global Security being transferred.
(b) If the proposed transfer is a transfer of a beneficial
interest in one Global Security to a beneficial interest in another Global
Security, the Transfer Agent shall reflect on its books and records the date and
an increase in the number of shares represented by the Global Security to which
such interest is being transferred in an amount equal to the number of shares to
be so transferred, and the Transfer Agent shall reflect on its books and records
the date and a corresponding decrease in the number of shares represented by
Global Security from which such interest is being transferred.
(c) Notwithstanding any other provisions of this Section 12
(other than the provisions set forth in Section 12D), a Global Security may not
be transferred as a whole except by the Depository to a nominee of the
Depository or by a nominee of the Depository to the Depository or another
nominee of the Depository or by the Depository or any such nominee to a
successor Depository or a nominee of such successor Depository.
(d) In the event that a Global Security is exchanged for
Securities in definitive registered form pursuant to Section 12D prior to the
consummation of a Registered Exchange Offer or the effectiveness of a Shelf
Registration Statement with respect to such Securities, such Securities may be
exchanged only in accordance with such procedures as are substantially
consistent with the provisions of this Section 12C (including the certification
requirements set forth on the reverse of the Initial Exchangeable Preferred
Stock intended to ensure that such transfers comply with Rule 144A, Regulation S
or such other applicable exemption from registration under the Securities Act,
as the case may be) and such other procedures as may from time to time be
adopted by the Corporation.
(ii) Legend. (a) Except as permitted by the following paragraphs
------
(b), (c), (d) and (e), each certificate evidencing the Global Securities (and
all Securities issued in exchange therefor or in substitution thereof) shall
bear a legend in substantially the following form:
"THIS SECURITY (OR ITS PREDECESSOR) WAS ORIGINALLY ISSUED IN
A TRANSACTION EXEMPT FROM REGISTRATION UNDER THE UNITED
STATES SECURITIES ACT OF 1993 (THE "SECURITIES ACT"),
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<PAGE>
AND THIS SECURITY MAY NOT BE OFFERED, SOLD OR
OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH
REGISTRATION OR AN APPLICABLE EXEMPTION
THEREFROM. EACH PURCHASER OF THIS SECURITY IS
HEREBY NOTIFIED THAT THE SELLER OF THIS
SECURITY MAY BE RELYING ON THE EXEMPTION FROM
THE PROVISIONS OF SECTION 5 OF THE SECURITIES
ACT PROVIDED BY RULE 144A THEREUNDER.
THE HOLDER OF THIS SECURITY AGREES FOR THE
BENEFIT OF THE COMPANY THAT (A) THIS SECURITY
AND ANY SECURITY INTO WHICH SUCH SECURITY IS
EXCHANGEABLE MAY BE OFFERED, RESOLD, PLEDGED
OR OTHERWISE TRANSFERRED ONLY (i) WITHIN THE
UNITED STATES TO A PERSON WHOM THE SELLER
REASONABLY BELIEVES IS A "QUALIFIED
INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A
UNDER THE SECURITIES ACT) IN A TRANSACTION
MEETING THE REQUIREMENTS OF RULE 144A, (ii)
OUTSIDE THE UNITED STATES IN A TRANSACTION IN
ACCORDANCE WITH RULE 904 UNDER THE SECURITIES
ACT, (iii) PURSUANT TO AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT
PROVIDED BY RULE 144 THEREUNDER (IF
AVAILABLE), (iv) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OR (v) TO THE COMPANY, IN EACH OF CASES
(i) THROUGH (iv) IN ACCORDANCE WITH ANY
APPLICABLE SECURITIES LAWS OF ANY STATE OF
THE UNITED STATES OR ANY OTHER APPLICABLE
JURISDICTION, AND (B) THE HOLDER WILL, AND
EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY
ANY PURCHASER OF THIS SECURITY FROM IT OF THE
RESALE RESTRICTIONS REFERRED TO IN (A)
ABOVE."
(b) Upon any sale or transfer of a Transfer Restricted
Security (including any Transfer Restricted Security represented by a Global
Security) pursuant to Rule 144 under the Securities Act, the Transfer Agent
shall permit the Holder thereof to exchange such Transfer Restricted Security
for a certificated Security that does not bear the legends set forth above and
rescind any restriction on the transfer of such Transfer Restricted Security, if
the Holder certifies in writing to the Transfer Agent that its request for such
exchange was made in reliance on rule 144 (such certification to be in the form
set forth on the reverse of the Initial Security).
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<PAGE>
(c) After a transfer of any Exchangeable Preferred Stock during
the period of the effectiveness of a Shelf Registration Statement with respect
to such Exchangeable Preferred Stock, all requirements pertaining to legends on
such Exchangeable Preferred Stock will cease to apply, the requirements
requiring that any such Exchangeable Preferred Stock be issued in global form
will cease to apply, and Exchangeable Preferred Stock in certificated or global
form without legends will be available to the transferee of the Holder of such
Exchangeable Preferred Stock upon exchange of such transferring Holder's
certificated Exchangeable Preferred Stock. Upon the occurrence of any of the
circumstances described in this paragraph, the Corporation will deliver an
Officers' Certificate to the Transfer Agent instructing the Transfer Agent to
issue Securities without legends.
(d) Upon the consummation of a Registered Exchange Offer with
respect to the Exchangeable Preferred Stock pursuant to which certain Holders of
such Exchangeable Stock are offered Exchange Securities in exchange for their
Exchangeable Preferred Stock, all requirements pertaining to such Exchangeable
Preferred Stock that Exchangeable Preferred Stock be issued in global form will
cease to apply, the certificated Exchangeable Preferred Stock with the
restricted securities legend set forth in Exhibit A hereto will be available to
Holders of such Exchangeable Preferred Stock that do not exchange their
Exchangeable Preferred Stock, and Exchange Securities in certificated or global
form will be available to Holders that exchange such Exchangeable Preferred
Stock in such Registered Exchange Offer. Upon the occurrence of any of the
circumstances described in this paragraph, the Corporation will deliver an
Officers' Certificate to the Transfer Agent instructing the Transfer Agent to
issue Securities without legends.
(e) Upon the consummation of a Private Exchange with respect to
the Exchangeable Preferred Stock pursuant to which Holders of such Exchangeable
Preferred Stock are offered Private Exchange Securities in exchange for their
Exchangeable Preferred Stock, all requirements pertaining to such Exchangeable
Preferred Stock that Exchangeable Preferred Stock issued to certain Holders be
issued in global form will continue to apply, and Private Exchange Securities in
global form with the restricted Securities Legend will be available to Holders
that exchange such Exchangeable Preferred Stock in such Private Exchange.
(f) Upon a sale or transfer of any Exchangeable Preferred Stock
acquired pursuant to Regulation S, all requirements pertaining to legends on
such Exchangeable Preferred Stock will cease to apply, the requirements
requiring any such exchangeable Preferred Stock be issued in global form will
cease to apply, and Exchangeable Preferred Stock in certificated or global form
without the restricted security legend will be available to the transferee of
the Holder of such Exchangeable Preferred Stock.
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<PAGE>
(iii) Cancellation or Adjustment of Global Security. At such time
---------------------------------------------
as all beneficial interests in a Global Security have either been exchanged for
certificated or certificated Securities, redeemed, repurchased or canceled, such
Global Security shall be returned by the Depository to the Transfer Agent for
cancellation or retained and canceled by the Transfer Agent. At any time prior
to such cancellation, if any beneficial interest in a Global Security is
exchanged for certificated or Definitive Securities, redeemed, repurchased or
canceled, the number of shares of Exchangeable Preferred Stock represented by
such Global Security shall be reduced and an adjustment shall be made on the
books and records of the Transfer Agent (if it is then the Securities Custodian
for such Global Security) with respect to such Global Security, by the Transfer
Agent or the Securities Custodian, to reflect such reduction.
(iv) Obligations with Respect to Transfers and Exchanges of
------------------------------------------------------
Securities. (a) To permit registrations of transfers and exchanges, the
- ----------
Corporation shall execute and the Transfer Agent shall authenticate certificated
Securities, Definitive Securities and Global Securities at the Transfer Agent's
request.
(b) No service charge shall be made for any registration of
transfer or exchange, but the Corporation may require payment of a sum
sufficient to cover any transfer tax, assessments or similar or other
governmental charge payable in connection with any registration of transfer or
exchange of Exchangeable Preferred Stock.
(c) The Transfer Agent shall not be required to register the
transfer of or exchange of any security for a period beginning 15 days before
the mailing of a notice of redemption or any offer to repurchase Securities or
15 days before an interest payment date.
(d) Prior to the due presentation for registration of
transfer of any Security, the Corporation and the Transfer Agent may deem and
treat the person in whose name a Security is registered as the absolute owner of
such Security for the purpose of receiving payment of principal of and interest
on such Security and for all other purposes whatsoever, whether or not such
Security is overdue, and none of the Corporation, the Trustee or the Transfer
Agent shall be affected by notice to the contrary.
(e) All Securities issued upon any transfer or exchange
pursuant to the terms of these Articles of Incorporation shall be entitled to
the same benefits under these Articles of Incorporation as the Securities
surrendered upon such transfer or exchange.
(v) No Obligation of the Transfer Agent. (a) The Transfer Agent
-----------------------------------
shall have no responsibility or obligation to any beneficial owner of a Global
Security, a member of, or a participant in the Depository or any other Person
with
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<PAGE>
respect to the accuracy of the records of the Depository or its nominee or of
any participant or member thereof, with respect to any ownership interest in the
Securities or with respect to the delivery to any participant, member,
beneficial owner or other Person (other than the Depository) of any notice
(including any notice of redemption or repurchase) or the payment of any amount,
under or with respect to such Securities. All notices and communications to be
given to the Holders and all payments to be made to Holders under the Securities
shall be given or made only to the registered Holders (which shall be the
Depository or its nominee in the case of a Global Security). The rights of
beneficial owners in any Global Security shall be exercised only through the
Depository subject to the applicable rules and procedures of the Depository. The
Transfer Agent may rely and shall be fully protected in relying upon information
furnished by the Depository with respect to its members, participants and any
beneficial owners.
(b) The Transfer Agent shall have no obligation or duty to
monitor, determine or inquire as to compliance with any restrictions on transfer
imposed under these Articles of Incorporation or under applicable law with
respect to any transfer of any interest in any Security (including any transfers
between or among Depository participants, members or beneficial owners in any
Global Security) other than to require delivery of such certificates and other
documentation or evidence as are expressly required by, and to do so if and when
expressly required by, the terms of these Articles of Incorporation, and to
examine the same to determine substantial compliance as to form with the express
requirements hereof.
D. Certified Securities
--------------------
(i) A Global Security deposited with the Depository or with the
Transfer Agent as Securities Custodian pursuant to Section 12A shall be
transferred to the beneficial owners thereof in the form of certificated
Securities in a number of shares of Exchangeable Preferred Stock representing
such Global Security, in exchange for such Global Security, only if such
transfer complies with Section 12C and (a) the Depository notifies the
Corporation that it is unwilling or unable to continue as a Depository for such
Global Security or if at any time the Depository ceases to be a "clearing
agency" registered under the Exchange Act, and a successor Depository is not
appointed by the Corporation within 90 days of such notice, or (b) a Voting
Rights Triggering Event has occurred and is continuing or (c) the Corporation,
in its sole discretion, notifies the Transfer Agent in writing that it elects to
cause the issuance of certificated Securities under these Articles of
Incorporation.
(ii) Any Global Security that is transferable to the beneficial
owners thereof pursuant to this Section 12D shall be surrendered by the
Depository to the Transfer Agent, to be so transferred, in whole or from time to
time in part, without charge, and the Transfer Agent shall authenticate and
deliver, upon such transfer of each portion of such Global Security, an equal
amount of shares of Exchangeable
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<PAGE>
Preferred Stock represented by certificated Securities of authorized
denominations. Any portion of a Global Security transferred pursuant to this
paragraph shall be executed, authenticated and delivered only in denominations
of $1,000 and any integral multiple thereof and registered in such names as the
Depository shall direct. Certificated Exchangeable Preferred Stock delivered in
exchange for an interest in the Global Security shall, except as otherwise
provided by Section 12C(ii), bear the restricted securities legend set forth in
Section 12C(ii).
(iii) Subject to the provisions of Section 12D(ii), the
registered Holder of a Global Security may grant proxies and otherwise authorize
any Person, including Agent Members and Persons that may hold interests through
Agent Members, to take any action which a Holder is entitled to take under these
Articles of Incorporation or the Securities.
(iv) In the event of the occurrence of either of the events
specified in Section 12D(i) (b) or (c), the Corporation will promptly make
available to the Transfer Agent a reasonable supply of certificated Securities
in definitive, fully registered form without interest coupons.
13A. Definitions.
-----------
"Additional Assets" means (a) any property or assets (other than
-----------------
Indebtedness and Capital Stock) in a Related Business; (b) the Capital Stock of
a Person that becomes a Restricted Subsidiary as a result of the acquisition of
such Capital Stock by the Corporation or another Restricted Subsidiary; or (c)
Capital Stock constituting a minority interest in any Person that at such time
is or becomes a Restricted Subsidiary; provided, however, that any such
-------- -------
Restricted Subsidiary described in clauses (b) or (c) above is primarily engaged
in a Related Business.
"Affiliate" of any specified Person means any other Person, directly
---------
or indirectly, controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing. For
purposes of Sections 11B, 11D and 11E hereof, only, "Affiliate" shall also mean
any beneficial owner of Capital stock representing 5% or more of the total
voting power of the Voting Stock (on a fully diluted basis) of the Corporation
or of rights or warrants to purchase such Capital Stock (whether or not
currently exercisable) and any Person who would be an Affiliate of any such
beneficial owner pursuant to the first sentence hereof.
"Annualized EBITDA" as of any date of determination means EBITDA for
-----------------
the most recent two consecutive fiscal quarters for which financial statements
have
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been made publicly available but in no event ending more than 135 days prior to
the date of such determination multiplied by two.
"Area 1 Franchise" means the Corporation's cable television franchise
----------------
pursuant to a Franchise Agreement between the Corporation and the City of
Chicago in effect on the Issue Date.
"Asset Disposition" means any sale, lease, transfer or other
-----------------
disposition (or series of related sales, leases, transfers or dispositions)
(that is not for security purposes) by the Corporation or any Restricted
Subsidiary, including any disposition by means of a merger, consolidation or
similar transaction (each referred to for the purposes of this definition as a
"disposition"), of (a) any shares of Capital Stock (other than Qualified
-----------
Preferred Stock) of a Restricted Subsidiary (other than directors' qualifying
shares or shares required by applicable law to be held by a Person other than
the Corporation or a Restricted Subsidiary), (b) all or substantially all the
assets of any division or line of business of the Corporation or any Restricted
Subsidiary or (c) any other assets (other than Capital Stock or other
Investments in an Unrestricted Subsidiary) of the Corporation or any Restricted
Subsidiary outside of the ordinary course of business of the Corporation or such
Restricted Subsidiary (other than, in the case of (a), (b) and (c) above, (i) a
disposition by a Restricted Subsidiary to the Corporation or by the Corporation
or a Restricted Subsidiary to another Restricted Subsidiary, (ii) for purposes
of the provisions of Section 11D hereof only, a disposition that (x) constitutes
a Permitted Investment or a Restricted Payment permitted by the provisions of
Section 11B hereof, (y) complies with the provisions of Section 11I hereof, or
(z) constitutes a Market Swap permitted by Section 11G and (iii) a disposition
of assets with a fair market value of less than $250,000).
"Attributable Debt" in respect of a Sale/Leaseback Transaction means,
-----------------
as at the time of determination, the present value (discounted at the interest
rate borne by the Notes, compounded annually) of the total obligations of the
lessee for rental payments during the remaining term of the lease included in
such Sale/Leaseback Transaction (including any period for which such lease has
been extended).
"Average Life" means, as of the date of determination, with respect to
------------
any Indebtedness or Preferred Stock, the quotient obtained by dividing (a) the
sum of the products of numbers of years (calculated to the nearest one-twelfth)
from the date of determination to the dates of each successive scheduled
principal payment of such Indebtedness or redemption or similar payment with
respect to such Preferred Stock multiplied by the amount of each such principal
payment by (b) the sum of all such principal payments.
"Board of Directors" means the Board of Directors of the Corporation
------------------
or any committee thereof duly authorized to act on behalf of such Board.
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"Business Day" means any day other than a Saturday, Sunday or day on
------------
which banking institutions are not required to be open in the States of New York
or Illinois.
"Capital Lease Obligation" means an obligation that is required to be
------------------------
classified and accounted for as a capital lease for financial reporting purposes
in accordance with GAAP, and the amount of Indebtedness represented by such
obligation shall be the capitalized amount of such obligation determined in
accordance with GAAP; and the Stated Maturity thereof shall be the date of the
last payment of rent or any other amount due under such lease prior to the first
date upon which such lease may be terminated by the lessee without payment of a
penalty.
"Capital Stock" of any Person means any and all shares, interests,
-------------
rights to purchase, warrants, options, participations or other equivalents of or
interests in (however designated, whether voting or nonvoting) equity of such
Person, including any common stock and Preferred Stock, whether outstanding on
the Issue Date or issued after the Issue Date, but excluding any debt securities
convertible into such equity.
"Class A Preferred Stock" means the Class A Convertible 8% Cumulative
-----------------------
Preferred Stock, with no par value per share, of the Corporation.
"Class B Preferred Stock" means the Class B Convertible 8% Cumulative
-----------------------
Preferred Stock, with no par value per share, of the Corporation.
"Code" means the Internal Revenue Code of 1986, as amended.
----
"Common Stock" means, collectively, the Corporation's Common Stock,
------------
voting or non-voting, with no par value per share and any capital stock of any
class of the Corporation hereafter authorized which is not limited to a fixed
sum or percentage of par or stated value in respect to the rights of the holders
thereof to participate in dividends or in the distribution of assets upon any
liquidation, dissolution or winding up of the Corporation.
"consolidated" means the consolidation of accounts of the Corporation
------------
and its Subsidiaries in accordance with GAAP.
"Consolidated Current Liabilities" as of the date of determination
--------------------------------
means the aggregate amount of liabilities of the Corporation and its Restricted
Subsidiaries which may properly be classified as current liabilities (including
taxes accrued as estimated), on a consolidated basis, after eliminating (a) all
intercompany items between the Corporation and any Restricted Subsidiary and (b)
all current maturities of long-term Indebtedness, all as determined in
accordance with GAAP consistently applied.
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"Consolidated Interest Expense" means, for any period, the total
-----------------------------
interest expense of the Corporation and its consolidated Restricted
Subsidiaries, plus, to the extent not included in such total interest expense,
and to the extent incurred in such period by the Corporation or its Restricted
Subsidiaries, without duplication, (a) interest expense attributable to capital
leases and the interest expense attributable to leases constituting part of a
Sale/Leaseback Transaction, (b) amortization of debt discount and debt issuance
cost, (c) capitalized interest, (d) non-cash interest expenses, (e) commissions,
discounts and other fees and charges owed with respect to letters of credit and
bankers' acceptance financing, (f) net costs associated with Hedging Obligations
(including amortization of fees), (g) Preferred Stock dividends in respect of
all Preferred Stock of a Restricted Subsidiary held by Persons other than the
Corporation or a Restricted Subsidiary or in respect of any Senior Stock, (h)
interest incurred in connection with Investments in discontinued operations, (i)
interest accruing on any Indebtedness of any other Person to the extent such
Indebtedness is Guaranteed by (or secured by the assets of) the Corporation or
any Restricted Subsidiary and (j) the cash contributions to any employee stock
ownership plan or similar trust to the extent such contributions are used by
such plan or trust to pay interest or fees to any Person (other than the
Corporation) in connection with Indebtedness Incurred by such plan or trust;
excluding, however, (y) a proportional amount of any of the foregoing items or
other interest expense incurred by a Restricted Subsidiary in such period to the
extent the net income of such Restricted Subsidiary is excluded in the
calculation of Consolidated Net Income pursuant to clause (c) of the definition
thereof and (z) any fees or debt issuance costs (and any amortization thereof)
payable in connection with the sale of the Notes and Units on the Issue Date.
"Consolidated Leverage Ratio" as of any date of determination means
---------------------------
the ratio of (a) the aggregate amount of Indebtedness of the Corporation and its
Restricted Subsidiaries calculated on a consolidated basis as of the end of the
most recent fiscal quarter for which financial statements have been made
publicly available but in no event ending more than 135 days prior to the date
of such determination to (b) Annualized EBITDA as of such date of determination;
provided, however, that
- ------------------
(i) if the transaction giving rise to the need to calculate the
Consolidated Leverage Ratio is an Incurrence of Indebtedness, the amount of
Indebtedness outstanding at the end of such fiscal quarter shall be
calculated after giving effect on a pro forma basis to the Incurrence of
such Indebtedness as if such Indebtedness had been outstanding as of the
end of such fiscal quarter and to the discharge of any other Indebtedness
to the extent it was outstanding as of the end of such fiscal quarter and
is to be repaid, repurchased, defeased or otherwise discharged with the
proceeds of such new Indebtedness as if such Indebtedness had been
discharged as of the end of such fiscal quarter,
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<PAGE>
(ii) if the Corporation or any Restricted Subsidiary has repaid,
repurchased, defeased or otherwise discharged any Indebtedness that was
outstanding as of the end of such fiscal quarter or if any Indebtedness
that was outstanding as of the end of such fiscal quarter is to be repaid,
repurchased, defeased or otherwise discharged on the date of the
transaction giving rise to the need to calculate the Consolidated Leverage
Ratio, the aggregate amount of Indebtedness outstanding at the end of such
fiscal quarter shall be calculated on a pro forma basis as if such
discharge had occurred as of the end of such fiscal quarter and EBITDA
shall be calculated as if the Corporation or such Restricted Subsidiary had
not earned the interest income, if any, actually earned during the period
of the most recent two consecutive fiscal quarters for which financial
statements have been made publicly available but in no event ending more
than 135 days prior to the date of such determination (the "Reference
---------
Period") in respect of cash or Temporary Cash Investments used to repay,
------
repurchase, defease or otherwise discharge such Indebtedness,
(iii) if since the beginning of the Reference Period the Corporation
or any Restricted Subsidiary shall have made any Asset Disposition, the
EBITDA for the Reference Period shall be reduced by an amount equal to the
EBITDA (if positive) directly attributable to the assets which are the
subject of such Asset Disposition for the Reference Period, or increased by
an amount equal to the EBITDA (if negative), directly attributable thereto
for the Reference Period,
(iv) if since the beginning of the Reference Period the Corporation
or any Restricted Subsidiary (by merger or otherwise) shall have made an
Investment in any Restricted Subsidiary (or any person which becomes a
Restricted Subsidiary) or an acquisition of assets, including any
acquisition of assets occurring in connection with a transaction requiring
a calculation to be made hereunder, which constitutes all or substantially
all an operating unit of a business, EBITDA for the Reference Period shall
be calculated after giving pro forma effect thereto (including the
Incurrence of any Indebtedness) as if such Investment or acquisition
occurred on the first day of the Reference Period,
(v) if since the beginning of the Reference Period any Person
(that subsequently became a Restricted Subsidiary or was merged with or
into the Corporation or any Restricted Subsidiary since the beginning of
such Reference Period) shall have made any Asset Disposition, any
Investment or acquisition of assets that would have required an adjustment
pursuant to clause (iii) or (iv) above if made by the Corporation or a
Restricted Subsidiary during the Reference Period, EBITDA for the Reference
Period shall be calculated after giving pro forma effect thereto as if such
Asset Disposition, Investment or acquisition occurred on the first day of
the Reference Period; and
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<PAGE>
(vi) the aggregate amount of Indebtedness outstanding at the end of
such most recent fiscal quarter will be deemed to include the total
principal amount of funds outstanding or available to be borrowed on the
date of determination under any revolving credit or similar facilities of
the Corporation or its Restricted Subsidiaries.
For purposes of this definition, whenever pro forma effect is to be given to an
acquisition of assets, the amount of income or earnings relating thereto, the
pro forma calculations shall be determined in good faith by a responsible
financial or accounting Officer of the Corporation.
"Consolidated Net Income" means, for any period, the aggregate net
-----------------------
income of the Corporation and its consolidated Subsidiaries for such period;
provided, however, that the following shall not be included in such Consolidated
- -------- -------
Net Income:
(a) any net income (or loss) of any Person (other than the
Corporation) if such Person is not a Restricted Subsidiary, except that
subject to the exclusion contained in clause (d) below, the Corporation's
equity in the net income of any such Person for such period shall be
included in such Consolidated Net Income up to the aggregate amount of cash
actually distributed by such Person during such period to the Corporation
or a Restricted Subsidiary as a dividend or other distribution (subject, in
the case of a dividend or other distribution paid to a Restricted
Subsidiary, to the limitations contained in clause (c) below);
(b) any net income (or loss) of any Person acquired by the
Corporation or a Subsidiary in a pooling of interests transaction for any
period prior to the date of such acquisition;
(c) any net income of any Restricted Subsidiary if such Restricted
Subsidiary is subject to restrictions, directly or indirectly, on the
payment of dividends or the making of distributions by such Restricted
Subsidiary, directly or indirectly, to the Corporation, except that (i)
subject to the exclusion contained in clause (d) below, the Corporation's
equity in the net income of any such Restricted Subsidiary for such period
shall be included in such Consolidated Net Income up to the aggregate
amount of cash actually distributed by such Restricted Subsidiary during
such period to the Corporation or another Restricted Subsidiary as a
dividend or other distribution (subject, in the case of a dividend or other
distribution paid to another Restricted Subsidiary, to the limitation
contained in this clause) and (ii) the Corporation's equity in a net loss
of any such Restricted Subsidiary for such period shall be included in
determining such Consolidated Net Income;
(d) the after-tax gain or loss realized upon the sale or other
disposition of any assets of the Corporation, its consolidated Subsidiaries
or any other
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<PAGE>
Person (including pursuant to any sale-and-leaseback arrangement) which is
not sold or otherwise disposed of in the ordinary course of business and
the after-tax gain or loss realized upon the sale or other disposition of
any Capital Stock of any Person;
(e) extraordinary gains or losses; and
(f) the cumulative effect of a change in accounting principles.
Notwithstanding the foregoing, for the purposes of the provisions of Section 11B
only, there shall be excluded from Consolidated Net Income any payments of
interest, dividends, repayments of loans or advances or other transfers of
assets from Unrestricted Subsidiaries to the Corporation or a Restricted
Subsidiary to the extent such interest, dividends, repayments or transfers
increase the amount of Restricted Payments permitted under Section
11B(a)(C)(iv).
"Consolidated Net Tangible Assets" as of any date of determination,
--------------------------------
means the total amount of assets (less accumulated depreciation and
amortization, allowances for doubtful receivables, other applicable reserves and
other properly deductible items) which would appear on a balance sheet of the
Corporation and its Restricted Subsidiaries, determined on a consolidated basis
in accordance with GAAP, and after giving effect to purchase accounting and
after deducting therefrom Consolidated Current Liabilities and, to the extent
otherwise included, the amounts of: (a) minority interests in consolidated
Subsidiaries held by Persons other than the Corporation or a Restricted
Subsidiary; (b) excess of cost over fair value of assets of businesses acquired,
as determined in good faith by the Board of Directors; (c) any revaluation or
other write-up in book value of assets subsequent to the Issue Date as a result
of a change in the method of valuation in accordance with GAAP consistently
applied; (d) unamortized debt discount and expenses and other unamortized
deferred charges, goodwill, patents, trademarks, service marks, trade names,
copyrights, licenses, organization or developmental expenses and other
intangible items; (e) treasury stock; (f) cash set apart and held in a sinking
or other analogous fund established for the purpose of redemption or other
retirement of Capital Stock to the extent such obligation is not reflected in
Consolidated Current Liabilities; and (g) Investments in and assets of
Unrestricted Subsidiaries.
"Consolidated Net Worth" means, at any date of determination, the
----------------------
total of the amounts shown on the balance sheet of the Corporation and its
consolidated Subsidiaries, determined on a consolidated basis in accordance with
GAAP, as of the end of the most recent fiscal quarter of the Corporation for
which financial statements have been made publicly available but in no event
ending more than 135 days prior to the taking of any action for the purpose of
which the determination is being made, as (a) the par or stated value of all
outstanding Capital Stock of the Corporation plus (b) paid-in capital or capital
surplus relating to such Capital Stock plus (c) any retained
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<PAGE>
earnings or earned surplus less (i) any accumulated deficit and (ii) any amounts
attributable to Disqualified Stock.
"Credit Agreement" means one or more term loans or revolving credit or
----------------
working capital facilities (including any letter of credit subfacility) with one
or more banks or other institutional lenders in favor of the Corporation or any
Restricted Subsidiary.
"Currency Agreement" means in respect of a Person any foreign exchange
------------------
contract, currency swap agreement or other similar agreement designed to protect
such Person against fluctuations in currency values.
"Default" means any event which is, or after notice of passage of time
-------
or both would be a Voting Rights Triggering Event, as set forth in Section 6B
hereof.
"Depository" means the Depository Trust Company, its nominees and
----------
their respective successors.
"Disqualified Stock" means, with respect to any Person, any Capital
------------------
Stock which by its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable) or upon the happening of any event
(a) matures or is mandatorily redeemable pursuant to a sinking fund obligation
or otherwise, (b) is convertible or exchangeable for Indebtedness or
Disqualified Stock or (c) is redeemable or must be purchased, upon the
occurrence of certain events or otherwise, by such Person at the option of the
holder thereof, in whole or in part, in each case on or prior to the first
anniversary of the Stated Maturity of the Shares; provided, however, that any
-------- -------
Capital Stock that would not constitute Disqualified Stock but for provisions
thereof giving holders thereof the right to require such Person to purchase or
redeem such Capital Stock upon the occurrence of an "asset sale" or "change of
control" occurring prior to the first anniversary of the Stated Maturity of the
Shares shall not constitute Disqualified Stock if (i) the "asset sale" or
"change of control" provisions applicable to such Capital Stock are not more
favorable to the holders of such Capital Stock than the terms applicable to the
Shares and set forth under Section 11D and (ii) any such requirement only
becomes operative after compliance with such terms applicable to the Shares
including the purchase of any Shares tendered pursuant thereto.
"EBITDA" for any period means the sum of Consolidated Net Income, plus
------
the following to the extent deducted in calculating such Consolidated Net
Income: (a) Consolidated Interest Expense, (b) all income tax expense of the
Corporation and its consolidated Restricted Subsidiaries, (c) depreciation
expense of the Corporation and its consolidated Restricted Subsidiaries, (d)
amortization expense of the Corporation and its consolidated Restricted
Subsidiaries (excluding amortization expense attributable to a prepaid cash item
that was paid in a prior period) and (e) all other non-cash charges of the
Corporation and its consolidated Restricted Subsidiaries (excluding any such
non-cash charge to the extent that it represents an accrual of or reserve for
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<PAGE>
cash expenditures in any future period), in each case for such period, all as
determined on a consolidated basis for the Corporation and its Restricted
Subsidiaries. Notwithstanding the foregoing, the provision for taxes based on
the income or profits of, and the depreciation and amortization and non-cash
charges of, a Restricted Subsidiary shall be added to Consolidated Net Income to
compute EBITDA only to the extent (and in the same proportion) that the net
income of such Restricted Subsidiary was included in calculating Consolidated
Net Income and only if a corresponding amount would be permitted at the date of
determination to be dividended to the Corporation by such Restricted Subsidiary
without prior approval (that has not been obtained), pursuant to the terms of
its charter and all agreements, instruments, judgments, decrees, orders,
statutes, rules and governmental regulations applicable to such Restricted
Subsidiary or its stockholders.
"Equity Offering" means either (a) an underwritten primary public
---------------
offering of Common Stock of Parent or the Corporation pursuant to an effective
registration statement under the Securities Act or (b) a primary offering of
Capital Stock (other than Disqualified Stock) of the Corporation to one or more
Persons primarily engaged in a Related Business.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
------------
"Exchange Notes" means the Corporation's 12-1/4% Senior Discount Notes
--------------
Due 20008 issuable in exchange for the Notes pursuant to the Registration Rights
Agreement.
"Existing Restricted Subsidiary" means any Restricted Subsidiary in
------------------------------
existence on the Issue Date and any Restricted Subsidiary formed after the Issue
Date which thereafter conducts all or any portion of the Corporation's business
pertaining to its Area 1 franchise in Chicago, as in effect on the Issue Date.
"GAAP" means generally accepted accounting principles in the United
----
States of America as in effect as of the Issue Date, including those set forth
in (a) the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants, (b) statements and
pronouncements of the Financial Accounting Standards Board, (c) such other
statements by such other entity as approved by a significant segment of the
accounting profession and (d) the rules and regulations of the SEC governing the
inclusion of financial statements (including pro forma financial statements) in
periodic reports required to be filed pursuant to Section 13 of the Exchange
Act, including opinions and pronouncements in staff accounting bulletins and
similar written statements from the accounting staff of the SEC.
"Guarantee" means any obligation, contingent or otherwise, of any
---------
Person directly or indirectly guaranteeing any Indebtedness of any Person or any
obligation,
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<PAGE>
direct or indirect, contingent or otherwise, of such Person (a) to
purchase or pay (or advance or supply funds for the purchase or payment of) such
Indebtedness or other obligation of such Person (whether arising by virtue of
partnership arrangements, or by agreements to keep-well, to purchase assets,
goods, securities or services, to take-or-pay or to maintain financial statement
conditions or otherwise) or (b) entered into for the purpose of assuring in any
other manner the obligee of such Indebtedness of the payment thereof or to
protect such obligee against loss in respect thereof (in whole or in part);
provided, however, that the term "Guarantee" shall not include endorsements for
- -------- -------
collection or deposit in the ordinary course of business. The term "Guarantee"
used as a verb has a corresponding meaning. The term "Guarantor" shall mean any
Person Guaranteeing any obligation.
"Hedging Obligations" of any Person means the obligations of such
-------------------
Person pursuant to any Interest Rate Agreement or Currency Agreement.
"Holder" means a holder of one or more Shares.
------
"Incur" means issue, assume, Guarantee, incur or otherwise become
-----
liable for; provided, however, that any Indebtedness or Capital Stock of a
-------- -------
Person existing at the time such Person becomes a Subsidiary (whether by merger,
consolidation, acquisition or otherwise) shall be deemed to be Incurred by such
Subsidiary at the time it becomes a Subsidiary. The term "Incurrence" when used
as a noun shall have a correlative meaning. The accretion of principal of a
non-interest bearing or other discount security shall be deemed the Incurrence
of Indebtedness.
"Indebtedness" means, with respect to any Person on any date of
------------
determination (without duplication):
(a) the principal in respect of (i) indebtedness of such Person
for money borrowed and (ii) indebtedness evidenced by notes, debentures,
bonds, or other similar instruments for the payment of which such Person is
responsible or liable, including, in each case, any premium on such
indebtedness to the extent such premium has become due and payable;
(b) all Capital Lease Obligations of such Person and all
Attributable Debt in respect of Sale/Leaseback Transactions entered into by
such Person;
(c) all obligations of such Person issued or assumed as the
deferred purchase price of property, all conditional sale obligations of
such Person and all obligations of such Person under any title retention
agreement (but excluding trade accounts payable arising in the ordinary
course of business);
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<PAGE>
(d) all obligations of such Person for the reimbursement of any
obligor on any letter of credit, banker's acceptance or similar credit
transaction (other than obligations with respect to letters of credit
securing obligations (other than obligations described in clauses (a)
through (c) above) entered into in the ordinary course of business of such
Person to the extent such letters of credit are not drawn upon or, if and
to the extent drawn upon, such drawing is reimbursed no later than the
tenth Business Day following payment of the letter of credit);
(e) the amount of all obligations of such Person with respect to
the redemption, repayment or other repurchase of any Disqualified Stock or,
with respect to any Subsidiary of such Person (including any Restricted
Subsidiary), the liquidation preference with respect to, any Preferred
Stock (but excluding, in each case, any accrued dividends);
(f) all obligations of the type referred to in clauses (a)
through (e) of other Persons and all dividends of other Persons for the
payment of which, in either case, such Person is responsible or liable,
directly or indirectly, as obligor, guarantor or otherwise, including by
means of any Guarantee;
(g) all obligations of the type referred to in clauses (a)
through (f) of other Persons secured by any Lien on any property or asset
of such Person (whether or not such obligation is assumed by such Person),
the amount of such obligation being deemed to be the lesser of the fair
value of such property or assets or the amount of the obligation so
secured, in each case as of the date of determination; and
(h) to the extent not otherwise included in this definition,
Hedging Obligations of such Person.
The amount of Indebtedness of any Person at any date shall be the outstanding
balance at such date of all unconditional obligations as described above and the
maximum liability, upon the occurrence of the contingency giving rise to the
obligation, of any contingent obligations at such date.
"Independent Financial Advisor" means a United States investment
-----------------------------
banking firm of national standing in the United States which does not, and whose
directors officers and employees or affiliates do not, have a direct or indirect
financial interest in the Corporation.
"Interest Rate Agreement" means in respect of a Person any interest
-----------------------
rate swap agreement, interest rate cap, floor, collar or forward interest rate
agreement or other financial agreement or arrangement designed to protect such
Person against fluctuations in interest rates.
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<PAGE>
"Investment" in any Person means any direct or indirect advance, loan
----------
(other than advances to customers in the ordinary course of business that are
recorded as accounts receivable on the balance sheet of the lender) or other
extensions of credit (including by way of Guarantee or similar arrangement) or
capital contribution to (by means of any transfer of cash or other property to
others or any payment for property or services for the account or use of
others), or any purchase or acquisition of Capital Stock, Indebtedness or other
similar instruments issued by such Person. For purposes of the definition of
"Unrestricted Subsidiary", the definition of "Restricted Payment" and Section
11B hereof, (a) "Investment" shall include the portion (proportionate to the
----------
Corporation's equity interest in such Subsidiary) of the fair market value of
the net assets of any Subsidiary of the Corporation at the time that such
Subsidiary is designated an Unrestricted Subsidiary; provided, however, that
-------- -------
upon a redesignation of such Subsidiary as a Restricted Subsidiary, the
Corporation shall be deemed to continue to have a permanent "Investment" in an
Unrestricted Subsidiary equal to an amount (if positive) equal to (i) the
Corporation's "Investment" in such Subsidiary at the time of such redesignation
less (ii) the portion (proportionate to the Corporation's equity interest in
such Subsidiary) of the fair market value of the net assets of such Subsidiary
at the time of such redesignation; and (b) any property transferred to or from
an Unrestricted Subsidiary shall be valued at its fair market value at the time
of such transfer, in each case as determined in good faith by the Board of
Directors.
"Issue Date" means the first date on which any Shares are issued
----------
pursuant to these Articles.
"Junior Stock" means all classes of Capital Stock outstanding on the
------------
date of these Articles (including the Class A Preferred Stock, Class B Preferred
Stock and the Common Stock) and each other class or series of Capital Stock or
Preferred Stock established on or after the Articles by the Board of Directors,
the terms of which do not expressly provide that it ranks senior to, or on a
parity with, the Shares as to dividend rights and rights on liquidation,
winding-up and dissolution of the Corporation.
"Lien" means any mortgage, pledge, security interest, encumbrance,
----
lien or charge of any kind (including any conditional sale or other title
retention agreement or lease in the nature thereof).
"Liquidation Preference" means One Thousand Dollars ($1,000.00) per
----------------------
Share.
"Market Assets" means assets used or useful in the ownership or
-------------
operation of a Related Business, including any and all licenses, franchises and
assets related thereto.
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<PAGE>
"Market Swap" means the execution of a definitive agreement, subject
-----------
only to governmental approval and other customary closing conditions, that the
Corporation in good faith believes will be satisfied, for a substantially
concurrent purchase and sale, or exchange, of Market Assets between the
Corporation or any of its Restricted Subsidiaries and another Person or group of
Persons; provided that any amendment to or waiver of any closing condition which
--------
individually or in the aggregate is material to the Market Swap will be deemed
to be a new Market Swap; provided, however, that the Market Assets to be sold by
-------- -------
the Corporation or its Restricted Subsidiaries in connection with a Market Swap
do not include assets used in or necessary for the ownership or operation of the
Corporation's business pertaining to its Area 1 Franchise in Chicago; provided
--------
further, however, that the cash and other assets to be received by the
- ------- -------
Corporation or its Restricted Subsidiaries which do not constitute Market Assets
do not constitute more than 15% of the total consideration to be received by the
Corporation or its Restricted Subsidiaries in such Market Swap.
"Net Available Cash" from an Asset Disposition means cash payments
------------------
received therefrom (including any cash payments received by way of deferred
payment of principal pursuant to a note or installment receivable or otherwise
and proceeds from the sale or other disposition of any securities received as
consideration, but only as and when received, but excluding any other
consideration received in the form of assumption by the acquiring Person of
Indebtedness or other obligations relating to such properties or assets or
received in any other noncash form), in each case net of (a) all legal, title
and recording tax expenses, commissions and other fees and expenses incurred,
and all Federal, state, provincial, foreign and local taxes required to be
accrued as a liability under GAAP, as a consequence of such Asset Disposition,
(b) all payments made on any Indebtedness which is secured by any assets subject
to such Asset Disposition, in accordance with the terms of any Lien upon or
other security agreement of any kind with respect to such assets, or which must
by its terms, or in order to obtain a necessary consent to such Asset
Disposition, or by applicable law, be repaid out of the proceeds from such Asset
Disposition, (c) all distributions and other payments required to be made to
minority interest holders in Restricted Subsidiaries as a result of such Asset
Disposition and (d) the deduction of appropriate amounts provided by the seller
as a reserve, in accordance with GAAP, against any liabilities associated with
the property or other such assets disposed in such Asset Disposition and
retained by the Corporation or any Restricted Subsidiary after such Asset
Disposition.
"Net Cash Proceeds", with respect to any issuance or sale of Capital
-----------------
Stock, means the proceeds of such issuance or sale in the form of cash or cash
equivalents including payments in respect of deferred payment obligations (to
the extent corresponding to the principal, but not interest, component thereof)
when received in such form of cash or cash equivalents and the conversion of
other property received when converted to such form of cash or cash equivalents,
net of any and all issuance costs, including attorneys' fees, accountants' fees,
underwriters' or placement
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<PAGE>
agents' fees, discounts or commissions and brokerage, consultant and other fees
actually incurred in connection with such issuance or sale and net of taxes paid
or payable as a result thereof.
"Note(s)" means the Corporation's Senior Discount Notes Due 2008
-------
having an initial principal amount of $150 million, to be issued under the Notes
Indenture.
"Noteholder(s)" means a Person or Persons holding a Note or Notes.
-------------
"Notes Indenture" means the Indenture dated as of February 15, 1998
---------------
between the Corporation and State Street Bank and Trust Company, as trustee.
"Officer" means the Chairman of the Board, the President, the Chief
-------
Financial Officer, any Vice President, the Treasurer or the Secretary of the
Corporation.
"Officers' Certificate" means a certificate signed by two Officers.
---------------------
"Opinion of Counsel" means a written opinion from legal counsel who
------------------
may be an employee of or counsel to the Corporation.
"Parent" means any Person that owns directly or indirectly all the
------
Voting Stock of the Corporation.
"Parity Stock" means any capital stock of the Corporation established
------------
on or after the Issue Date by the Board of Directors that expressly ranks on a
parity with the Shares as to dividend rights and rights on liquidation, winding-
up and dissolution.
"Permitted Holders" means Purnendu Chatterjee, JK&B Capital, William
-----------------
Farley, Boston Capital Ventures II L.P., Glenn W. Milligan, Edward T. Joyce and
each of their Affiliates.
"Permitted Investment" means an Investment by the Corporation or any
--------------------
Restricted Subsidiary in (a) the Corporation, a Restricted Subsidiary or a
Person that will, upon the making of such Investment, become a Restricted
Subsidiary; provided, however, that the primary business of such Restricted
-------- --------
Subsidiary is a Related Business; (b) another Person if as a result of such
Investment such other Person is merged or consolidated with or into, or
transfers or conveys all or substantially all its assets to, the Corporation or
a Restricted Subsidiary; provided, however, that such Person's primary business
-------- -------
is a Related Business; (c) Temporary Cash Investments; (d) receivables owing to
the Corporation or any Restricted Subsidiary if created or acquired in the
ordinary course of business and payable or dischargeable in accordance with
customary trade terms; provided, however, that such trade terms may include such
-------- -------
concessionary trade terms as the Corporation or any such Restricted Subsidiary
deems
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<PAGE>
reasonable under the circumstances; (e) commissions, payroll, travel and similar
advances to cover matters that are expected at the time of such advances
ultimately to be treated as expenses for accounting purposes and that are made
in the ordinary course of business; (f) loans or advances to employees made in
the ordinary course of business consistent with past practices of the
Corporation or such Related Subsidiary; (g) stock, obligations or securities
received in settlement of debts created in the ordinary course of business and
owing to the Corporation or any Restricted Subsidiary or in satisfaction of
judgments; (h) any Person to the extent such Investment represents either the
non-cash portion of the consideration received for an Asset Disposition as
permitted pursuant to Section 11D or the consideration not constituting Market
Assets received in a Market Swap as permitted pursuant to Section 11G; and (i)
any Person principally engaged in a Related Business if (i) the Corporation or a
Restricted Subsidiary, after giving effect to such Investment, will own at least
20% of the Voting Stock of such Person and (ii) the amount of such Investment,
when taken together with the aggregate amount of all Investments made pursuant
to this clause (i) and then outstanding, does not exceed $10.0 million.
"Person" means any individual, corporation, partnership, limited
------
liability company, joint venture, association, joint-stock company, trust,
unincorporated organization, government or any agency or political subdivision
thereof or any other entity.
"Preferred Stock", as applied to the Capital Stock of any Person,
---------------
means Capital Stock of any class or classes (however designated, whether voting
or nonvoting) which is preferred as to the payment of dividends or
distributions, or as to the distribution of assets upon any voluntary or
involuntary liquidation or dissolution of such Person, over shares of Capital
Stock of any other class of such Person.
"Private Exchange" means the offer by the Corporation, pursuant to
----------------
Section 1 of the Registration Rights Agreement, to issue and deliver to certain
purchasers, in exchange for the Exchangeable Preferred Stock held by such
purchasers as part of their initial distribution, a like Liquidation Preference
of Private Exchange Securities.
"Private Exchange Securities" means Registrable Exchangeable Preferred
---------------------------
Stock of the Corporation identical in all material respects (including the
existence of restrictions on transfer under the Securities Act and the
securities laws of the several states of the United States) to the Exchangeable
Preferred Stock.
"Public Market" means any time after (a) a Public Offering has been
-------------
consummated and (b) at least 15% of the total issued and outstanding common
stock of Parent or the Corporation has been distributed by means of an effective
registration statement under the Securities Act or sales pursuant to Rule 144
under the Securities Act.
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<PAGE>
"Public Offering" means an underwritten primary public offering of
---------------
common stock of the Corporation or the Parent pursuant to an effective
registration statement under the Securities Act.
"Purchase Agreement" means the Purchase Agreement, dated as of January
------------------
31, 1997, as amended, by and among the Corporation and certain investors, as
such agreement may from time to time be amended in accordance with its terms.
"Qualified Preferred Stock" of a Restricted Subsidiary means a series
-------------------------
of Preferred Stock of such Restricted Subsidiary which (a) has a fixed
liquidation preference that is no greater in the aggregate than the sum of (i)
the fair market value (as determined in good faith by the Board of Directors at
the time of the issuance of such series of Preferred Stock) of the consideration
received by such Restricted Subsidiary for the issuance of such series of
Preferred Stock and (ii) accrued and unpaid dividends to the date of
liquidation, (b) has a fixed annual dividend and has no right to share in any
dividend or other distributions based on the financial or other similar
performance of such Restricted Subsidiary and (c) does not entitle the holders
thereof to vote in the election of directors, managers or trustees of such
Restricted Subsidiary unless such Restricted Subsidiary has failed to pay
dividends on such series of Preferred Stock for a period of at least 12
consecutive calendar months.
"Refinance" means, in respect of any Indebtedness, to refinance,
---------
extend, renew, refund, repay, prepay, redeem, defease or retire, or to issue
other Indebtedness in exchange or replacement for, such indebtedness.
"Refinanced" and "Refinancing" shall have correlative meanings.
"Refinancing Indebtedness" means Indebtedness that Refinances any
------------------------
Indebtedness of the Corporation or any Restricted Subsidiary existing on the
Issue Date or Incurred in compliance with Section 11A, including Indebtedness
that Refinances Refinancing Indebtedness; provided, however, that (a) such
-------- -------
Refinancing Indebtedness has a Stated Maturity no earlier than the Stated
Maturity of the Indebtedness being Refinanced; (b) such Refinancing Indebtedness
has an Average Life at the time such Refinancing Indebtedness is Incurred that
is equal to or greater than the Average Life of the Indebtedness being
Refinanced; and (c) such Refinancing Indebtedness has an aggregate principal
amount (or if Incurred with original issue discount, an aggregate issue price)
that is equal to or less than the aggregate principal amount (or if Incurred
with original issue discount, the aggregate accreted value) then outstanding or
committed (plus accrued and unpaid interest, fees and expenses, including any
premium and defeasance costs) under the Indebtedness being Refinanced; provided
--------
further, however, that Refinancing Indebtedness shall not include (i)
- ------- -------
Indebtedness of a Subsidiary that Refinances Indebtedness of the Corporation or
(ii) Indebtedness of the Corporation or a Restricted Subsidiary that Refinances
Indebtedness of an Unrestricted Subsidiary.
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<PAGE>
"Registered Exchange Offer" means the offer by the Corporation,
-------------------------
pursuant to the Registration Rights Agreement, to holders of Initial
Exchangeable Preferred Stock to issue and deliver to such holders, in exchange
for the Initial Exchangeable Preferred Stock, a like number of Registrable
Exchangeable Preferred Stock registered under the Securities Act.
"Registration Rights Agreement" means the Registration Rights
-----------------------------
Agreement dated as of February 2, 1998, between the Corporation and Credit
Suisse First Boston Corporation, BancBoston Securities Inc., and BankAmerica
Robertson Stephens.
"Related Business" means the businesses of the Corporation and the
----------------
Restricted Subsidiaries on the Issue Date and any business related, ancillary or
complementary to the businesses of the Corporation and the Restricted
Subsidiaries on the Issue Date.
"Restricted Subsidiary" means any Subsidiary of the Corporation that
---------------------
is not an Unrestricted Subsidiary.
"Sale/Leaseback Transaction" means an arrangement relating to property
--------------------------
now owned or hereafter acquired whereby the Corporation or a Restricted
Subsidiary transfers such property to a Person and the Corporation or a
Restricted Subsidiary leases it from such Person.
"SEC" means the Securities and Exchange Commission.
---
"Securities" means the Initial Exchangeable Preferred Stock, the
----------
Exchange Securities and the Private Exchange Securities, treated as a single
class.
"Securities Act" means the Securities Act of 1933.
--------------
"Senior Stock" means all classes of Capital Stock or series of
------------
Preferred Stock established on or after the Issue Date by the Board of
Directors, the terms of which expressly provide that such class or series will
rank senior to the Shares as to dividend rights and rights on liquidation,
winding-up and dissolution of the Corporation.
"Shelf Registration Statement" means a registration statement filed
----------------------------
with the SEC covering resales of Exchangeable Preferred Stock as provided for,
under certain circumstances, pursuant to the Registration Rights Agreement.
"Significant Subsidiary" means any Restricted Subsidiary that would be
----------------------
a "Significant Subsidiary" of the Corporation within the meaning of Rule 1-02
under Regulation S-X promulgated by the SEC.
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<PAGE>
"Stated Maturity" means, with respect to any security, the date
---------------
specified in such security as the fixed date on which the final payment of
principal of such security is due and payable, including pursuant to any
mandatory redemption provision (but excluding any provision providing for the
repurchase of such security at the option of the holder thereof upon the
happening of any contingency unless such contingency has occurred).
"Subsidiary" means, in respect of any Person, any corporation,
----------
association, partnership or other business entity of which more than 50% of the
total voting power of shares of Voting Stock is at the time owned or controlled,
directly or indirectly, by (a) such Persons, (b) such Person and one or more
Subsidiaries of such Person or (c) one or more Subsidiaries of such Person.
"Temporary Cash Investments" means any of the following:
--------------------------
(a) any investment in direct obligations of the United States of
America or any agency thereof or obligations guaranteed by the United
States of America or any agency thereof,
(b) investment in time deposit accounts, certificates of
deposits and money market deposits maturing within 365 days of the date of
acquisition thereof issued by a bank or trust company which is organized
under the laws of the United States of America, any state thereof or any
foreign country recognized by the United States, and which bank or trust
company has capital, surplus and undivided profits aggregating in excess of
$50,000,000 (or the foreign currency equivalent thereof) and has
outstanding debt which is rated "A" (or such similar equivalent rating) or
higher by at least one nationally recognized statistical rating
organization (as defined in Rule 436 under the Securities Act) or any
money-market fund sponsored by a registered broker dealer or mutual fund
distributor,
(c) repurchase obligations with a term of not more than 30 days
underlying securities of the types described in clause (a) above entered
into with a bank meeting the qualifications described in clause (b) above,
(d) investments in commercial paper, maturing not more than 270
days after the date of acquisition, issued by a corporation (other than an
Affiliate of the Corporation) organized and in existence under the laws of
the United States of America or any foreign country recognized by the
United States of America with a rating at the time as of which any
investment therein is made of "P-1" (or higher) according to Moody's
Investors Service, Inc. or "A-1" (or higher) according to Standard and
Poor's Ratings Group,
(e) investments in securities with maturities of six months or
less from the date of acquisition issued or fully guaranteed by any state,
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commonwealth or territory of the United States of America, or by any
political subdivision or taxing authority thereof, and rated at least "A"
by Standard & Poor's Rating Group or "A" by Moody's Investors Service,
Inc., and
(f) investments in money-market funds (other than single-state
funds) that make investments in instruments of the type described in
clauses (a)-(e) above in accordance with the regulations of the SEC under
the Investment Corporation Act of 1940, as amended.
"Transfer Agent" means the transfer agent for the Exchangeable
--------------
Preferred Stock appointed by the Corporation, which initially shall be Boston
EquiServe Trust Company.
"Transfer Restricted Security" means Securities that bear or are
---------------------------
required to bear the legend set forth in Section 12C(iv) hereto.
"Units" means 50,000 Units, each consisting of one share of the
-----
Exchangeable Preferred Stock and one warrant to purchase 8.7774 shares of Common
Stock.
"U.S. Government Obligation" means direct obligations (or certificates
--------------------------
representing an ownership interest in such obligations) of the United States of
America (including any agency or instrumentality thereof) for the payment of
which the full faith and credit of the United States of America is pledged and
which are not callable at the issuer's option.
"Unrestricted Subsidiary" means (a) any Subsidiary of the Corporation
-----------------------
that at the time of determination shall be designated as Unrestricted Subsidiary
by the Board of Directors in the manner provided below and (b) any Subsidiary of
an Unrestricted Subsidiary. The Board of Directors may designate any Subsidiary
of the Corporation (including any newly acquired or newly formed Subsidiary) to
be an Unrestricted Subsidiary unless such Subsidiary or any of its Subsidiaries
owns any Capital Stock or Indebtedness of, or holds any Lien on any property of,
the Corporation or any other Subsidiary of the Corporation that is not a
Subsidiary of the Subsidiary to be so designated; provided, however, that
-------- -------
either (i) the Subsidiary to be so designated has total assets of $1,000 or less
or (ii) if such Subsidiary has assets greater than $1,000, such designation
would be permitted under Section 11B. The Board of Directors may designate any
Unrestricted Subsidiary to be a Restricted Subsidiary; provided, however, that
-------- -------
immediately after giving effect to such designation (A) the Corporation could
Incur $1.00 of additional Indebtedness under Section 11A(a) hereof and (B) no
Default shall have occurred and be continuing. Any such designation by the
Board of Directors shall be evidenced to the Transfer Agent by promptly filing
with the Transfer Agent a copy of the resolution of the Board of Directors
giving effect to such
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<PAGE>
designation and an Officers' Certificate certifying that such designation
complied with the foregoing provisions.
"Voting Stock" of a Person means all classes of Capital Stock or other
------------
interests (including partnership interests) of such Person then outstanding and
normally entitled (without regard to the occurrence of any contingency) to vote
in the election of directors, managers or trustees thereof.
"Wholly Owned Subsidiary" means a Restricted Subsidiary all the
-----------------------
Capital Stock of which (other than directors' qualifying shares) is owned by the
Corporation or one or more Wholly Owned Subsidiaries.
13B. Rules of Construction. Unless the context otherwise requires:
---------------------
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning
assigned to it in accordance with GAAP;
(3) "or" is not exclusive;
(4) "including" means including without limitation;
(5) words in the singular include the plural and words in the
plural include the singular;
(6) unsecured indebtedness shall not be deemed to be subordinate
or junior to secured indebtedness merely by virtue of its nature as unsecured
indebtedness;
(7) the principal amount of any noninterest bearing or other
discount security at any date shall be the principal amount thereof that would
be shown on a balance sheet of the issuer dated such date prepared in accordance
with GAAP;
(8) the principal amount of any Preferred Stock shall be (i) the
maximum liquidation value of such Preferred Stock or (ii) the maximum mandatory
redemption or mandatory repurchase price with respect to such Preferred Stock,
whichever is greater; and
(9) all references to the date the Exchangeable Securities were
originally issued shall refer to the date the shares of Initial Exchangeable
Preferred Stock were originally issued.
Section 14. Amendment and Waiver.
--------------------
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<PAGE>
No amendment, modification or waiver shall be binding or effective with
respect to any provision of Sections 1 to 14 hereof without the prior written
consent of the holders of a majority of the Securities outstanding at the time
such action is taken. However, without the consent of each Securityholder
affected thereby, an amendment may not: (a) reduce the amount of Securities
whose Holders must consent to an amendment; (b) reduce the rate at which or the
manner in which dividends on the Securities accrue or the times at which such
dividends become payable; (c) reduce the Liquidation Preference of or extend the
date of mandatory redemption of any Security; (d) reduce the amount payable upon
the mandatory redemption of any Security or change the time at which any
Security may be redeemed in accordance with Section 2; or (e) make any Security
payable in money other than that stated in the Security.
CLASS A CONVERTIBLE 8% CUMULATIVE PREFERRED STOCK TERMS
-------------------------------------------------------
Section 1. Dividends.
---------
1A. General Obligation. When and as declared by the Corporation's
------------------
Board of Directors and to the extent permitted under the ILBCA, or these
Articles, the Corporation shall pay preferential dividends in cash to the
holders of the Class A Convertible 8% Cumulative Preferred Stock (the "Class A
-------
Preferred") as provided in this Section 1. Dividends on each share of the Class
- ---------
A Preferred (a "Class A Share") shall accrue on a daily basis at the rate of 8%
-------------
per annum of the sum of the Liquidation Value thereof plus all accumulated and
unpaid dividends thereon from and including the Date of Issuance of such Class A
Share to and including the first to occur of (a) the date on which the
Liquidation Value of such Class A Share (plus all accrued and unpaid dividends
thereon) is paid to the holder thereof in connection with the liquidation of the
Corporation, (b) the date on which such Class A Share is converted into shares
of Conversion Stock hereunder or (c) the date on which such share is acquired by
the Corporation. Such dividends shall accrue whether or not they have been
declared and whether or not there are profits, surplus or other funds of the
Corporation legally available for the payment of dividends. The date on which
the Corporation initially issues any Class A Share shall be deemed to be its
"Date of Issuance" regardless of the number of times transfer of such Class A
----------------
Share is made on the stock records maintained by or for the Corporation and
regardless of the number of certificates which may be issued to evidence such
Class A Share.
1B. Dividend Reference Dates. To the extent not paid on June 30 or
------------------------
December 31 of any year, beginning with June 30, 1997 (the "Dividend Reference
------------------
Dates"), all dividends which have accrued on each Class A Share outstanding
- -----
during the three-month period (or other period in the case of the initial
Dividend Reference Date) ending upon each such Dividend Reference Date shall be
accumulated and shall remain accumulated and accrued dividends with respect to
such Class A Share until paid to the holder thereof.
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<PAGE>
1C. Distribution of Partial Dividends Payments. Except as otherwise
------------------------------------------
provided herein, if at any time the Corporation pays less than the total amount
of dividends then accrued with respect to the Preferred Stock, such payment
shall be distributed pro rata among the holders thereof based upon the number of
shares of Preferred Stock held by each such holder.
1D. Restriction of Dividends. No dividend, whatsoever, shall be
------------------------
declared or paid upon, or any sum set apart for the payment of dividends upon,
any outstanding share of Class A Preferred with respect to any dividend period,
unless all dividends have been declared and paid, or declared and a sufficient
sum set apart (or, on or prior to February 15, 2003, Shares for which have been
issued and are held for holders by the Transfer Agent) for the payment of
dividends, on the Exchangeable Preferred Stock.
Section 2. Liquidation.
-----------
Upon any liquidation, dissolution or winding up of the Corporation
(whether voluntary or involuntary), the holder of each then outstanding Class A
Share shall be entitled to be paid, before any distribution or payment is made
upon any Junior Securities, an amount in cash equal to the greater of (a) that
amount which the holders of Class A Preferred would have received if such
holders had converted all of their Class A Preferred into Conversion Stock
immediately prior to such liquidation, dissolution or winding up of the
Corporation, and (b) the aggregate Liquidation Value of all shares of Class A
Preferred then held by such holder (plus all accrued and unpaid dividends
thereon), and the holders of Class A Preferred shall not be entitled to any
further payment. If upon any such liquidation, dissolution or winding up of the
Corporation, the Corporation's assets to be distributed among the holders of the
Class A Preferred and the Class B Preferred are insufficient to permit payment
to such holders of the aggregate amount which they are entitled to be paid under
this Section 2, and Section 2 of the terms of the Class B Preferred set forth
below, then the entire assets available to be distributed to the Corporation's
shareholders shall be distributed pro rata among the holders of the Class A
Preferred and the Class B Preferred based upon the aggregate Liquidation Value
(plus all accrued and unpaid dividends) of the Class A Preferred and Class B
Preferred then held by each such holder. Not less than 60 days prior to the
payment date stated therein, the Corporation shall mail written notice of any
such liquidation, dissolution or winding up to each record holder of Class A
Preferred, setting forth in reasonable detail the amount of proceeds to be paid
with respect to each share of Class A Preferred and each share of Common Stock
in connection with such liquidation, dissolution or winding up. Neither the
consolidation or merger of the Corporation into or with any other entity or
entities (whether or not the Corporation is the surviving entity), nor the sale
or transfer by the Corporation of all or any part of its assets, nor the
reduction of the capital stock of the Corporation nor any other form of
recapitalization or reorganization affecting the Corporation shall be
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<PAGE>
deemed to be a liquidation, dissolution or winding up of the Corporation within
the meaning of this Section 2.
Section 3. Priority of Class A Preferred on Dividends and Redemptions.
----------------------------------------------------------
So long as any Class A Preferred remains outstanding, without the
prior written consent of the holders of a majority of the outstanding shares of
Preferred Stock, the Corporation shall not, nor shall it permit any Subsidiary
to, redeem, purchase or otherwise acquire directly or indirectly any Junior
Securities, nor shall the Corporation directly or indirectly pay or declare any
dividend or make any distribution upon any Junior Securities.
Section 4. Voting Rights.
-------------
The holders of the Class A Preferred shall be entitled to notice of
all stockholders meetings in accordance with the Corporation's bylaws, and the
holders of the Class A Preferred shall be entitled to vote on all matters
submitted to the stockholders for a vote, together with the holders of the Class
B Preferred and the Common Stock, with all such holders voting together as a
single class and with each share of Common Stock entitled to one vote per share
and each share of Class A Preferred or Class B Preferred entitled to one vote
for each share of Common Stock issuable upon conversion of such Preferred Stock
as of the record date for such vote or, if no record date is specified, as of
the date of such vote.
Section 5. Conversion.
----------
5A. Conversion Procedure.
--------------------
(a) At any time and from time to time, any holder of Class A
Preferred may convert all or any portion of the Class A Preferred (including any
fraction of a Class A Share) held by such holder into a number of shares of
Conversion Stock computed by multiplying the number of Class A Shares to be
converted by the Liquidation Value of each Class A Share and dividing the result
by the Conversion Price then in effect.
(b) Except as otherwise provided herein, each conversion of
Class A Preferred shall be deemed to have been effected as of the close of
business on the date on which the certificate or certificates representing the
Class A Preferred to be converted have been surrendered for conversion at the
principal office of the Corporation. At the time any such conversion has been
effected, the rights of the holder of the Class A Shares converted as a holder
of Class A Preferred shall cease and the Person or Persons in whose name or
names any certificate or certificates for shares of Conversion Stock are to be
issued upon such conversion shall be deemed to
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<PAGE>
have become the holder or holders of record of the shares of Conversion Stock
represented thereby.
(c) Notwithstanding any other provision hereof, if a conversion
of Class A Preferred is to be made in connection with a Public Offering or any
other transaction, the conversion of any Class A Shares may, at the election of
the holder thereof, be conditioned upon the consummation of such transaction, in
which case such conversion shall not be deemed to be effective until such
transaction has been consummated.
(d) As soon as possible after a conversion has been effected
(but in any event within five business days in the case of subparagraph (a)
below), the Corporation shall deliver to the converting holder:
(i) a certificate or certificates representing the number
of shares of Conversion Stock issuable by reason of such conversion in such name
or names and such denomination or denominations as the converting holder has
specified;
(ii) the amount payable under subparagraph (viii) below
with respect to such conversion; and
(iii) a certificate representing any Class A Shares which
were represented by the certificate or certificates delivered to the Corporation
in connection with such conversion but which were not converted.
(e) The issuance of certificates for shares of Conversion Stock
upon conversion of Class A Preferred shall be made without charge to the holders
of such Class A Preferred for any issuance tax in respect thereof or other cost
incurred by the Corporation in connection with such conversion and the related
issuance of shares of Conversion Stock. Upon conversion of each Class A Share,
the Corporation shall take all such actions as are necessary in order to insure
that the Conversion Stock issuable with respect to such conversion shall be
validly issued, fully paid and nonassessable, free and clear of all taxes,
liens, charges and encumbrances with respect to the issuance thereof.
(f) The Corporation shall not close its books against the
transfer of Class A Preferred or of Conversion Stock issued or issuable upon
conversion of Class A Preferred in any manner which interferes with the timely
conversion of Class A Preferred. The Corporation shall assist and cooperate with
any holder of Class A Shares required to make any governmental filings or obtain
any governmental approval prior to or in connection with any conversion of Class
A Shares hereunder (including, without limitation, making any filings required
to be made by the Corporation).
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<PAGE>
(g) The Corporation shall at all times reserve and keep
available out of its authorized but unissued shares of Conversion Stock, solely
for the purpose of issuance upon the conversion of the Class A Preferred, such
number of shares of Conversion Stock as are issuable upon the conversion of all
outstanding Class A Preferred. The Corporation shall take all such actions as
may be necessary to assure that all such shares of Conversion Stock may be so
issued without violation of any applicable law or governmental regulation or any
requirements of any domestic securities exchange upon which shares of Conversion
Stock may be listed (except for official notice of issuance which shall be
immediately delivered by the Corporation upon each such issuance). The
Corporation shall not take any action which would cause the number of authorized
but unissued shares of Conversion Stock to be less than the number of such
shares required to be reserved hereunder for issuance upon conversion of the
Class A Preferred.
(h) If any fractional interest in a share of Conversion Stock
would, except for the provisions of this subparagraph, be delivered upon any
conversion of the Class A Preferred, the Corporation will have the option, in
lieu of delivering the fractional share therefor, to pay an amount to the holder
thereof equal to the Market Price of one share of Conversion Stock as of the
date of conversion multiplied by the fraction in question.
5B. Conversion Price.
----------------
(a) The initial Conversion Price shall be the Liquidation Value
----------------
of a Class A Share. In order to prevent dilution of the conversion rights
granted under this Section 5, the Conversion Price shall be subject to
adjustment from time to time pursuant to this paragraph 5B.
(b) If and whenever (on or after the original Date of Issuance
of the first Class A Share to be issued) the Corporation issues or sells
(including, in accordance with paragraph 5C, if the Corporation is deemed to
have issued or sold), any shares of its Conversion Stock for a consideration per
share less than the Conversion Price in effect immediately prior to such
issuance or sale (the "Adjustment Event"), then immediately upon such issue or
----------------
sale the Conversion Price shall be reduced to the Conversion Price determined by
dividing (i) the sum of (A) the product derived by multiplying the Conversion
Price in effect immediately prior to such issue or sale by the number of shares
of Conversion Stock Deemed Outstanding immediately prior to such issue or sale,
plus (B) the consideration, if any, received by the Corporation upon such issue
or sale (including any applicable consideration payable upon any exercise or
conversion, as provided in paragraph 5C), by (ii) the number of shares of
Conversion Stock Deemed Outstanding immediately after such issue or sale.
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<PAGE>
(c) An Adjustment Event, as defined in subsection (b) above,
shall not include the public offering of the 1998 Warrants made in the 1998
Offering and upon the exercise thereof, the issuance of the 1998 Warrant Shares.
The "1998 Offering" is the underwritten offering of (i) up to $200 million of
-------------
the Corporation's Senior Discount Notes Due 2008, together with the accretion of
original issue discount (the "Notes") in accordance with the terms of the
-----
Indenture in effect at the time of issuance relating to the Notes and (ii) up to
50,000 Units. The "1998 Warrants" are the warrants which are part of the Units.
-------------
The "1998 Warrant Shares" are the shares of Common Stock issuable upon exercise
-------------------
of the 1998 Warrants.
5C. Effect on Conversion Price of Certain Events. For purposes of
--------------------------------------------
determining the adjusted Conversion Price under paragraph 5B, the following
shall be applicable:
(a) Issuance of Rights or Options. If the Corporation in any
-----------------------------
manner grants or sells any Options and the price per share for which Conversion
Stock is issuable upon the exercise of such Options, or upon conversion or
exchange of any Convertible Securities issuable upon exercise of such Options,
is less than the Conversion Price in effect immediately prior to such grant or
sale, then the total maximum number of shares of Conversion Stock issuable upon
the exercise of such Options or upon conversion or exchange of the total maximum
amount of such Convertible Securities issuable upon the exercise of such Options
shall be deemed to be outstanding and to have been issued and sold by the
Corporation at the time of the granting or sale of such Options for such price
per share. For purposes of this paragraph, the "price per share for which
Conversion Stock is issuable" shall be determined by dividing (i) the total
amount, if any, received or receivable by the Corporation as consideration for
the granting or sale of such Options, plus the minimum aggregate amount of
additional consideration payable to the Corporation upon exercise of all such
Options, plus in the case of such Options which relate to Convertible
Securities, the minimum aggregate amount of additional consideration, if any,
payable to the Corporation upon the issuance or sale of such Convertible
Securities and the conversion or exchange thereof, by (ii) the total maximum
number of shares of Conversion Stock issuable upon the exercise of such Options
or upon the conversion or exchange of all such Convertible Securities issuable
upon the exercise of such Options. Notwithstanding the terms of this Section
5C(a), no adjustment of the Conversion Price shall be made if the Corporation,
pursuant to an option plan of the corporation which has been approved by a
majority of the board of directors, in any manner grants or sells any Options
and the price per share for which Conversion Stock is issuable upon the exercise
of such Options, or upon conversion or exchange of any Convertible Securities
issuable upon exercise of such Options, is less than the Conversion Price in
effect immediately prior to such grant or sale but equal to or greater than the
Market Value of a share of Conversion Stock in effect immediately prior to such
grant or sale. No further adjustment of the Conversion Price shall be made when
Convertible Securities are actually issued upon the exercise of such Options or
when Conversion Stock is
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<PAGE>
actually issued upon the exercise of such Options or the conversion or exchange
of such Convertible Securities.
(b) Issuance of Convertible Securities. If the Corporation in
----------------------------------
any manner issues or sells any Convertible Securities and the price per share
for which Conversion Stock is issuable upon conversion or exchange thereof is
less than the Conversion Price in effect immediately prior to such issuance or
sale, then the maximum number of shares of Conversion Stock issuable upon
conversion or exchange of such Convertible Securities shall be deemed to be
outstanding and to have been issued and sold by the Corporation at the time of
the issuance or sale of such Convertible Securities for such price per share.
For the purposes of this paragraph, the "price per share for which Conversion
Stock is issuable" shall be determined by dividing (A) the total amount received
or receivable by the Corporation as consideration for the issue or sale of such
Convertible Securities, plus the minimum aggregate amount of additional
consideration, if any, payable to the Corporation upon the conversion or
exchange thereof, by (B) the total maximum number of shares of Conversion Stock
issuable upon the conversion or exchange of all such Convertible Securities. No
further adjustment of the Conversion Price shall be made when Conversion Stock
is actually issued upon the conversion or exchange of such Convertible
Securities, and if any such issue or sale of such Convertible Securities is made
upon exercise of any Options for which adjustments of the Conversion Price had
been or are to be made pursuant to other provisions of this Section 5, no
further adjustment of the Conversion Price shall be made by reason of such issue
or sale.
(c) Change in Option Price, Conversion Rate or Class A Shares
---------------------------------------------------------
Issuable. If the purchase price provided for in any Options, the additional
- --------
consideration, if any, payable upon the conversion or exchange of any
Convertible Securities, the rate at which any Convertible Securities are
convertible into or exchangeable for Conversion Stock, and/or the quantity of
Conversion Stock issuable upon the conversion, exercise or exchange of any such
Option or Convertible Security, changes at any time, then the Conversion Price
in effect at the time of such change shall be immediately adjusted to the
Conversion Price which would have been in effect at such time had such Options
or Convertible Securities still outstanding provided for such changed purchase
price, additional consideration, conversion rate or quantity, as the case may
be, at the time initially granted, issued or sold; provided that no such change
shall at any time cause the Conversion Price hereunder to be increased. For
purposes of paragraph 5C, if the terms of any Option or Convertible Security
which was outstanding as of the Date of Issuance of the first Class A Share to
be issued are changed in the manner described in the immediately preceding
sentence, then such Option or Convertible Security and the Conversion Stock
deemed issuable upon exercise, conversion or exchange thereof shall be deemed to
have been issued as of the date of such change.
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(d) Calculation of Consideration Received. If any Conversion
-------------------------------------
Stock, Option or Convertible Security is issued or sold or deemed to have been
issued or sold for cash, the consideration received therefor shall be deemed to
be the amount received by the Corporation therefor. If any Conversion Stock,
Option or Convertible Security is issued or sold for a consideration other than
cash, the amount of the consideration other than cash received by the
Corporation shall be the Market Price of such consideration as of the date of
receipt. If any Conversion Stock, Option or Convertible Security is issued to
the owners of the non-surviving entity in connection with any merger in which
the Corporation is the surviving corporation, the amount of consideration
therefor shall be deemed to be the Market Price of such portion of the net
assets and business of the non-surviving entity as is attributable to such
Conversion Stock, Option or Convertible Security, as the case may be. The fair
value of any consideration other than cash and securities shall be determined
jointly by the Corporation and the holders of a majority of the outstanding
Class A Preferred. If such parties are unable to reach agreement within a
reasonable period of time, the fair value of such consideration shall be
determined by an independent appraiser experienced in valuing such type of
consideration jointly selected by the Corporation and the holders of a majority
of the outstanding Class A Preferred. The determination of such appraiser shall
be final and binding upon all Persons, and the fees and expenses of such
appraiser shall be borne by the Corporation.
(e) Integrated Transactions. In case any Option is issued in
-----------------------
connection with the issue or sale of other securities of the Corporation,
together comprising one integrated transaction in which no specific
consideration is allocated to such Option by the parties thereto, the Option
shall be deemed to have been issued for a consideration of $.01.
(f) Treasury Class A Shares. The number of shares of Conversion
------------------------
Stock outstanding at any given time shall not include shares owned or held by or
for the account of the Corporation or any Subsidiary, and the disposition of any
shares so owned or held shall be considered an issue or sale of Conversion
Stock.
(g) Record Date. If the Corporation takes a record of the
-----------
holders of any securities for the purpose of entitling them (i) to receive a
dividend or other distribution payable in Conversion Stock, Options or in
Convertible Securities or (ii) to subscribe for or purchase Conversion Stock,
Options or Convertible Securities, then such record date shall be deemed to be
the date of the issue or sale of the shares of Conversion Stock deemed to have
been issued or sold upon the declaration of such dividend or upon the making of
such other distribution or the date of the granting of such right of
subscription or purchase, as the case may be.
5D. Subdivision or Combination of Conversion Stock. If the
Corporation at any time subdivides (by any stock split, stock dividend,
recapitalization or otherwise) one or more classes of its outstanding shares of
Conversion Stock into a greater
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<PAGE>
number of shares, the Conversion Price in effect immediately prior to such
subdivision shall be proportionately reduced, and if the Corporation at any time
combines (by reverse stock split or otherwise) one or more classes of its
outstanding shares of Conversion Stock into a smaller number of shares, the
Conversion Price in effect immediately prior to such combination shall be
proportionately increased.
5E. Reorganization, Reclassification, Consolidation, Merger or Sale.
---------------------------------------------------------------
Any recapitalization, reorganization, reclassification, consolidation, merger,
sale of all or substantially all of the Corporation's assets or other
transaction, in each case which is effected in such a manner that the holders of
Conversion Stock are entitled to receive (either directly or upon subsequent
liquidation) stock, securities or assets with respect to or in exchange for
Conversion Stock, is referred to herein as an "Organic Change". Prior to the
--------------
consummation of any Organic Change, the Corporation shall make appropriate
provisions (in form and substance satisfactory to the holders of a majority of
the Preferred Stock then outstanding) to insure that each of the holders of
Class A Preferred shall thereafter have the right to acquire and receive, in
lieu of or in addition to (as the case may be) the shares of Conversion Stock
immediately theretofore acquirable and receivable upon the conversion of such
holder's Class A Preferred, such shares of stock, securities or assets as such
holder would have received in connection with such Organic Change if such holder
had converted its Class A Preferred immediately prior to such Organic Change.
In each such case, the Corporation shall also make appropriate provisions (in
form and substance satisfactory to the holders of a majority of the Preferred
Stock then outstanding) to insure that the provisions of these Class A
Convertible Preferred Stock Terms shall thereafter be applicable to the Class A
Preferred (including, in the case of any such consolidation, merger or sale in
which the successor entity or purchasing entity is other than the Corporation,
an immediate adjustment of the Conversion Price to the value of the Conversion
Stock reflected by the terms of such consolidation, merger or sale, and a
corresponding immediate adjustment in the number of shares of Conversion Stock
acquirable and receivable upon conversion of Class A Preferred, if the value so
reflected is less than the Conversion Price in effect immediately prior to such
consolidation, merger or sale). The Corporation shall not effect any such
consolidation, merger or sale, unless prior to the consummation thereof, the
successor entity (if other than the Corporation) resulting from consolidation or
merger or the entity purchasing such assets assumes by written instrument (in
form and substance satisfactory to the holders of a majority of the Preferred
Stock then outstanding), the obligation to deliver to each such holder such
shares of stock, securities or assets as, in accordance with the foregoing
provisions, such holder may be entitled to acquire.
5F. Certain Events. If any event occurs of the type contemplated by
--------------
the provisions of this Section 5 but not expressly provided for by such
provisions (including, without limitation, the granting of stock appreciation
rights, phantom stock rights or other rights with equity features), then the
Corporation's Board of Directors shall make an appropriate adjustment in the
Conversion Price so as to protect the rights of the
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<PAGE>
holders of Class A Preferred; provided that no such adjustment shall increase
the Conversion Price as otherwise determined pursuant to this Section 5 or
decrease the number of shares of Conversion Stock issuable upon conversion of
each Class A Share of Class A Preferred.
5G. Notices.
-------
(a) Not less than 5 business days prior to any adjustment of the
Conversion Price, the Corporation shall give written notice thereof to all
holders of Class A Preferred then outstanding, setting forth in reasonable
detail and certifying the calculation of such adjustment.
(b) The Corporation shall give written notice to all holders of
Class A Preferred then outstanding at least 20 days prior to the date on which
the Corporation closes its books or takes a record (i) with respect to any
dividend or distribution upon Conversion Stock, (ii) with respect to any pro
rata subscription offer to holders of Conversion Stock or (iii) for determining
rights to vote with respect to any Organic Change, dissolution or liquidation.
(c) The Corporation shall also give written notice to the
holders of Class A Preferred at least 20 days prior to the date on which any
Organic Change shall take place.
5H. Mandatory Conversion. The outstanding Class A Preferred will be
--------------------
automatically converted in accord with this Section 5 at such time that the
Corporation closes a firm commitment underwritten Public Offering of shares of
Conversion Stock (managed by a nationally recognized underwriter(s)) in which
(a) the aggregate price paid by the public for the shares shall be at least
$25,000,000, (b) the price per share paid by the public for such shares shall be
at least 200% of the initial Conversion Price (as adjusted as described in
Section 5D but not in any other provision of this Section 5), (c) after such
Public Offering, Conversion Stock will be traded on a national securities
exchange or the NASDAQ National Market System, and (d) the shares issued and
sold pursuant to the Public Offering represent at least 20% of the Conversion
Stock Deemed Outstanding measured after such Public Offering. Any such
mandatory conversion shall only be effected at the time of and subject to the
closing of the sale of such shares pursuant to such Public Offering and upon
written notice of such mandatory conversion transmitted to all holders of Class
A Preferred at least thirty days prior to such closing.
Section 6. Liquidating Dividends.
---------------------
If the Corporation (after receiving the consent referred to in Section
3) declares or pays a dividend upon any class of Conversion Stock payable
otherwise than in cash out of earnings or earned surplus (determined in
accordance with generally accepted accounting principles, consistently applied)
except for a stock dividend
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<PAGE>
payable in shares of such class of Conversion Stock (a "Liquidating Dividend"),
--------------------
then the Corporation shall pay to the holders of Class A Preferred then
outstanding at the time of payment thereof the Liquidating Dividends which would
have been paid on the shares of Conversion Stock had such Class A Preferred been
converted immediately prior to the date on which a record is taken for such
Liquidating Dividend, or, if no record is taken, the date as of which the record
holders of Conversion Stock entitled to such dividends are to be determined.
Section 7. Purchase Rights.
---------------
If at any time the Corporation grants or issues without consideration any
Options, Convertible Securities or rights to purchase stock, warrants,
securities or other property pro rata to the record holders of any class of
Conversion Stock (the "Purchase Rights"), then each holder of Class A Preferred
---------------
shall be entitled to acquire, upon the terms applicable to such Purchase Rights,
the aggregate Purchase Rights which such holder could have acquired if such
holder had held the number of shares of Conversion Stock acquirable upon
conversion of such holder's Class A Preferred immediately before the date on
which a record is taken for the grant, issuance or sale of such Purchase Rights,
or if no such record is taken, the date as of which the record holders of
Conversion Stock are to be determined for the grant, issue or sale of such
Purchase Rights.
Section 8. Registration of Transfer.
------------------------
The Corporation shall keep at its principal office, or shall cause its
transfer agent to keep, a register for the registration of Class A Preferred.
Upon the surrender of any certificate representing Class A Preferred at such
proper place, the Corporation or its transfer agent (as the case may be) shall,
at the request of the record holder of such certificate, execute and deliver (at
the Corporation's expense) a new certificate or certificates in exchange
therefor representing in the aggregate the number of Class A Shares represented
by the surrendered certificate. Each such new certificate shall be registered
in such name and shall represent such number of Class A Shares as is requested
by the holder of the surrendered certificate and shall be substantially
identical in form to the surrendered certificate, and dividends shall accrue on
the Class A Preferred represented by such new certificate from the date to which
dividends have been fully paid on such Class A Preferred represented by the
surrendered certificate.
Section 9. Replacement.
-----------
Upon receipt of evidence reasonably satisfactory to the Corporation or
its transfer agent (as the case may be) (an affidavit of the registered holder
shall be satisfactory) of the ownership and the loss, theft, destruction or
mutilation of any certificate evidencing Class A Shares, and in the case of any
such loss, theft or destruction, upon receipt of indemnity reasonably
satisfactory to the Corporation or its
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<PAGE>
transfer agent (as the case may be), or, in the case of any such mutilation upon
surrender of such certificate, the Corporation or its transfer agent (as the
case may be) shall (at the Corporation's expense) execute and deliver in lieu of
such certificate a new certificate of like kind representing the number of Class
A Shares of such class represented by such lost, stolen, destroyed or mutilated
certificate and dated the date of such lost, stolen, destroyed or mutilated
certificate, and dividends shall accrue on the Class A Preferred represented by
such new certificate from the date to which dividends have been fully paid on
such lost, stolen, destroyed or mutilated certificate.
Section 10. Definitions Specific to the Class A Preferred.
---------------------------------------------
"Conversion Price" has the meaning set forth in Section 5B.
----------------
"Conversion Stock Deemed Outstanding" means, at any given time, the
-----------------------------------
number of shares of Conversion Stock actually outstanding at such time, plus the
number of shares of Conversion Stock deemed to be outstanding pursuant to
subparagraphs 5C(a) and 5C(b) hereof whether or not the Options or Convertible
Securities are actually exercisable at such time.
"Conversion Stock" means shares of the Corporation's voting Common
----------------
Stock, no par value per share; provided that if there is a change such that the
securities issuable upon conversion of the Class A Preferred are issued by an
entity other than the Corporation or there is a change in the type or class of
securities so issuable, then the term "Conversion Stock" shall mean shares of
the security issuable in lieu of such Common Stock upon conversion of the Class
A Preferred if such security is issuable in shares, or shall mean units in which
such security is issuable if such security is not issuable in shares. As the
context requires, the Corporation shall include any entity other than the
Corporation which is the issuer of any Conversion Stock.
"Convertible Securities" means any stock or securities other than the
----------------------
1998 Warrants and the 1998 Warrant Shares directly or indirectly convertible
into or exchangeable for Conversion Stock.
"Exchangeable Preferred Stock" means any share of 13-3/4% Senior
----------------------------
Cumulative Exchangeable Preferred Stock Due 2010 of the Corporation, par value
of $0.01 per share.
"Exchangeable Preferred Stock Terms" means those terms and conditions
----------------------------------
in these Articles related to the Exchangeable Preferred Stock.
"Junior Securities" means all classes of Capital Stock outstanding on
-------------------
February 9, 1998 (excluding the Exchangeable Preferred Stock but including the
Common Stock) and each other class or series of Capital Stock or Preferred Stock
established on or after the Articles by the Board of Directors, the terms of
which do not
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<PAGE>
expressly provide that it ranks senior to, or on a parity with, the Preferred
Stock as to dividend rights and rights on liquidation, winding-up and
dissolution of the Corporation.
"Liquidation Value" of any Class A Share shall be equal to the
-----------------
aggregate purchase price paid pursuant to the Purchase Agreement for Class A
Preferred and warrants to purchase Common Stock divided by the number of shares
of Class A Preferred issued pursuant to the Purchase Agreement.
"Market Price" of any property which is a security means the average
------------
of the closing prices of such security's sales on all securities exchanges on
which such security may at the time be listed, or, if there has been no sales on
any such exchange on any such day, the average of the highest bid and lowest
asked prices on all such exchanges at the end of such day, or, if on any day
such security is not so listed, the average of the representative bid and asked
prices quoted in the NASDAQ System as of 4:00 P.M., New York time, or, if on any
day such security is not quoted in the NASDAQ System, the average of the highest
bid and lowest asked prices on such day in the domestic over-the-counter market
as reported by the National Quotation Bureau, Incorporated, or any similar
successor organization, in each such case averaged over a period of 21 days
consisting of the day as of which "Market Price" is being determined and the 20
consecutive Business Days prior to such day. If at any time such security is
not listed on any securities exchange or quoted in the NASDAQ System or the
over-the-counter market, or if the property in question is not a security, then
the "Market Price" of the property in question shall be the fair value thereof
determined jointly by the Corporation and the holders of a majority of the
outstanding Preferred Stock. If such parties are unable to reach agreement
within a reasonable period of time, such fair value shall be determined by an
independent appraiser experienced in valuing securities jointly selected by the
Corporation and the holders of a majority of the Preferred Stock. The
determination of such appraiser shall be final and binding upon all Persons, and
the Corporation shall pay the fees and expenses of such appraiser.
"Options" means any rights, warrants or options other than the 1998
-------
Warrants and the 1998 Warrant Shares directly or indirectly to subscribe for or
purchase Conversion Stock or Convertible Securities.
"Preferred Stock" means the Class A Preferred and the Class B
---------------
Preferred.
"Public Offering" means an underwritten primary public offering of
---------------
common stock of the Corporation pursuant to an effective registration statement
under the Securities Act.
"Purchase Agreement" means the Purchase Agreement, dated as of January
------------------
31, 1997, as amended, by and among the Corporation and certain investors, as
such agreement may from time to time be amended in accordance with its terms.
"Securities Act" means the Securities Act of 1933, as amended.
--------------
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<PAGE>
Section 11. Amendment and Waiver.
--------------------
No amendment, modification or waiver shall be binding or effective
with respect to any provision of Sections 1 to 12 hereof without the prior
written consent of the holders of a majority of the Preferred Stock outstanding
at the time such action is taken; provided that no such action shall change (a)
the rate at which or the manner in which dividends on the Class A Preferred
accrue or the times at which such dividends become payable, without the prior
written consent of the holders of at least 75% of the Preferred Stock then
outstanding, (b) the Conversion Price of the Class A Preferred or the number of
shares or class of stock into which the Class A Preferred is convertible,
without the prior written consent of the holders of at least 75% of the
Preferred Stock then outstanding, (c) any term applicable to the Class A
Preferred which change is not also contemporaneously made to the terms of the
Class B Preferred, without the prior written consent of the holders of a
majority of the Class A Preferred then outstanding; or (d) the percentage
required to approve any change described in clauses (a), (b) and (c) above,
without the prior written consent of the holders of at least 75% of the
Preferred Stock then outstanding; and provided further that no change in the
terms hereof may be accomplished by merger or consolidation of the Corporation
with another corporation or entity unless the Corporation has obtained the prior
written consent of the holders of the applicable required percentage (if any) of
the Preferred Stock or the Class A Preferred then outstanding.
Section 12. Notices.
-------
Except as otherwise expressly provided hereunder, all notices referred
to herein shall be in writing and shall be delivered by registered or certified
mail, return receipt requested and postage prepaid, or by reputable overnight
courier service, charges prepaid, and shall be deemed to have been given when so
mailed or sent (a) to the Corporation, at its principal executive offices and
(b) to any stockholder, at such holder's address as it appears in the stock
records of the Corporation (unless otherwise indicated by any such holder).
CLASS B CONVERTIBLE 8% CUMULATIVE PREFERRED STOCK TERMS
-------------------------------------------------------
Section 1. Dividends.
---------
1A. General Obligation. When and as declared by the Corporation's
------------------
Board of Directors and to the extent permitted under the ILBCA, the Corporation
shall pay preferential dividends in cash to the holders of the Class B
Convertible 8% Cumulative Preferred Stock (the "Class B Preferred") as provided
-----------------
in this Section 1. Dividends on each share of the Class B Preferred (a "Class B
-------
Share") shall accrue on a daily basis at the rate of 8% per annum of the sum of
- -----
the Liquidation Value thereof plus all accumulated and unpaid dividends thereon
from and including the Date of Issuance
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<PAGE>
of such Class B Share to and including the first to occur of (a) the date on
which the Liquidation Value of such Class B Share (plus all accrued and unpaid
dividends thereon) is paid to the holder thereof in connection with the
liquidation of the Corporation; (b) the date on which such Class B Share is
converted into shares of Conversion Stock hereunder; or (c) the date on which
such share is acquired by the Corporation. Such dividends shall accrue whether
or not they have been declared and whether or not there are profits, surplus or
other funds of the Corporation legally available for the payment of dividends.
The date on which the Corporation initially issues any Class B Share shall be
deemed to be its "Date of Issuance" regardless of the number of times transfer
of such Class B Share is made on the stock records maintained by or for the
Corporation and regardless of the number of certificates which may be issued to
evidence such Class B Share.
1B. Dividend Reference Dates. To the extent not paid on June 30 or
------------------------
December 31 of any year, beginning with June 30, 1997 (the "Dividend Reference
Dates"), all dividends which have accrued on each Class B Share outstanding
during the three-month period (or other period in the case of the initial
Dividend Reference Date) ending upon each such dividend Reference Date shall be
accumulated and shall remain accumulated and accrued dividends with respect to
such Class B Share until paid to the holder thereof.
1C. Distribution of Partial Dividend Payments. Except as otherwise
-----------------------------------------
provided herein, if at any time the Corporation pays less than the total amount
of dividends then accrued with respect to the Preferred Stock, such payment
shall be distributed pro rata among the holders thereof based upon the number of
shares of Preferred Stock held by each such holder.
1D. Restriction of Dividends. No dividend, whatsoever, shall be
------------------------
declared or paid upon, or any sum set apart for the payment of dividends upon,
any outstanding share of Class B Preferred with respect to any dividend period,
unless all dividends have been declared and paid, or declared and a sufficient
sum set apart (or, on or prior to February 15, 2003, Shares for which have been
issued and are held for holders by the Transfer Agent) for the payment of
dividends, on the Exchangeable Preferred Stock.
Section 2. Liquidation.
-----------
Upon any liquidation, dissolution or winding up of the Corporation (whether
voluntary or involuntary), the holder of each then outstanding Class B Share
shall be entitled to be paid, before any distribution or payment is made upon
any Common Stock, an amount in cash equal to the greater of (a) that amount
which the holders of Class B Preferred would have received if such holders had
converted all of their Class B Preferred into Conversion Stock immediately prior
to such liquidation, dissolution or winding up of the Corporation; and (b) the
aggregate Liquidation Value of
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<PAGE>
all shares of Class B Preferred then held by such holder (plus all accrued and
unpaid dividends thereon), and the holders of Class B Preferred shall not be
entitled to any further payment. If upon any such liquidation, dissolution or
winding up of the Corporation, the Corporation's assets to be distributed among
the holders of the Preferred Stock are insufficient to permit payment to such
holders of the aggregate amount which they are entitled to be paid under this
Section 2 and Section 2 of the terms of the Class A Preferred set forth above,
then the entire assets available to be distributed to the Corporation's
stockholders shall be distributed pro rata among the holders of the Preferred
Stock based upon the aggregate Liquidation Value (plus all accrued and unpaid
dividends) of the Preferred Stock then held by each such holder. Not less than
60 days prior to the payment date stated therein, the Corporation shall mail
written notice of any such liquidation, dissolution or winding up to each record
holder of Class B Preferred, setting forth in reasonable detail the amount of
proceeds to be paid with respect to each share of Class B Preferred and each
share of Common Stock in connection with such liquidation, dissolution or
winding up. Neither the consolidation or merger of the Corporation into or with
any other entity or entities (whether or not the Corporation is the surviving
entity), nor the sale or transfer by the Corporation of all or any part of its
assets, nor the reduction of the capital stock of the Corporation nor any other
form of recapitalization or reorganization affecting the Corporation shall be
deemed to be a liquidation, dissolution or winding up of the Corporation within
the meaning of this Section 2.
Section 3. Priority of Class B Preferred on Dividends and Redemptions.
----------------------------------------------------------
So long as any Class B Preferred remains outstanding, without the prior
written consent of the holders of a majority of the outstanding shares of
Preferred Stock, the Corporation shall not, nor shall it permit any Subsidiary
to, redeem, purchase or otherwise acquire directly or indirectly any Junior
Securities, nor shall the Corporation directly or indirectly pay or declare any
dividend or make any distribution upon any Junior Securities.
Section 4. Voting Rights.
-------------
The holders of the Class B Preferred shall be entitled to notice of all
stockholders meetings in accordance with the Corporation's bylaws, and the
holders of the Class B Preferred shall be entitled to vote on all matters
submitted to the stockholders for a vote, together with the holders of the Class
A Preferred and the Common Stock, with all such holders voting together as a
single class and with each share of Common Stock entitled to one vote per share
and each share of Class A Preferred to Class B Preferred entitled to one vote
for each share of Common Stock issuable upon conversion of such Preferred Stock
as of the record date for such vote, or if no record date is specified, as of
the date of such vote.
Section 5. Conversion.
----------
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5A. Conversion Procedure.
--------------------
(a) At any time and from time to time, any holder of Class B
Preferred may convert all or any portion of the Class B Preferred (including any
fraction of a Class B Share) held by such holder into a number of shares of
Conversion Stock computed by multiplying the number of Class B Shares to be
converted by the Liquidation Value of each Class B Share and dividing the result
by the Conversion Price then in effect.
(b) Except as otherwise provided herein, each conversion of
Class B Preferred shall be deemed to have been effected as of the close of
business on the date on which the certificate or certificates representing the
Class B Preferred to be converted have been surrendered for conversion at the
principal office of the Corporation. At the time any such conversion has been
effected, the rights of the holder of the Class B Shares converted as a holder
of Class B Preferred shall cease and the Person or Persons in whose name or
names any certificate or certificates for shares of Conversion Stock are to be
issued upon such conversion shall be deemed to have become the holder or holders
of record of the shares of Conversion Stock represented thereby.
(c) Notwithstanding any other provision hereof, if a conversion
of Class B Preferred is to be made in connection with a Public Offering or any
other transaction, the conversion of any Class B Shares may, at the election of
the holder thereof, be conditioned upon the consummation of such transaction, in
which case such conversion shall not be deemed to be effective until such
transaction has been consummated.
(d) As soon as possible after a conversion has been effected
(but in any event within five business days in the case of subparagraph (i)
below), the Corporation shall deliver to the converting holder:
(i) a certificate or certificates representing the number
of shares of Conversion Stock issuable by reason of such conversion in
such name or names and such denomination or denominations as the
converting holder has specified;
(ii) the amount payable under subparagraph (h) below with
respect to such conversion; and
(iii) a certificate representing any Class B Shares which
were represented by the certificate or certificates delivered to the
Corporation in connection with such conversion but which were not
converted.
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<PAGE>
(e) The issuance of certificates for shares of Conversion Stock
upon conversion of Class B Preferred shall be made without charge to the holders
of such Class B Preferred for any issuance tax in respect thereof or other cost
incurred by the Corporation in connection with such conversion and the related
issuance of shares of Conversion Stock. Upon conversion of each Class B Share,
the Corporation shall take all such actions as are necessary in order to insure
that the Conversion Stock issuable with respect to such conversion shall be
validly issued, fully paid and nonassessable, free and clear of all taxes,
liens, charges and encumbrances with respect to the issuance thereof.
(f) The Corporation shall not close its books against the
transfer of Class B Preferred or of Conversion Stock issued or issuable upon
conversion of Class B Preferred in any manner which interferes with the timely
conversion of Class B Preferred. The Corporation shall assist and cooperate with
any holder of Class B Shares required to make any governmental filings or obtain
any governmental approval prior to or in connection with any conversion of Class
B Shares hereunder (including, without limitation, making any filings required
to be made by the Corporation).
(g) The Corporation shall at all times reserve and keep
available out of its authorized but unissued shares of Conversion Stock, solely
for the purpose of issuance upon the conversion of the Class B Preferred, such
number of shares of Conversion Stock as are issuable upon the conversion of all
outstanding Class B Preferred. The Corporation shall take all such actions as
may be necessary to assure that all such shares of Conversion Stock may be so
issued without violation of any applicable law or governmental regulation or any
requirements of any domestic securities exchange upon which shares of Conversion
Stock may be listed (except for official notice of issuance which shall be
immediately delivered by the Corporation upon each such issuance). The
Corporation shall not take any action which would cause the number of authorized
but unissued shares of Conversion Stock to be less than the number of such
shares required to be reserved hereunder for issuance upon conversion of the
Class B Preferred.
(h) If any fractional interest in a share of Conversion Stock
would, except for the provisions of this subparagraph, be delivered upon any
conversion of the Class B Preferred, the Corporation will have the option, in
lieu of delivering the fractional share therefor, to pay an amount to the holder
thereof equal to the Market Price of one share of Conversion Stock as of the
date of conversion multiplied by the fraction in question.
5B. Conversion Price The initial "Conversion Price" shall be the
----------------
Liquidation Value of a Class B Share.
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5C. Subdivision or Combination of Conversion Stock. If the
----------------------------------------------
Corporation at any time subdivides (by any stock split, stock dividend,
recapitalization or otherwise) one or more classes of its outstanding shares of
Conversion Stock into a greater number of shares, the Conversion Price in effect
immediately prior to such subdivision shall be proportionately reduced, and if
the Corporation at any time combines (by reverse stock split or otherwise) one
or more classes of its outstanding shares of Conversion Stock into a smaller
number of shares, the Conversion Price in effect immediately prior to such
combination shall be proportionately increased.
5D. Reorganization, Reclassification, Consolidation, Merger or Sale.
---------------------------------------------------------------
Any recapitalization, reorganization, reclassification, consolidation, merger,
sale of all or substantially all of the Corporation's assets or other
transaction, in each case which is effected in such a manner that the holders of
Conversion Stock are entitled to receive (either directly or upon subsequent
liquidation) stock, securities or assets with respect to or in exchange for
Conversion Stock, is referred to herein as an "Organic Change". Prior to the
consummation of any Organic Change, the Corporation shall make appropriate
provisions (in form and substance satisfactory to the holders of a majority of
the Preferred Stock then outstanding) to insure that each of the holders of
Class B Preferred shall thereafter have the right to acquire and receive, in
lieu of or in addition to (as the case may be) the shares of Conversion Stock
immediately theretofore acquirable and receivable upon the conversion of such
holder's Class B Preferred, such shares of stock, securities or assets as such
holder would have received in connection with such Organic Change if such holder
had converted its Class B Preferred immediately prior to such Organic Change.
In each such case, the Corporation shall also make appropriate provisions (in
form and substance satisfactory to the holders of a majority of the Preferred
Stock then outstanding) to insure that the provisions of these Class B
Convertible Preferred Stock Terms shall thereafter be applicable to the Class B
Preferred (including, in the case of any such consolidation, merger or sale in
which the successor entity or purchasing entity is other than the Corporation,
an immediate adjustment of the Conversion Price to the value of the Conversion
Stock reflected by the terms of such consolidation, merger or sale, and a
corresponding immediate adjustment in the number of shares of Conversion Stock
acquirable and receivable upon conversion of Class B Preferred, if the value so
reflected is less than the Conversion Price in effect immediately prior to such
consolidation, merger or sale). The Corporation shall not effect any such
consolidation, merger or sale, unless prior to the consummation thereof, the
successor entity (if other than the Corporation) resulting from consolidation or
merger or the entity purchasing such assets assumes by written instrument (in
form and substance satisfactory to the holders of a majority of the Preferred
Stock then outstanding), the obligation to deliver to each such holder such
shares of stock, securities or assets as, in accordance with the foregoing
provisions, such holder may be entitled to acquire.
5E. Certain Events.
--------------
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(a) If any event occurs of the type contemplated by the
provisions of this Section 5 but not expressly provided for by such provisions
(including, without limitation, the granting of stock appreciation rights,
phantom stock rights or other rights with equity features) (an "Adjustment
----------
Event"), then the Corporation's Board of Directors shall make an appropriate
- -----
adjustment in the Conversion Price so as to protect the rights of the holders of
Class B Preferred; provided that no such adjustment shall increase the
Conversion Price as otherwise determined pursuant to this Section 5 or decrease
the number of shares of Conversion Stock issuable upon conversion of each Class
B Share of Class B Preferred.
(b) An Adjustment Event, as defined in subsection (b) above,
shall not include the public offering of the 1998 Warrants made in the 1998
Offering and upon the exercise thereof, the issuance of the 1998 Warrant Shares.
The "1998 Offering" is the underwritten offering of (i) up to $200 million of
the Corporation's Senior Discount Notes Due 2008, together with the accretion of
original issue discount (the "Notes") in accordance with the terms of the
-----
Indenture in effect at the time of issuance relating to the Notes and (ii) up to
50,000 Units. The "1998 Warrants" are the warrants which are part of the Units.
-------------
The "1998 Warrant Shares" are the shares of Common Stock issuable upon exercise
-------------------
of the 1998 Warrants.
5F. Notices.
-------
(a) Not less than 5 business days prior to any adjustment of the
Conversion Price, the Corporation shall give written notice thereof to all
holders of Class B Preferred then outstanding, setting forth in reasonable
detail and certifying the calculation of such adjustment.
(b) The Corporation shall give written notice to all holders of Class
B Preferred then outstanding at least 20 days prior to the date on which the
Corporation closes its books or takes a record (i) with respect to any dividend
or distribution upon Conversion Stock; (ii) with respect to any pro rata
subscription offer to holders of Conversion Stock; or (iii) for determining
rights to vote with respect to any Organic Change, dissolution or liquidation.
(c) The Corporation shall also give written notice to the holders of
Class B Preferred at least 20 days prior to the date on which any Organic Change
shall take place.
5G. Mandatory Conversion. The outstanding Class B Preferred will be
--------------------
automatically converted in accord with this Section 5 at such time that the
Corporation closes a firm commitment underwritten Public Offering of shares of
Conversion Stock (managed by a nationally recognized underwriter(s)) in which
(a) the aggregate price paid by the public for the shares shall be at least
$25,000,000; (b) the price per share paid by the public for such shares shall be
at least 200% of the initial Conversion Price
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(as adjusted as described in Section 5C but not in any other provision of this
Section 5) (c) after such Public Offering, Conversion Stock will be traded on a
national securities exchange or the NASDAQ National Market System; and (iv) the
shares issued and sold pursuant to the Public Offering represent at least 20% of
the Conversion Stock Deemed Outstanding measured after such Public Offering. Any
such mandatory conversion shall only be effected at the time of and subject to
the closing of the sale of such shares pursuant to such Public Offering and upon
written notice of such mandatory conversion transmitted to all holders of Class
B Preferred at least thirty days prior to such closing.
Section 6. Liquidating Dividends.
---------------------
If the Corporation (after receiving the consent referred to in Section 3)
declares or pays a dividend upon any class of Conversion Stock payable otherwise
than in cash out of earnings or earned surplus (determined in accordance with
generally accepted accounting principles, consistently applied) except for a
stock dividend payable in shares of such class of Conversion Stock (a
"Liquidating Dividend"), then the Corporation shall pay to the holders of Class
--------------------
B Preferred then outstanding at the time of payment thereof the Liquidating
Dividends which would have been paid on the shares of Conversion Stock had such
Class B Preferred been converted immediately prior to the date on which a record
is taken for such Liquidating Dividend, or, if no record is taken, the date as
of which the record holders of Conversion Stock entitled to such dividends are
to be determined.
Section 7. Purchase Rights.
---------------
If at any time the Corporation grants or issues without consideration any
Options, Convertible Securities or rights to purchase stock, warrants,
securities or other property pro rata to the record holders of any class of
Conversion Stock (the "Purchase Rights"), then each holder of Class B Preferred
---------------
shall be entitled to acquire, upon the terms applicable to such Purchase Rights,
the aggregate Purchase Rights which such holder could have acquired if such
holder had held the number of shares of Conversion Stock acquirable upon
conversion of such holder's Class B Preferred immediately before the date on
which a record is taken for the grant, issuance or sale of such Purchase Rights,
or if no such record is taken, the date as of which the record holders of
Conversion Stock are to be determined for the grant, issue or sale of such
Purchase Rights.
Section 8. Registration of Transfer.
------------------------
The Corporation shall keep at its principal office or shall cause its
transfer agent to keep, a register for the registration of Class B Preferred.
Upon the surrender of any certificate representing Class B Preferred at such
proper place, the Corporation or its transfer agent (as the case may be) shall,
at the request of the record holder of such certificate, execute and deliver (at
the Corporation's expense) a new certificate or certificates in exchange
therefor representing in the aggregate the number of Class B
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Shares represented by the surrendered certificate. Each such new certificate
shall be registered in such name and shall represent such number of Class B
Shares as is requested by the holder of the surrendered certificate and shall be
substantially identical in form to the surrendered certificate, and dividends
shall accrue on the Class B Preferred represented by such new certificate from
the date to which dividends have been fully paid on such Class B Preferred
represented by the surrendered certificate.
Section 9. Replacement.
-----------
Upon receipt of evidence reasonably satisfactory to the Corporation (an
affidavit of the registered holder shall be satisfactory) of the ownership and
the loss, theft, destruction or mutilation of any certificate evidencing Class B
Shares, and in the case of any such loss, theft or destruction, upon receipt of
indemnity reasonably satisfactory to the Corporation (provided that if the
holder is a financial institution or other institutional investor its own
agreement shall be satisfactory), or, in the case of any such mutilation upon
surrender of such certificate, the Corporation or its transfer agent (as the
case may be) shall (at the Corporation's expense) execute and deliver in lieu of
such certificate a new certificate of like kind representing the number of Class
B Shares of such class represented by such lost, stolen, destroyed or mutilated
certificate and dated the date of such lost, stolen, destroyed or mutilated
certificate, and dividends shall accrue on the Class B Preferred represented by
such new certificate from the date to which dividends have been fully paid on
such lost, stolen, destroyed or mutilated certificate.
Section 10. Definitions Specific to the Class B Preferred.
---------------------------------------------
"Conversion Price" has the meaning set forth in Section 5B.
----------------
"Conversion Stock" means shares of the Corporation's Common Stock, no
----------------
par value per share; provided that if there is a change such that the securities
issuable upon conversion of the Class B Preferred are issued by an entity other
than the Corporation or there is a change in the type or class of securities so
issuable, then the term "Conversion Stock" shall mean shares of the security
issuable in lieu of such Common Stock upon conversion of the Class B Preferred
if such security is issuable in shares, or shall mean units in which such
security is issuable if such security is not issuable in shares. As the context
requires, the "Corporation" shall include any entity other than the Corporation
which is the issuer of any Conversion Stock.
"Liquidation Value" of any Class B Share shall be equal to the
-----------------
aggregate purchase price paid pursuant to the Purchase Agreement for Class A
Preferred and warrants to purchase Common Stock divided by the number of shares
of Class A Preferred Stock issued pursuant to the Purchase Agreement.
Section 11. Amendment and Waiver.
--------------------
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No amendment, modification or waiver shall be binding or effective with
respect to any provision of Sections 1 to 12 hereof without the prior written
consent of the holders of a majority of the Preferred Stock outstanding at the
time such action is taken; provided that no such action shall change (a) the
rate at which or the manner in which dividends on the Class B Preferred accrue
or the times at which such dividends become payable, without the prior written
consent of the holders of at least 75% of the Preferred Stock then outstanding;
(b) the Conversion Price of the Class B Preferred or the number of shares or
class of stock into which the Class B Preferred is convertible, without the
prior written consent of the holders of at least 75% of the Preferred Stock then
outstanding; (c) any term applicable to the Class B Preferred which change is
not also contemporaneously made to the terms of the Class A Preferred, without
the prior written consent of the holders of a majority of the Class B Preferred
then outstanding; or (d) the percentage required to approve any change described
in clauses (a), (b) or (c) above, without the prior written consent of the
holders of at least 75% of the Preferred Stock then outstanding; and provided
further, that no change in the terms hereof may be accomplished by merger or
consolidation of the Corporation with another corporation or entity unless the
Corporation has obtained the prior written consent of the holders of the
applicable required percentage (if any) of the Preferred Stock or the Class B
Preferred then outstanding.
Section 12. Notices.
-------
Except as otherwise expressly provided hereunder, all notices referred to
herein shall be in writing and shall be delivered by registered or certified
mail, return receipt requested and postage prepaid, or by reputable overnight
courier service, charges prepaid, and shall be deemed to have been given when so
mailed or sent (a) to the Corporation, at its principal executive offices and
(b) to any stockholder, as such holder's address as it appears in the stock
records of the Corporation (unless otherwise indicated by any such holder).
COMMON STOCK TERMS
------------------
1. There are two classes of Common Stock, no par value per share, voting
("Voting Common Stock") and non-voting ("Non-Voting Common Stock"). Except as
------------------- -----------------------
otherwise required by law or these Articles, the holder of each outstanding
share of Voting Common Stock shall be entitled to one vote on all matters
submitted to a vote at a meeting of the shareholders together with the holders
of the Class A Preferred Stock and the Class B Preferred Stock, with such
holders voting together as a single class and with each share of Voting Common
Stock entitled to one vote. The holders of Non-Voting Common Stock shall be
entitled to notice (as, when and how given to the holders of Voting Common
Stock) of and to attend, but shall not be entitled to vote on any matters
submitted to a vote at, any meeting of the shareholders; provided that the
--------
approval of the holders of a majority of the outstanding Non-Voting Common
Stock,
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<PAGE>
voting as a separate class, shall be required for any merger or consolidation of
the Corporation with or into another entity or entities, any sale of all or
substantially all the Corporation's assets, or any recapitalization or
reorganization, if as a result of any of the foregoing the shares of Non-Voting
Common Stock would receive or be exchanged for consideration different on a per
share basis than the consideration received with respect to or in exchange for
shares of Voting Common Stock or would otherwise be treated differently from
shares of Voting Common Stock in connection with such transaction, except that
shares of Non-Voting Common Stock may, without such a separate class vote,
receive or be exchanged for non-voting securities which are otherwise identical
on a per share basis in amount and form to the voting securities received with
respect to or exchanged for Voting Common Stock so long as (i) such non-voting
securities are convertible into such voting securities on the same terms as Non-
Voting Common Stock is convertible into Voting Common Stock and (ii) all other
consideration is equal on a per share basis. If dividends are declared which are
payable in shares of Voting Common Stock or Non-Voting Common Stock, then
dividends shall be declared which are payable at the same rate on both classes
of Common Stock and the dividends payable in shares of Voting Common Stock shall
be payable to holders of that class of stock and the dividends payable in shares
of Non-Voting Common Stock shall be payable to holders of that class of stock
and (ii) if the dividends consist of other voting securities of the Corporation,
then in respect of the Non-Voting Common Stock the Corporation may, at its
option, pay such dividends in the form of non-voting securities of the
Corporation which are otherwise identical to such other voting securities and
which are convertible into or exchangeable for such voting securities on the
same terms as Non-Voting Common Stock is convertible into Voting Common Stock.
2. Conversion of Non-Voting Common Stock.
-------------------------------------
(a) Upon the occurrence (or the expected occurrence as described in clause
(c) below) of any Conversion Event, each holder of Non-Voting Common Stock shall
be entitled to convert, into the same number of shares of Voting Common Stock,
any or all of the shares of such holder's Non-Voting Common Stock.
(b) For purposes of this Section 2, a "Conversion Event" shall mean (i)
----------------
the registration of Voting Common Stock under the Exchange Act, (ii) the
occurrence of an Organic Change in which the holders of Voting Common Stock
receive or have the right to receive equity securities of any Person which are
registered under the Exchange Act, or (iii) action by the Board of Directors
declaring that holders of Non-Voting Common Stock may convert their shares of
Non-Voting Common Stock into shares of Voting Common Stock.
(c) Each holder of Non-Voting Common Stock shall be entitled to convert
shares of Non-Voting Common Stock in connection with any Conversion Event if
such holder reasonably believes that such Conversion Event will occur, and a
written request
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<PAGE>
for conversion from the holders of a majority of the Non-Voting Common Stock to
the Corporation stating such holders' reasonable belief that a Conversion Event
will occur shall be conclusive and shall obligate the Corporation to effect such
conversion in a timely manner so as to enable each such holder to participate in
such Conversion Event. The Corporation will not cancel the shares of Non-Voting
Common Stock so converted before the tenth day following such Conversion Event
and will reserve such shares until such tenth day for reissuance in compliance
with the next sentence. If any shares of Non-Voting Common Stock are converted
into shares of Voting Common Stock in connection with an anticipated Conversion
Event and such anticipated Conversion Event does not actually occur, then such
shares of Voting Common Stock shall be promptly converted back into the same
number of shares of Non-Voting Common Stock.
(d) Each conversion of shares of one class of Common Stock into shares of
the other class of Common Stock shall be effected by the surrender of the
certificate or certificates representing the shares to be converted at the
principal office of the Corporation at any time during normal business hours,
together with a written notice by the holder of such Common Stock stating that
such holder desires to convert the shares, or a stated number of shares, of such
Common Stock represented by such certificate or certificates into shares of the
other class of Common Stock. Each conversion shall be deemed to have been
effected as of the close of business on the date on which such certificate or
certificates have been surrendered and such notice has been received (or, if
later, at the time of the Conversion Event), and at such time the rights of the
holder of the converted Common Stock, as such holder, shall cease and the person
or persons in whose name or names the certificate or certificates for shares of
Common Stock are to be issued upon such conversion shall be deemed to have
become the holder or holders of record of the shares of Common Stock represented
thereby.
(e) Promptly after the effectiveness of any such conversion, the
Corporation shall issue and deliver in accordance with the surrendering holder's
instructions (a) the certificate or certificates for the Common Stock issuable
upon such conversion and (b) a certificate representing any Common Stock which
was represented by the certificate or certificates delivered to the Corporation
in connection with such conversion but which was not converted.
(f) The issuance of certificates for Common Stock upon conversion of
Common Stock of the other class will be made without charge to the holders of
such shares for any issuance tax in respect thereof or other cost incurred by
the Corporation in connection with such conversion and the related issuance of
Common Stock.
(g) All shares of Common Stock which are issuable upon the conversion of
the other class of Common Stock shall, when issued, be duly and validly issued,
fully paid and nonassessable and free from all taxes, liens and charges. The
Corporation
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<PAGE>
shall take all such actions as may be necessary to assure that all such shares
of Common Stock may be so issued without violation of any applicable law or
governmental regulation or any requirements of any domestic securities exchange
upon which shares of Common Stock may be listed (except for official notice of
issuance, which will be immediately transmitted by the Corporation upon
issuance).
(h) The Corporation shall not close its books against the transfer of
shares of Common Stock in any manner which would interfere with the timely
conversion of any shares of Common Stock.
(i) The Corporation shall at all times reserve and keep available out of
its authorized but unissued shares of Voting Common Stock, solely for the
purpose of issuance upon the conversion of the Non-Voting Common Stock, such
number of shares of Voting Common Stock as are issuable upon the conversion of
all outstanding Non-Voting Common Stock. The Corporation shall not take any
action which would cause the number of authorized but unissued shares of Voting
Common Stock to be less than the number of such shares required to be reserved
hereunder for issuance upon conversion of all outstanding Non-Voting Common
Stock.
3. Stock Splits. If the Corporation in any manner subdivides or combines
------------
the outstanding shares of one class of Common Stock, the outstanding shares of
the other class of Common Stock shall be proportionately subdivided or combined
in a similar manner.
4. Amendment and Waiver. No amendment or waiver of any provision of
--------------------
these Articles which adversely affects the holders of Non-Voting Common Stock,
as such holders (as compared with its effect on the holders of Voting Common
Stock, as such holders), shall be effective without the prior approval of the
holders of a majority of the then outstanding Non-Voting Common Stock voting as
a separate class.
5. All other terms of the Non-Voting Common Stock are the same as those
of the Voting Common Stock.
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<PAGE>
Exhibit 3.2
BY-LAWS
-------
OF
--
21ST CENTURY TELECOM OF ILLINOIS, INC.
--------------------------------------
ARTICLE I
OFFICES
-------
The corporation shall continuously maintain in the State of Illinois a
registered office and a registered agent whose office is identical with such
registered office, and may have other offices within or without the State.
ARTICLE II
MEETING OF SHAREHOLDERS
-----------------------
SECTION 1. ANNUAL MEETINGS
The annual meeting of the shareholders of the Corporation shall be held
within five months after the close of the fiscal year of the Corporation, for
the purpose of electing directors, and transacting such other business as may
properly come before the meeting.
SECTION 2. SPECIAL MEETINGS
Special meetings of the shareholders may be called at any time by the Board
of Directors or by the President, and shall be called by the President or the
Secretary at the written request of the holders of not less than one-fifth of
all the shares then outstanding and entitled to vote thereat, or as otherwise
required under the provisions of the Illinois Business Corporation Act.
SECTION 3. PLACE OF MEETINGS
All meetings of shareholders shall be held at the principal office of the
Corporation, or at such other places as shall be designated in the notices or
waivers of notice of such meetings.
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<PAGE>
SECTION 4. NOTICE OF MEETINGS
(a) Except as otherwise provided by Statute, written notice of each meeting
of shareholders, whether annual or special, stating the time when and place
where it is to be held, shall be served either personally or by mail, not less
than ten or more than sixty days before the meeting, or in the case of a merger,
consolidated, share exchange, dissolution or sale, lease or exchange of assets
not less than 20 nor more than 60 days before the meeting upon each shareholder
of record entitled to vote at such meeting, and to any other shareholder to whom
the giving of notice may be required by law. Notice of a special meeting shall
also state the purpose or purposes for which the meeting is called, and shall
indicate that it is being issued by, or at the direction of, the person or
persons calling the meeting. If, at any meeting, action is proposed to be taken
that would, if taken, entitle shareholders to receive payment for their shares
pursuant to Statute, the notice of such meeting shall include a statement of
that purpose and to that effect. If mailed, such notice shall be directed to
each such shareholder at his address, as it appears on the records of the
shareholders of the Corporation, unless he shall have previously filed with the
Secretary of the Corporation a written request that notices intended for him be
mailed to some other address, in which case, it shall be mailed to the address
designated in such request.
(b) Notice of any meeting need not be given to any person who may become a
shareholder of record after the mailing of such notice and prior to the meeting,
or to any shareholder who attends such meeting, in person or by proxy, or to any
shareholder who, in person or by proxy, submits a signed waiver of notice either
before or after such meeting. Notice of any adjourned meeting of shareholders
need not be given, unless otherwise required by statute.
SECTION 5. QUORUM
(a) Except as otherwise provided herein, or by statute, or in the
Certificate of Incorporation (such certificate and any amendments thereof being
hereinafter collectively referred to as the "Certificate of Incorporation"), at
all meetings of shareholders of the Corporation, the presence at the
commencement of such meetings in person or by proxy of shareholders holding of
record a majority of the total number of shares of the Corporation then issued
and outstanding and entitled to vote, shall be necessary and sufficient to
constitute a quorum for the transaction of any business. The withdrawal of any
shareholder
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<PAGE>
after the commencement of a meeting shall have no effect on the
existence of a quorum, after a quorum has been established at such meeting.
(b) Despite the absence of a quorum at any annual or special meeting of
shareholders, the shareholders, by a majority of the votes cast by the holders
of shares entitled to vote thereon, may adjourn the meeting. At any such
adjourned meeting at which a quorum is present, any business may be transacted
at the meeting as originally called if a quorum had been present.
SECTION 6. VOTING
(a) Except as otherwise provided by statute or by the Certificate of
Incorporation, any corporate action, other than the election of directors, to be
taken by vote of the shareholders, shall be authorized by a majority of votes
cast at a meeting of shareholders by the holders of shares entitled to vote
thereon.
(b) Except as otherwise provided by statute or by the Certificate of
Incorporation, at each meeting of shareholders, each holder of record of stock
of the Corporation entitled to vote thereat, shall be entitled to one vote for
each share of stock registered in his name on the books of the Corporation.
(c) Each shareholder entitled to vote or to express consent or dissent
without a meeting, may do so by proxy; provided, however, that the instrument
authorizing such proxy to act shall have been executed in writing by the
shareholder himself, or by his attorney-in-fact thereunto duly authorized in
writing. No proxy shall be valid after the expiration of eleven months from the
date of its execution, unless the person executing it shall have specified
therein the length of time it is to continue in force. Such instrument shall be
exhibited to the Secretary at the meeting and shall be filed with the records of
the Corporation.
(d) Any resolution in writing, signed by all of the shareholders entitled
to vote thereon, shall be and constitute action by such shareholders to the
effect therein expressed, with the same force nd effect as if the same had been
duly passed by unanimous vote at a duly called meeting of shareholders and such
resolution so signed shall be inserted in the Minute Book of the Corporation
under its proper date.
ARTICLE III
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<PAGE>
BOARD OF DIRECTORS
------------------
SECTION 1. NUMBER, ELECTION AND TERM OF OFFICE
(a) The number of directors of the Corporation shall be three (3), unless
and until otherwise determined by vote of a majority of the entire Board of
Directors.
(b) Except as may otherwise be provided herein or in the Certificate of
Incorporation, the members of the Board of Directors of the Corporation, who
need not be residents of Illinois or shareholders, shall be elected by a
majority of the votes cast at a meeting of shareholders, by the holders of
shares, present in person or by proxy, entitled to vote in the election.
(c) Each director shall hold office until the annual meeting of the
shareholders next succeeding his election, and until his successor is elected
and qualified, or until his prior death, resignation or removal.
SECTION 2. DUTIES AND POWERS
The Board of Directors shall be responsible for the control and management
of the affairs, property and interests of the Corporation, and may exercise all
powers of the Corporation, except as are in the Certificate of Incorporation or
by statute expressly conferred upon or reserved to the shareholders.
SECTION 3. ANNUAL AND REGULAR MEETINGS; NOTICE
(a) A regular annual meeting of the Board of Directors shall be held
immediately following the annual meeting of the shareholders, at the place of
such annual meeting of shareholders.
(b) The Board of Directors, from time to time, may provide by resolution
for the holding of other regular meetings of the Board of Directors, and may fix
the time and place thereof.
(c) Notice of any regular meeting of the Board of Directors shall not be
required to be given and, if given, need not specify the purpose of the meeting;
provided, however, that in case the Board of Directors shall fix or change the
time or place of any regular meeting, notice of such action shall be given to
each director who shall not have been present at the meeting at which such
action was taken within the time limited, and in the manner
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<PAGE>
set forth in paragraph (b) Section 4 of this Article III, with respect to
special meetings, unless such notice shall be waived in the manner set forth in
paragraph (c) of such Section 4.
SECTION 4. SPECIAL MEETINGS; NOTICE
(a) Special meetings of the Board of Directors shall be held whenever
called by the President or any director, at such time and place as may be
specified in the respective notices or waivers of notice thereof.
(b) Except as otherwise required by statute, notice of special meetings
shall be mailed directly to each director, addressed to him at his residence or
usual place of business, at least two (2) days before the day on which the
meeting is to be held, or shall be sent to him at such place by telegram, radio
or cable, or shall be delivered to him personally or given to him orally, not
later than the day before the day on which the meeting is to be held. A notice,
or waiver of notice, except as required by Section 8 of this Article III, need
not specify the purpose of the meeting.
(c) Notice of any special meeting shall not be required to be given to any
director who shall attend such meeting without protesting prior thereto or at
its commencement, the lack of notice to him, or who submits a signed waiver of
notice, whether before or after the meeting. Notice of any adjourned meeting
shall not be required to be given.
SECTION 5. CHAIRMAN
At all meetings of the Board of Directors, the Chairman of the Board, if
any and if present, shall preside. If there shall be no Chairman, or he shall
be absent, then the President shall preside, and in his absence, a Chairman
chosen by the directors shall preside.
SECTION 6. QUORUM AND ADJOURNMENTS
(a) At all meetings of the Board of Directors, the presence of a majority
of the entire Board shall be necessary and sufficient to constitute a quorum for
the transaction of business, except as otherwise provided by law, by the
Certificate of Incorporation, or by these By-Laws.
(b) A majority of the directors present at the time and place of any
regular or special meeting, although less than a
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<PAGE>
quorum, may adjourn the same from time to time without notice, until a quorum
shall be present.
SECTION 7. MANNER OF ACTION
(a) At all meetings of the Board of Directors, each director present shall
have one vote, irrespective of the number of shares of stock, if any, which he
may hold.
(b) Manner of Action. Except as otherwise provided by statute, by the
----------------
Certificate of Incorporation, or by these By-Laws, the action of a majority of
the directors present at any meeting at which a quorum is present shall be the
act of the Board of Directors. Any action authorized, in writing, by all of the
directors entitled to vote thereon and filed with the minutes of the corporation
shall be the act of the Board of Directors with the same force and effect as if
the same had been passed by unanimous vote at a duly called meeting of the
Board.
SECTION 8. VACANCIES
Any vacancy in the Board of Directors occurring by reason of an increase in
the number of directors, or by reason of the death, resignation,
disqualification, removal (unless a vacancy created by the removal of a director
by the shareholders shall be filled by the shareholders at the meeting at which
the removal was effected) or inability to act of any director, or otherwise,
shall be filled for the unexpired portion of the term by a majority vote of the
remaining directors, though less than a quorum, at any regular meeting or
special meeting of the Board of Directors called for that purpose.
SECTION 9. RESIGNATION
Any director may resign at any time by giving written notice to the Board
of Directors, the President or the Secretary of the Corporation. Unless
otherwise specified in such written notice, such resignation shall take effect
upon receipt thereof by the Board of Directors or such officer, and the
acceptance of such resignation shall not be necessary to make it effective.
SECTION 10. REMOVAL.
Any director may be removed with or without cause at any time by the
affirmative vote of shareholders holding or record in the aggregate at least a
majority of the outstanding shares of the Corporation at a special meeting of
the shareholders called
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<PAGE>
for that purpose, and may be removed for cause by action of the Board.
SECTION 11. SALARY
No stated salary shall be paid to directors, as such, for their services,
but by resolution of the Board of Directors a fixed sum and expenses of
attendance, if any, may be allowed for attendance at each regular or special
meeting of the Board; provided, however, that nothing herein contained shall be
construed to preclude any director from serving the Corporation in any other
capacity and receiving compensation therefor.
No stated salary shall be paid to directors, as such, for their services,
but by resolution of the Board of Directors a fixed sum and expenses of
attendance, if any, may be allowed for attendance at each regular or special
meeting of the Board; provided, however, that nothing herein contained shall be
construed to preclude any director from serving the Corporation in any other
capacity and receiving compensation therefor.
SECTION 12. CONTRACTS
(a) No contract or other transaction between this Corporation and any other
Corporation shall be impaired, affected or invalidated, nor shall any director
be liable in any way by reason of the fact that any one or more of the directors
of this Corporation is or are interested in, or is a director or officer, or are
directors or officers of such other Corporation, provided that such facts are
disclosed or made known to the Board of Directors.
(b) Any director, personally and individually, may be a party to or may be
interested in any contract or transaction of this Corporation, and no director
shall be liable in any way by reason of such interest, provided that the fact of
such interest be disclosed or made known to the Board of Directors, and provided
that the Board of Directors shall authorize, approve or ratify such contract or
transaction by the vote (not counting the vote of any such director of a
majority of a quorum, notwithstanding the presence of any such director at the
meeting at which such action is taken. Such director or directors may be
counted in determining the presence of a quorum at such meeting. This Section
shall not be construed to impair or invalidate or in any way affect any contract
or other transaction which would otherwise be valid under the law (common,
statutory or otherwise) applicable thereto.
-7-
<PAGE>
SECTION 13. COMMITTEES
The Board of Directors, by resolution adopted by a majority of the entire
Board, may from time to time designate from among its members an executive
committee and such other committees, and alternate members thereof, as they may
deem desirable, each consisting of three or more members, with such powers and
authority (to the extent permitted by law) as may be provided in such
resolution. Each such committee shall serve at the pleasure of the Board.
ARTICLE IV
OFFICERS
--------
SECTION 1. NUMBER, QUALIFICATIONS, ELECTION AND TERM OF OFFICE
(a) The officers of the Corporation shall consist of a President, a
Secretary, a Treasurer, and such other officers, including a Chairman of the
Board of Directors, and one or more Vice Presidents, as the Board of Directors
may from time to time deem advisable. Any officer other than the Chairman of
the Board of Directors may be, but is not required to be, a director of the
Corporation. Any two or more offices may be held by the same person.
(b) The officers of the Corporation shall be elected by the Board of
Directors at the regular annual meeting of the Board following the annual
meeting of shareholders.
(c) Each officer shall hold office until the annual meeting of the Board of
Directors next succeeding his election, and until his successor shall have been
elected and qualified, or until his death, resignation or removal.
SECTION 2. RESIGNATION
Any officer may resign at any time by giving written notice of such
resignation to the Board of Directors, or to the President or the Secretary of
the Corporation. Unless otherwise specified in such written notice, such
resignation shall take effect upon receipt thereof by the Board of Directors or
by such officer, and the acceptance of such resignation shall not be necessary
to make it effective.
-8-
<PAGE>
SECTION 3. REMOVAL
Any officer may be removed, either with or without cause, and a successor
elected by a majority vote of the Board of Directors at any time.
SECTION 4. VACANCIES
A vacancy in any office by reason of death, resignation, inability to act,
disqualification, or any other cause, may at any time be filled for the
unexpired portion of the term by a majority vote of the Board of Directors.
SECTION 5. DUTIES OF OFFICERS
Officers of the Corporation shall, unless otherwise provided by the Board
of Directors, each have such powers and duties as generally pertain to their
respective offices as well as such powers and duties as may be set forth in
these by-laws, or may from time to time be specifically conferred or imposed by
the Board of Directors. The President shall be the chief executive officer of
the Corporation.
SECTION 6. SURETIES AND BONDS
In case the Board of Directors shall so require, any officer, employee or
agent of the Corporation shall execute to the Corporation a bond in such sum,
and with such surety or sureties as the Board of Directors may direct,
conditioned upon the faithful performance of his duties to the Corporation,
including responsibility for negligence and for the accounting for all property,
funds or securities of the Corporation which may come into his hands.
SECTION 7. SHARES OF OTHER CORPORATIONS
Whenever the Corporation is the holder of shares of any other Corporation,
any right or power' of the Corporation as such share holder (including the
attendance, acting and voting at share holders' meetings and execution of
waivers, consents, proxies or other instruments} may be exercised on behalf of
the Corporation by the President, any Vice President, or such other person as
the Board of Directors may authorize.
ARTICLE V
SHARES OF STOCK
---------------
-9-
<PAGE>
SECTION 1. CERTIFICATE OF STOCK
(a) The certificates representing shares of the Corporation shall be in
such form as shall be adopted by the Board of Directors, and shall be numbered
and registered in the order issued. They shall bear the holder's name and the
number of shares, and shall be signed by (i) the Chairman of the Board or the
President or a Vice President and (ii) the Secretary or Treasurer, or any
Assistant Secretary or Assistant Treasurer, and shall bear the corporate seal.
(b) No certificate representing shares shall be issued until the full
amount of consideration therefor has been paid, except as Otherwise permitted by
law.
(c) To the extent permitted by law, the Board of Directors may authorize
the issuance of certificates for fractions of a share which shall entitle the
holder to exercise voting rights, receive dividends and participate in
liquidating distributions, in proportion to the fractional holdings; or it may
authorize the payment in cash of the fair value of fractions of a share as of
the time when those entitled to receive such fractions are determined; or it may
authorize the issuance, subject to such conditions as may be permitted by law,
of scrip in registered or bearer form over the signature of an officer or agent
of the Corporation, exchangeable as therein provided for full shares, but such
scrip shall not entitle the holder to any rights of a shareholder, except as
therein provided.
SECTION 2. LOST OR DESTROYED CERTIFICATES
The holder of any certificate representing shares of the Corporation shall
immediately notify the Corporation of any loss or destruction of the certificate
representing the same. The Corporation may issue a new certificate in the place
of any certificate theretofore issued by it, alleged to have been lost or
destroyed. On production of such evidence of loss or destruction as the Board
of Directors in its discretion may require, the Board of Directors may, in its
discretion, require the owner of the lost or destroyed certificate, or his legal
representatives, to give the Corporation a bond in such sum as the Board may
direct, and with such surety or sureties as may be satisfactory to the Board, to
indemnify the Corporation against any claims, loss, liability or damage it may
suffer on account of the issuance of the new certificate. A new certificate may
be
-10-
<PAGE>
issued without requiring any such evidence or bond when, in the judgment of
the Board of Directors, it is proper so to do.
SECTION 3. TRANSFER OF SHARES
(a) Transfers of shares of the Corporation shall be made on the share
records of the Corporation only by the holder of record thereof, in person or by
his duly authorized attorney, upon surrender for cancellation of the certificate
or certificates representing such shares, with an assignment or power of
transfer endorsed thereon or delivered therewith, duly executed, with such proof
of the authenticity of the signature and of authority to transfer and of payment
of transfer taxes as the Corporation or its agents may require.
(b) The Corporation shall be entitled to treat the holder of record of any
share or shares as the absolute owner thereof for all purposes and, accordingly,
shall not be bound to recognize any legal, equitable or other claim to, or
interest in, such share or shares on the part of any other person, whether or
not it shall have express or other notice thereof, except as otherwise expressly
provided by law.
SECTION 4. RECORD DATE
In lieu of closing the share records of the Corporation, the Board of
Directors may fix, in advance, a date not exceeding sixty days, nor less than
ten days or in the case of a merger, consolidation, share exchange, dissolution
or sale, lease or exchange of assets, not less than 20 days, as the record date
for the determination of shareholders entitled to receive notice of, or to vote
at, any meeting of shareholders, or to consent to any proposal without a
meeting, or for the purpose of determining shareholders entitled to receive
payment of any dividends, or allotment of any rights, or for the purpose of any
other action. If no record date is fixed, the record date for the determination
of shareholders entitled to notice of or to vote at a meeting of shareholders
shall be at the close of business on the day next preceding the day on which
notice is given, or, if no notice is given, the day on which the meeting is
held; the record date for determining shareholders for any other purpose shall
be at the close of business on the day on which the resolution of the directors
relating thereto is adopted. When a determination of shareholders of record
entitled to notice of or to vote at any meeting of shareholders has been made as
provided for herein, such determination shall apply to any adjournment thereof,
unless the directors fix a new record date for the adjourned meeting.
-11-
<PAGE>
ARTICLE VI
DIVIDENDS
---------
Subject to applicable law, dividends may be declared and paid out of any
funds available therefor, as often, in such amounts, and at such time or times
as the Board of Directors may determine.
ARTICLE VII
FISCAL YEAR
-----------
The fiscal year of the Corporation shall be fixed by the Board of Directors
from time to time, subject to applicable law.
ARTICLE VIII
CORPORATE SEAL
--------------
The corporate seal shall have inscribed thereon the name of the corporation
and the words "Corporate Seal, Illinois." The seal may be used by causing it or
a facsimile thereof to be impressed or affixed or in any manner reproduced.
ARTICLE IX
AMENDMENTS
----------
SECTION 1. BY SHAREHOLDERS
All by-laws of the Corporation shall be subject to alteration or repeal,
and new by-laws may be made, by the affirmative vote of shareholders holding of
record in the aggregate at least a majority of the outstanding shares entitled
to vote in the election of directors at any annual or special meeting of
shareholders, provided that the notice or waiver of notice of such meeting shall
have summarized or set forth in full therein, the proposed amendment.
SECTION 2. BY DIRECTORS
The Board of Directors shall have power to make, adopt, alter, amend and
repeal, from time to time, by-laws of the Corporation; provided, however, that
the shareholders entitled to
-12-
<PAGE>
vote with respect thereto as in this Article IX above-provided may alter, amend
or repeal by-laws made by the Board of Directors, except that the Board of
Directors shall have no power to change the quorum for meetings of shareholders
or of the Board of Directors, or to change any provisions of the by-laws with
respect to the removal of directors or the filling of vacancies in the Board
resulting from the removal by the shareholders. If any by-law regulating an
impending election of directors is adopted, amended or repealed by the Board of
Directors, there shall be set forth in the notice of the next meeting of
shareholders for the election of directors, the by-law so adopted, amended or
repealed, together with a concise statement of the changes made.
ARTICLE X
INDEMNITY
---------
(a) Any person made a party to any action, suit or proceeding, by reason of
the fact that he, his testator or intestate representative is or was a director,
officer or employee of the Corporation, or of any Corporation in which he served
as such at the request of the Corporation, shall be indemnified by the
Corporation against the reasonable expenses, including attorney's fees, actually
and necessarily incurred by him in connection with the defense of such action,
suit or proceedings, or in connection with any appeal therein, except in
relation to matters as to which it shall be adjudged in such action, suit or
proceeding, or in connection with any appeal therein that such officer, director
or employee is liable for negligence or misconduct in the performance of his
duties.
(b) The foregoing right of indemnification shall not be deemed exclusive of
any other rights to which any officer or director or employee may be entitled
apart from the provisions of this section.
(c) The amount of indemnity to which any officer or any director may be
entitled shall be fixed by the Board of Directors, except that in any case where
there is no disinterested majority of the Board available, the amount shall be
fixed by arbitration pursuant to the then existing rules of the American
Arbitration Association.
-13-
<PAGE>
Contents, p.1
EXHIBIT 4.1
21st Century Telecom Group, Inc.
Issuer
12-1/4% Senior Discount Notes Due 2008
<PAGE>
Contents, p. 2
INDENTURE
Dated as of February 15, 1998
State Street Bank and Trust Company
Trustee
<PAGE>
Contents, p. 3
CROSS-REFERENCE TABLE
TIA Indenture
Section Section
- --------- -----------
310(a)(1) 7.10
(a)(2) 7.10
(a)(3) N.A.
(a)(4) N.A.
(b) 7.08; 7.10
(c) N.A.
311(a) 7.11
(b) 7.11
(c) N.A.
312(a) 2.05
(b) 10.03
(c) 10.03
313(a) 7.06
(b)(1) N.A.
(b)(2) 7.06
(d) 7.06
314(a) 4.02;
4.14
<PAGE>
Contents, p. 4
(b) N.A.
(c)(3) N.A.
(d) N.A.
(f) 4.14
315(a) 7.01
(b) 7.05
(c) 7.01
(d) 7.01
(e) 6.11
(a)(1)(A) 6.05
(a)(1)(B) 6.04
(a)(2) N.A.
(b) 6.07
317(a)(1) 6.08
(a)(2) 6.09
(b) 2.04
N.A. means Not Applicable.
Note: This Cross-Reference Table shall not, for any purpose, be deemed to be
part of the Indenture.
<PAGE>
Contents, p. 5
TABLE OF CONTENTS
ARTICLE 1 Page
----
Definitions and Incorporation by Reference
------------------------------------------
SECTION 1.01. Definitions 1
SECTION 1.02. Other Definitions 29
SECTION 1.03. Incorporation by Reference of Trust Indenture Act 29
SECTION 1.04. Rules of Construction 30
ARTICLE 2
The Securities
--------------
SECTION 2.01. Form and Dating 31
SECTION 2.02. Execution and Authentication 31
SECTION 2.03. Registrar and Paying Agent 32
<PAGE>
Contents, p. 6
SECTION 2.04. Paying Agent To Hold Money in Trust 32
SECTION 2.05. Securityholder Lists 33
SECTION 2.06. Transfer and Exchange 33
SECTION 2.07. Replacement Securities 34
SECTION 2.08. Outstanding Securities 34
SECTION 2.09. Temporary Securities 35
SECTION 2.10. Cancelation 35
SECTION 2.11. Defaulted Interest 35
SECTION 2.12. CUSIP Numbers 36
ARTICLE 3
Redemption
----------
SECTION 3.01. Notices to Trustee 36
SECTION 3.02. Selection of Securities To Be Redeemed 36
SECTION 3.03. Notice of Redemption 37
SECTION 3.04. Effect of Notice of Redemption 38
SECTION 3.05. Deposit of Redemption Price 38
SECTION 3.06. Securities Redeemed in Part 38
<PAGE>
Contents, p. 7
ARTICLE 4
Covenants
---------
SECTION 4.01. Payment of Securities 38
SECTION 4.02. SEC Reports 39
SECTION 4.03. Limitation on Indebtedness 39
SECTION 4.04. Limitation on Restricted Payments 42
SECTION 4.05. Limitation on Restrictions on Distributions from
Restricted Subsidiaries 46
SECTION 4.06. Limitation on Sales of Assets and Subsidiary Stock 48
SECTION 4.07. Limitation on Affiliate Transactions 52
SECTION 4.08. Limitation on the Sale or Issuance of
Capital Stock of Certain Restricted Subsidiaries 53
SECTION 4.09. Change of Control 53
SECTION 4.10. Limitation on Liens 55
SECTION 4.11. Limitation on Sale/Leaseback
<PAGE>
Contents, p.8
Transactions 55
SECTION 4.12. Limitation on Market Swaps 56
SECTION 4.13. Limitation on Lines of Business 56
SECTION 4.14. Compliance Certificate 56
SECTION 4.15. Further Instruments and Acts 56
ARTICLE 5
Successor Company
-----------------
SECTION 5.01. When Company May Merge or Transfer Assets 57
ARTICLE 6
Defaults and Remedies
---------------------
SECTION 6.01. Events of Default 58
SECTION 6.02. Acceleration 60
SECTION 6.03. Other Remedies 61
<PAGE>
Contents, p. 9
<TABLE>
<S> <C>
SECTION 6.04. Waiver of Past Defaults 61
SECTION 6.05. Control by Majority 61
SECTION 6.06. Limitation on Suits 62
SECTION 6.07. Rights of Holders To Receive Payment 62
SECTION 6.08. Collection Suit by Trustee 63
SECTION 6.09. Trustee May File Proofs of Claim 63
SECTION 6.10. Priorities 63
SECTION 6.11. Undertaking for Costs 64
SECTION 6.12. Waiver of Stay or Extension Laws 64
</TABLE>
ARTICLE 7
Trustee
-------
<TABLE>
<S> <C>
SECTION 7.01. Duties of Trustee 64
SECTION 7.02. Rights of Trustee 66
SECTION 7.03. Individual Rights of Trustee 66
SECTION 7.04. Trustee's Disclaimer 67
SECTION 7.05. Notice of Defaults 67
SECTION 7.06. Reports by Trustee to Holders 67
SECTION 7.07. Compensation and Indemnity 67
</TABLE>
<PAGE>
Contents, p. 10
<TABLE>
<S> <C>
SECTION 7.08. Replacement of Trustee 68
SECTION 7.09. Successor Trustee by Merger 69
SECTION 7.10. Eligibility; Disqualification 70
SECTION 7.11. Preferential Collection of Claims
Against Company 70
</TABLE>
ARTICLE 8
Discharge of Indenture; Defeasance
----------------------------------
<TABLE>
<S> <C>
SECTION 8.01. Discharge of Liability on Securities;
Defeasance 70
SECTION 8.02. Conditions to Defeasance 71
SECTION 8.03. Application of Trust Money 73
SECTION 8.04. Repayment to Company 73
SECTION 8.05. Indemnity for Government
Obligations 73
SECTION 8.06. Reinstatement 73
</TABLE>
ARTICLE 9
<PAGE>
Contents, p. 11
Amendments
----------
<TABLE>
<S> <C>
SECTION 9.01. Without Consent of Holders 74
SECTION 9.02. With Consent of Holders 74
SECTION 9.03. Compliance with Trust Indenture Act 75
SECTION 9.04. Revocation and Effect of Consents
and Waivers 75
SECTION 9.05. Notation on or Exchange of
Securities 76
SECTION 9.06. Trustee To Sign Amendments 76
SECTION 9.07. Payment for Consent 76
</TABLE>
ARTICLE 10
Miscellaneous
-------------
<TABLE>
<S> <C>
SECTION 10.01. Trust Indenture Act Controls 77
SECTION 10.02. Notices 77
SECTION 10.03. Communication by Holders with Other
Holders 78
</TABLE>
<PAGE>
Contents, p. 12
<TABLE>
<S> <C>
SECTION 10.04. Certificate and Opinion as to
Conditions Precedent 78
SECTION 10.05. Statements Required in Certificate
or Opinion 79
SECTION 10.06. When Securities Disregarded 79
SECTION 10.07. Rules by Trustee, Paying Agent and
Registrar 80
SECTION 10.08. Legal Holidays 80
SECTION 10.09. Governing Law 80
SECTION 10.10. No Recourse Against Others 80
SECTION 10.11. Successors 80
SECTION 10.12. Multiple Originals 80
SECTION 10.13. Table of Contents; Headings 80
</TABLE>
Rule 144A/Regulation S Appendix - Provisions Relating to Initial Securities,
Private Exchange Securities and Exchange Securities
Exhibit 1 to Rule 144A/Regulation S Appendix - Form of Initial Security
Exhibit A - Form of Exchange Security or Private Exchange Security
<PAGE>
Contents, p. 13
INDENTURE dated as of February 15, 1998, between 21ST
CENTURY TELECOM GROUP, INC., an Illinois corporation (the
"Company") and STATE STREET BANK AND TRUST COMPANY, a
Massachusetts trust company (the "Trustee").
Each party agrees as follows for the benefit of the other party and
for the equal and ratable benefit of the Holders of the Company's 12-1/4% Senior
Discount Notes Due 2008 (the "Initial Securities") and, if and when issued
pursuant to a registered exchange for Initial Securities, the Company's 12-1/4%
Senior Discount Notes Due 2008 (the "Exchange Securities") and if and when
issued pursuant to a private exchange for Initial Securities, the Company's 12-
1/4% Senior Discount Notes Due 2008 (the "Private Exchange Securities", together
with the Exchange Securities and the Initial Securities, the "Securities"):
ARTICLE 1
Definitions and Incorporation by Reference
------------------------------------------
SECTION 1.01. Definitions.
------------
<PAGE>
14
"Accreted Value" means, as of any date (the "Specified Date"), the
amount provided below for each $1,000 principal amount at maturity of Notes:
(i) if the Specified Date occurs on one of the following dates (each,
a "Semi-Annual Accrual Date"), the Accreted Value will equal the amount set
forth below for such Semi-Annual Accrual Date:
Semi-Annual
Accrual Date Accreted Value
------------ --------------
Issue Date $ 550.76
August 15, 1998 585.69
February 15, 1999 621.56
August 15, 1999 659.63
February 15, 2000 700.03
August 15, 2000 742.91
February 15, 2001 788.41
August 15, 2001 836.70
February 15, 2002 887.95
August 15, 2002 942.34
February 15, 2003 $1,000.00
<PAGE>
15
(ii) if the Specified Date occurs between two Semi-Annual Accrual
Dates, the Accreted Value will equal the sum of (a) the Accreted Value for
the Semi-Annual Accrual Date immediately preceding such Specified Date and
(b) an amount equal to the product of (1) the Accreted Value for the
immediately following Semi-Annual Accrual Date less the Accreted Value for
the immediately preceding Semi-Annual Accrual Date multiplied by (2) a
fraction, the numerator of which is the number of days elapsed from the
immediately preceding Semi-Annual Accrual Date to the Specified Date, using
a 360-day year of 12 30-day months, and the denominator of which is 180
(or, if the Semi-Annual Accrual Date immediately preceding the Specified
Date is the Issue Date, the denominator of which is 186); or
(iii) if the Specified Date occurs after the last Semi-Annual Accrual
Date, the Accreted Value will equal $1,000.
"Additional Assets" means (i) any property or assets (other than
Indebtedness and Capital Stock) in a Related Business; (ii) the Capital Stock of
a Person that becomes a Restricted Subsidiary as a result of the acquisition of
such Capital Stock by the Company or another Restricted Subsidiary; or (iii)
Capital Stock constituting a minority interest in any Person that at such time
is or becomes a Restricted Subsidiary; provided, however, that any such
-------- -------
Restricted Subsidiary described in clauses (ii) or (iii) above is primarily
engaged in a Related Business.
"Affiliate" of any specified Person means any other Person, directly
or indirectly, controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any Person
<PAGE>
16
means the power to direct the management and policies of such Person, directly
or indirectly, whether through the ownership of voting securities, by contract
or otherwise; and the terms "controlling" and "controlled" have meanings
correlative to the foregoing. For purposes of the provisions described under
Sections 4.04, 4.06 and 4.07 only, "Affiliate" shall also mean any beneficial
owner of Capital Stock representing 5% or more of the total voting power of the
Voting Stock (on a fully diluted basis) of the Company or of rights or warrants
to purchase such Capital Stock (whether or not currently exercisable) and any
Person who would be an Affiliate of any such beneficial owner pursuant to the
first sentence hereof.
"Annualized EBITDA" as of any date of determination means EBITDA for
the most recent two consecutive fiscal quarters for which financial statements
have been made publicly available but in no event ending more than 135 days
prior to the date of such determination multiplied by two.
"Area 1 Franchise" means the Company's cable television franchise
pursuant to a Franchise Agreement between the Company and the City of Chicago in
effect on the Issue Date.
"Asset Disposition" means any sale, lease, transfer or other
disposition (or series of related sales, leases, transfers or dispositions)
(that is not for security purposes) by the Company or any Restricted Subsidiary,
including any disposition by means of a merger, consolidation or similar
transaction (each referred to for the purposes of this definition as a
"disposition"), of (i) any shares of Capital Stock (other than Qualified
Preferred Stock) of a Restricted Subsidiary (other than directors' qualifying
shares or shares required by
<PAGE>
17
applicable law to be held by a Person other than the Company or a Restricted
Subsidiary), (ii) all or substantially all the assets of any division or line of
business of the Company or any Restricted Subsidiary or (iii) any other assets
(other than Capital Stock or other Investments in an Unrestricted Subsidiary) of
the Company or any Restricted Subsidiary outside of the ordinary course of
business of the Company or such Restricted Subsidiary (other than, in the case
of (i), (ii) and (iii) above, (a) a disposition by a Restricted Subsidiary to
the Company or by the Company or a Restricted Subsidiary to another Restricted
Subsidiary, (b) for purposes of Section 4.06 only, a disposition that (x)
constitutes a Permitted Investment or a Restricted Payment permitted by Section
4.04, (y) complies with Section 5.01 or (z) constitutes a Market Swap permitted
by Section 4.12 and (c) a disposition of assets with a fair market value of less
than $250,000).
"Attributable Debt" in respect of a Sale/Leaseback Transaction means,
as at the time of determination, the present value (discounted at the interest
rate borne by the Securities, compounded annually) of the total obligations of
the lessee for rental payments during the remaining term of the lease included
in such Sale/Leaseback Transaction (including any period for which such lease
has been extended).
"Average Life" means, as of the date of determination, with respect to
any Indebtedness or Preferred Stock, the quotient obtained by dividing (i) the
sum of the products of numbers of years (calculated to the nearest one-twelfth)
from the date of determination to the dates of each successive scheduled
principal payment of such Indebtedness or redemption or similar payment with
respect to such Preferred Stock multiplied by the amount of each such principal
payment by (ii) the sum of all such principal payments.
<PAGE>
18
"Board of Directors" means the Board of Directors of the Company or
any committee thereof duly authorized to act on behalf of such Board.
"Business Day" means any day other than a Saturday, Sunday or day on
which banking institutions are not required to be open in the States of New York
or Illinois and The Commonwealth of Massachusetts.
"Capital Lease Obligation" means an obligation that is required to be
classified and accounted for as a capital lease for financial reporting purposes
in accordance with GAAP, and the amount of Indebtedness represented by such
obligation shall be the capitalized amount of such obligation determined in
accordance with GAAP; and the Stated Maturity thereof shall be the date of the
last payment of rent or any other amount due under such lease prior to the first
date upon which such lease may be terminated by the lessee without payment of a
penalty.
"Capital Stock" of any Person means any and all shares, interests,
rights to purchase, warrants, options, participations or other equivalents of or
interests in (however designated, whether voting or nonvoting) equity of such
Person, including any common stock and Preferred Stock, whether outstanding on
the Issue Date or issued after the Issue Date, but excluding any debt securities
convertible into such equity.
"Change of Control" means the occurrence of any of the following
events:
<PAGE>
19
(i) Prior to the earlier to occur of (A) the first public offering of
common stock of Parent or (B) the first public offering of common stock of
the Company, the Permitted Holders cease to be the "beneficial owner" (as
defined in Rules 13d-3 and 13d-5 under the Exchange Act), directly or
indirectly, of a majority in the aggregate of the total voting power of the
Voting Stock of the Company, whether as a result of issuance of securities
of the Parent or the Company, any merger, consolidation, liquidation or
dissolution of the Parent or the Company, any direct or indirect transfer
of securities by Parent or otherwise (for purposes of this clause (i) and
clause (ii) below, the Permitted Holders shall be deemed to beneficially
own any Voting Stock of a corporation (the "specified corporation") held by
any other corporation (the "parent corporation") so long as the Permitted
Holders beneficially own (as so defined), directly or indirectly, in the
aggregate a majority of the voting power of the Voting Stock of the parent
corporation);
(ii) Any "person" (as such term is used in Sections 13(d) and 14(d)
of the Exchange Act), other than one or more Permitted Holders, is or
becomes the beneficial owner (as defined in clause (i) above, except that
for purposes of this clause (ii) such person shall be deemed to have
"beneficial ownership" of all shares that any such person has the right to
acquire, whether such right is exercisable immediately or only after the
passage of time), directly or indirectly, of more than 35% of the total
voting power of the Voting Stock of the Company; provided, however, that
-------- -------
the Permitted Holders beneficially own (as defined in clause (i) above),
directly or indirectly, in the aggregate a lesser percentage of the total
voting power of the Voting Stock of the Company than such other person and
do not have the right or ability by voting
<PAGE>
20
power, contract or otherwise to elect or designate for election a majority
of the Board of Directors (for the purposes of this clause (ii), such other
person shall be deemed to beneficially own any Voting Stock of a specified
corporation held by a parent corporation, if such other person is the
beneficial owner (as defined in this clause (ii)), directly or indirectly,
of more than 35% of the voting power of the Voting Stock of such parent
corporation and the Permitted Holders beneficially own (as defined in
clause (i) above), directly or indirectly, in the aggregate a lesser
percentage of the voting power of the Voting Stock of such parent
corporation and do not have the right or ability by voting power, contract
or otherwise to elect or designate for election a majority of the board of
directors of such parent corporation);
(iii) during any period of two consecutive years, individuals who at
the beginning of such period constituted the Board of Directors (together
with any new directors whose election or appointment by such Board of
Directors or whose nomination for election by the shareholders of the
Company was approved by a vote of 66-2/3% of the directors of the Company
then still in office who were either directors at the beginning of such
period or whose election or nomination for election was previously so
approved) cease for any reason to constitute a majority of the Board of
Directors then in office; or
(iv) the merger or consolidation of the Company with or into another
Person or the merger of another Person with or into the Company, or the
sale of all or substantially all the assets of the Company to another
Person (other than a Person that is controlled by the Permitted Holders),
and, in the case of any such merger or consolidation, the securities of the
Company that are outstanding immediately prior to such transaction
<PAGE>
21
and which represent 100% of the aggregate voting power of the Voting Stock
of the Company are changed into or exchanged for cash, securities or
property, unless pursuant to such transaction such securities are changed
into or exchanged for, in addition to any other consideration, securities
of the surviving corporation that represent immediately after such
transaction, at least a majority of the aggregate voting power of the
Voting Stock of the surviving corporation.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" means the party named as such in this Indenture until a
successor replaces it and, thereafter, means the successor and, for purposes of
any provision contained herein and required by the TIA, each other obligor on
the indenture securities.
"consolidated" means the consolidation of accounts of the Company and
its Subsidiaries in accordance with GAAP.
"Consolidated Current Liabilities" as of the date of determination
means the aggregate amount of liabilities of the Company and its Restricted
Subsidiaries which may properly be classified as current liabilities (including
taxes accrued as estimated), on a consolidated basis, after eliminating (i) all
intercompany items between the Company and any Restricted Subsidiary and (ii)
all current maturities of long-term Indebtedness, all as determined in
accordance with GAAP consistently applied.
<PAGE>
22
"Consolidated Interest Expense" means, for any period, the total
interest expense of the Company and its consolidated Restricted Subsidiaries,
plus, to the extent not included in such total interest expense, and to the
extent incurred in such period by the Company or its Restricted Subsidiaries,
without duplication, (i) interest expense attributable to capital leases and the
interest expense attributable to leases constituting part of a Sale/Leaseback
Transaction, (ii) amortization of debt discount and debt issuance cost, (iii)
capitalized interest, (iv) non-cash interest expense, (v) commissions, discounts
and other fees and charges owed with respect to letters of credit and bankers'
acceptance financing, (vi) net costs associated with Hedging Obligations
(including amortization of fees), (vii) Preferred Stock dividends in respect of
all Preferred Stock held by Persons other than the Company or a Restricted
Subsidiary, (viii) interest incurred in connection with Investments in
discontinued operations, (ix) interest accruing on any Indebtedness of any other
Person to the extent such Indebtedness is Guaranteed by (or secured by the
assets of) the Company or any Restricted Subsidiary and (x) the cash
contributions to any employee stock ownership plan or similar trust to the
extent such contributions are used by such plan or trust to pay interest or fees
to any Person (other than the Company) in connection with Indebtedness Incurred
by such plan or trust; excluding, however, (y) a proportional amount of any of
the foregoing items or other interest expense incurred by a Restricted
Subsidiary in such period to the extent the net income of such Restricted
Subsidiary is excluded in the calculation of Consolidated Net Income pursuant to
clause (iii) of the definition thereof and (z) any fees or debt issuance costs
(and any amortization thereof) payable in connection with the sale of the
Initial Notes and Units on the Issue Date.
"Consolidated Leverage Ratio" as of any date of determination means
the ratio of (i) the aggregate amount of Indebtedness of the Company and its
Restricted Subsidiaries calculated on a consolidated basis as of the end of the
most
<PAGE>
23
recent fiscal quarter for which financial statements have been made publicly
available but in no event ending more than 135 days prior to the date of such
determination to (ii) Annualized EBITDA as of such date of determination;
provided, however, that
- -------- -------
(1) if the transaction giving rise to the need to calculate the
Consolidated Leverage Ratio is an Incurrence of Indebtedness, the amount of
Indebtedness outstanding at the end of such fiscal quarter shall be
calculated after giving effect on a pro forma basis to the Incurrence of
such Indebtedness as if such Indebtedness had been outstanding as of the
end of such fiscal quarter and to the discharge of any other Indebtedness
to the extent it was outstanding as of the end of such fiscal quarter and
is to be repaid, repurchased, defeased or otherwise discharged with the
proceeds of such new Indebtedness as if such Indebtedness had been
discharged as of the end of such fiscal quarter,
(2) if the Company or any Restricted Subsidiary has repaid,
repurchased, defeased or otherwise discharged any Indebtedness that was
outstanding as of the end of such fiscal quarter or if any Indebtedness
that was outstanding as of the end of such fiscal quarter is to be repaid,
repurchased, defeased or otherwise discharged on the date of the
transaction giving rise to the need to calculate the Consolidated Leverage
Ratio, the aggregate amount of Indebtedness outstanding as of the end of
such fiscal quarter shall be calculated on a pro forma basis as if such
discharge had occurred as of the end of such fiscal quarter and EBITDA
shall be calculated as if the Company or such Restricted Subsidiary had not
earned the interest income, if any, actually earned during the period of
the most recent two consecutive fiscal quarters for which financial
statements have been made publicly
<PAGE>
24
available but in no event ending more than 135 days prior to the date of
such determination (the "Reference Period") in respect of cash or Temporary
Cash Investments used to repay, repurchase, defease or otherwise discharge
such Indebtedness,
(3) if since the beginning of the Reference Period the Company or any
Restricted Subsidiary shall have made any Asset Disposition, the EBITDA for
the Reference Period shall be reduced by an amount equal to the EBITDA (if
positive) directly attributable to the assets which are the subject of such
Asset Disposition for the Reference Period, or increased by an amount equal
to the EBITDA (if negative), directly attributable thereto for the
Reference Period,
(4) if since the beginning of the Reference Period the Company or any
Restricted Subsidiary (by merger or otherwise) shall have made an
Investment in any Restricted Subsidiary (or any person which becomes a
Restricted Subsidiary) or an acquisition of assets, including any
acquisition of assets occurring in connection with a transaction requiring
a calculation to be made hereunder, which constitutes all or substantially
all an operating unit of a business, EBITDA for the Reference Period shall
be calculated after giving pro forma effect thereto (including the
Incurrence of any Indebtedness) as if such Investment or acquisition
occurred on the first day of the Reference Period,
(5) if since the beginning of the Reference Period any Person (that
subsequently became a Restricted Subsidiary or was merged with or into the
Company or any Restricted Subsidiary since the beginning of such Reference
Period) shall have made any Asset
<PAGE>
25
Disposition, any Investment or acquisition of assets that would have
required an adjustment pursuant to clause (3) or (4) above if made by the
Company or a Restricted Subsidiary during the Reference Period, EBITDA for
the Reference Period shall be calculated after giving pro forma effect
thereto as if such Asset Disposition, Investment or acquisition occurred on
the first day of the Reference Period, and
(6) the aggregate amount of Indebtedness outstanding at the end of
such most recent fiscal quarter will be deemed to include the total
principal amount of funds outstanding or available to be borrowed on the
date of determination under any revolving credit or similar facilities of
the Company or its Restricted Subsidiaries.
For purposes of this definition, whenever pro forma effect is to be given to an
acquisition of assets or the amount of income or earnings relating thereto, the
pro forma calculations shall be determined in good faith by a responsible
financial or accounting Officer of the Company.
"Consolidated Net Income" means, for any period, the aggregate net
income of the Company and its consolidated Subsidiaries for such period;
provided, however, that the following shall not be included in such Consolidated
- -------- -------
Net Income:
(i) any net income (or loss) of any Person (other than the Company) if
such Person is not a Restricted Subsidiary, except that subject to the
exclusion contained in clause (iv) below, the Company's equity in the net
income of any such Person for such period shall
<PAGE>
26
be included in such Consolidated Net Income up to the aggregate amount of
cash actually distributed by such Person during such period to the Company
or a Restricted Subsidiary as a dividend or other distribution (subject, in
the case of a dividend or other distribution paid to a Restricted
Subsidiary, to the limitations contained in clause (iii) below);
(ii) any net income (or loss) of any Person acquired by the Company
or a Subsidiary in a pooling of interests transaction for any period prior
to the date of such acquisition;
(iii) any net income of any Restricted Subsidiary if such Restricted
Subsidiary is subject to restrictions, directly or indirectly, on the
payment of dividends or the making of distributions by such Restricted
Subsidiary, directly or indirectly, to the Company, except that (A) subject
to the exclusion contained in clause (iv) below, the Company's equity in
the net income of any such Restricted Subsidiary for such period shall be
included in such Consolidated Net Income up to the aggregate amount of cash
actually distributed by such Restricted Subsidiary during such period to
the Company or another Restricted Subsidiary as a dividend or other
distribution (subject, in the case of a dividend or other distribution paid
to another Restricted Subsidiary, to the limitation contained in this
clause) and (B) the Company's equity in a net loss of any such Restricted
Subsidiary for such period shall be included in determining such
Consolidated Net Income;
(iv) the after-tax gain or loss realized upon the sale or other
disposition of any assets of the Company, its consolidated Subsidiaries or
any other Person
<PAGE>
27
(including pursuant to any sale-and-leaseback arrangement) which is not
sold or otherwise disposed of in the ordinary course of business and the
after-tax gain or loss realized upon the sale or other disposition of any
Capital Stock of any Person;
(v) extraordinary gains or losses; and
(vi) the cumulative effect of a change in accounting principles.
Notwithstanding the foregoing, for the purposes of Section 4.04 only, there
shall be excluded from Consolidated Net Income any payments of interest,
dividends, repayments of loans or advances or other transfers of assets from
Unrestricted Subsidiaries to the Company or a Restricted Subsidiary to the
extent such interest, dividends, repayments or transfers increase the amount of
Restricted Payments permitted under Section 4.04(a)(3)(D).
"Consolidated Net Tangible Assets" as of any date of determination,
means the total amount of assets (less accumulated depreciation and
amortization, allowances for doubtful receivables, other applicable reserves and
other properly deductible items) which would appear on a balance sheet of the
Company and its Restricted Subsidiaries, determined on a consolidated basis in
accordance with GAAP, and after giving effect to purchase accounting and after
deducting therefrom Consolidated Current Liabilities and, to the extent
otherwise included, the amounts of: (i) minority interests in consolidated
Subsidiaries held by Persons other than the Company or a Restricted Subsidiary;
(ii) excess of cost over fair value of assets of businesses acquired, as
determined in good faith by the Board of Directors;
<PAGE>
28
(iii) any revaluation or other write-up in book value of assets subsequent to
the Issue Date as a result of a change in the method of valuation in accordance
with GAAP consistently applied; (iv) unamortized debt discount and expenses and
other unamortized deferred charges, goodwill, patents, trademarks, service
marks, trade names, copyrights, licenses, organization or developmental expenses
and other intangible items; (v) treasury stock; (vi) cash set apart and held in
a sinking or other analogous fund established for the purpose of redemption or
other retirement of Capital Stock to the extent such obligation is not reflected
in Consolidated Current Liabilities; and (vii) Investments in and assets of
Unrestricted Subsidiaries.
"Consolidated Net Worth" means, at any date of determination, the
total of the amounts shown on the balance sheet of the Company and its
consolidated Subsidiaries, determined on a consolidated basis in accordance with
GAAP, as of the end of the most recent fiscal quarter of the Company for which
financial statements have been made publicly available but in no event ending
more than 135 days prior to the taking of any action for the purpose of which
the determination is being made, as (i) the par or stated value of all
outstanding Capital Stock of the Company plus (ii) paid-in capital or capital
surplus relating to such Capital Stock plus (iii) any retained earnings or
earned surplus less (A) any accumulated deficit and (B) any amounts attributable
to Disqualified Stock.
"Credit Agreement" means one or more term loans or revolving credit or
working capital facilities (including any letter of credit subfacility) with one
or more banks or other institutional lenders in favor of the Company or any
Restricted Subsidiary.
<PAGE>
29
"Currency Agreement" means in respect of a Person any foreign exchange
contract, currency swap agreement or other similar agreement designed to protect
such Person against fluctuations in currency values.
"Default" means any event which is, or after notice or passage of time
or both would be, an Event of Default.
"Disqualified Stock" means, with respect to any Person, any Capital
Stock which by its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable) or upon the happening of any event
(i) matures or is mandatorily redeemable pursuant to a sinking fund obligation
or otherwise, (ii) is convertible or exchangeable for Indebtedness or
Disqualified Stock or (iii) is redeemable or must be purchased, upon the
occurrence of certain events or otherwise, by such Person at the option of the
holder thereof, in whole or in part, in each case on or prior to the first
anniversary of the Stated Maturity of the Securities; provided, however, that
-------- -------
any Capital Stock that would not constitute Disqualified Stock but for
provisions thereof giving holders thereof the right to require such Person to
purchase or redeem such Capital Stock upon the occurrence of an "asset sale" or
"change of control" occurring prior to the first anniversary of the Stated
Maturity of the Securities shall not constitute Disqualified Stock if (x) the
"asset sale" or "change of control" provisions applicable to such Capital Stock
are not more favorable to the holders of such Capital Stock than those in
Sections 4.06 and 4.09 and (y) any such requirement only becomes operative after
compliance with such Sections, including the purchase of any Securities tendered
pursuant thereto.
<PAGE>
30
"EBITDA" for any period means the sum of Consolidated Net Income, plus
the following to the extent deducted in calculating such Consolidated Net
Income: (a) Consolidated Interest Expense, (b) all income tax expense of the
Company and its consolidated Restricted Subsidiaries, (c) depreciation expense
of the Company and its consolidated Restricted Subsidiaries, (d) amortization
expense of the Company and its consolidated Restricted Subsidiaries (excluding
amortization expense attributable to a prepaid cash item that was paid in a
prior period) and (e) all other non-cash charges of the Company and its
consolidated Restricted Subsidiaries (excluding any such non-cash charge to the
extent that it represents an accrual of or reserve for cash expenditures in any
future period), in each case for such period, all as determined on a
consolidated basis for the Company and its Restricted Subsidiaries.
Notwithstanding the foregoing, the provision for taxes based on the income or
profits of, and the depreciation and amortization and non-cash charges of, a
Restricted Subsidiary shall be added to Consolidated Net Income to compute
EBITDA only to the extent (and in the same proportion) that the net income of
such Restricted Subsidiary was included in calculating Consolidated Net Income
and only if a corresponding amount would be permitted at the date of
determination to be dividended to the Company by such Restricted Subsidiary
without prior approval (that has not been obtained), pursuant to the terms of
its charter and all agreements, instruments, judgments, decrees, orders,
statutes, rules and governmental regulations applicable to such Restricted
Subsidiary or its stockholders.
"Equity Offering" means either (a) an underwritten primary public
offering of common stock of Parent or the Company pursuant to an effective
registration statement under the Securities Act or (b) a primary offering of
Capital Stock (other than Disqualified Stock) of the Company to one or more
Persons primarily engaged in a Related Business.
<PAGE>
31
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Existing Restricted Subsidiary" means any Restricted Subsidiary in
existence on the Issue Date and any Restricted Subsidiary formed after the Issue
Date which thereafter conducts all or any portion of the Company's business
pertaining to its Area 1 Franchise in Chicago, as in effect on the Issue Date.
"GAAP" means generally accepted accounting principles in the United
States of America as in effect as of the Issue Date, including those set forth
in (i) the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants, (ii) statements and
pronouncements of the Financial Accounting Standards Board, (iii) such other
statements by such other entity as approved by a significant segment of the
accounting profession and (iv) the rules and regulations of the SEC governing
the inclusion of financial statements (including pro forma financial statements)
in periodic reports required to be filed pursuant to Section 13 of the Exchange
Act, including opinions and pronouncements in staff accounting bulletins and
similar written statements from the accounting staff of the SEC.
"Guarantee" means any obligation, contingent or otherwise, of any
Person directly or indirectly guaranteeing any Indebtedness of any Person and
any obligation, direct or indirect, contingent or otherwise, of such Person (i)
to purchase or pay (or advance or supply funds for the purchase or payment of)
such Indebtedness or other obligation of such Person (whether arising by virtue
of partnership arrangements, or by agreements to keep-well, to purchase assets,
goods, securities or services, to take-or-pay or to
<PAGE>
32
maintain financial statement conditions or otherwise) or (ii) entered into for
the purpose of assuring in any other manner the obligee of such Indebtedness of
the payment thereof or to protect such obligee against loss in respect thereof
(in whole or in part); provided, however, that the term "Guarantee" shall not
-------- -------
include endorsements for collection or deposit in the ordinary course of
business. The term "Guarantee" used as a verb has a corresponding meaning. The
term "Guarantor" shall mean any Person Guaranteeing any obligation.
"Hedging Obligations" of any Person means the obligations of such
Person pursuant to any Interest Rate Agreement or Currency Agreement.
"Holder" or "Securityholder" means the Person in whose name a Security
is registered on the Registrar's books.
"Incur" means issue, assume, Guarantee, incur or otherwise become
liable for; provided, however, that any Indebtedness or Capital Stock of a
-------- -------
Person existing at the time such Person becomes a Subsidiary (whether by merger,
consolidation, acquisition or otherwise) shall be deemed to be Incurred by such
Subsidiary at the time it becomes a Subsidiary. The term "Incurrence" when used
as a noun shall have a correlative meaning. The accretion of principal of a
non-interest bearing or other discount security shall be deemed the Incurrence
of Indebtedness.
"Indebtedness" means, with respect to any Person on any date of
determination (without duplication):
<PAGE>
33
(i) the principal in respect of (A) indebtedness of such Person for
money borrowed and (B) indebtedness evidenced by notes, debentures, bonds
or other similar instruments for the payment of which such Person is
responsible or liable, including, in each case, any premium on such
indebtedness to the extent such premium has become due and payable;
(ii) all Capital Lease Obligations of such Person and all
Attributable Debt in respect of Sale/Leaseback Transactions entered into by
such Person;
(iii) all obligations of such Person issued or assumed as the deferred
purchase price of property, all conditional sale obligations of such Person
and all obligations of such Person under any title retention agreement (but
excluding trade accounts payable arising in the ordinary course of
business);
(iv) all obligations of such Person for the reimbursement of any
obligor on any letter of credit, banker's acceptance or similar credit
transaction (other than obligations with respect to letters of credit
securing obligations (other than obligations described in clauses (i)
through (iii) above) entered into in the ordinary course of business of
such Person to the extent such letters of credit are not drawn upon or, if
and to the extent drawn upon, such drawing is reimbursed no later than the
tenth Business Day following payment on the letter of credit);
(v) the amount of all obligations of such Person with respect to the
redemption, repayment or other
<PAGE>
34
repurchase of any Disqualified Stock or, with respect to any Subsidiary of
such Person (including any Restricted Subsidiary), the liquidation
preference with respect to, any Preferred Stock (but excluding, in each
case, any accrued dividends);
(vi) all obligations of the type referred to in clauses (i) through
(v) of other Persons and all dividends of other Persons for the payment of
which, in either case, such Person is responsible or liable, directly or
indirectly, as obligor, guarantor or otherwise, including by means of any
Guarantee;
(vii) all obligations of the type referred to in clauses (i) through
(vi) of other Persons secured by any Lien on any property or asset of such
Person (whether or not such obligation is assumed by such Person), the
amount of such obligation being deemed to be the lesser of the fair value
of such property or assets or the amount of the obligation so secured, in
each case as of the date of determination; and
(viii) to the extent not otherwise included in this definition,
Hedging Obligations of such Person.
The amount of Indebtedness of any Person at any date shall be the outstanding
balance at such date of all unconditional obligations as described above and the
maximum liability, upon the occurrence of the contingency giving rise to the
obligation, of any contingent obligations at such date.
<PAGE>
35
"Indenture" means this Indenture as amended or supplemented from time
to time.
"Interest Rate Agreement" means in respect of a Person any interest
rate swap agreement, interest rate cap, floor, collar or forward interest rate
agreement or other financial agreement or arrangement designed to protect such
Person against fluctuations in interest rates.
"Investment" in any Person means any direct or indirect advance, loan
(other than advances to customers in the ordinary course of business that are
recorded as accounts receivable on the balance sheet of the lender) or other
extensions of credit (including by way of Guarantee or similar arrangement) or
capital contribution to (by means of any transfer of cash or other property to
others or any payment for property or services for the account or use of
others), or any purchase or acquisition of Capital Stock, Indebtedness or other
similar instruments issued by such Person. For purposes of the definition of
"Unrestricted Subsidiary", the definition of "Restricted Payment" and Section
4.04, (i) "Investment" shall include the portion (proportionate to the Company's
equity interest in such Subsidiary) of the fair market value of the net assets
of any Subsidiary of the Company at the time that such Subsidiary is designated
an Unrestricted Subsidiary; provided, however, that upon a redesignation of such
-------- -------
Subsidiary as a Restricted Subsidiary, the Company shall be deemed to continue
to have a permanent "Investment" in an Unrestricted Subsidiary equal to an
amount (if positive) equal to (x) the Company's "Investment" in such Subsidiary
at the time of such redesignation less (y) the portion (proportionate to the
Company's equity interest in such Subsidiary) of the fair market value of the
net assets of such Subsidiary at the time of such redesignation; and (ii) any
property transferred to or from an Unrestricted Subsidiary shall be valued at
its fair market value at the
<PAGE>
36
time of such transfer, in each case as determined in good faith by the Board of
Directors.
"Issue Date" means the first date on which any Securities are issued
under this Indenture.
"Lien" means any mortgage, pledge, security interest, encumbrance,
lien or charge of any kind (including any conditional sale or other title
retention agreement or lease in the nature thereof).
"Market Assets" means assets used or useful in the ownership or
operation of a Related Business, including any and all licenses, franchises and
assets related thereto.
"Market Swap" means the execution of a definitive agreement, subject
only to governmental approval and other customary closing conditions, that the
Company in good faith believes will be satisfied, for a substantially concurrent
purchase and sale, or exchange, of Market Assets between the Company or any of
its Restricted Subsidiaries and another Person or group of Persons; provided
that any amendment to or waiver of any closing condition which individually or
in the aggregate is material to the Market Swap will be deemed to be a new
Market Swap; provided, however, that the Market Assets to be sold by the Company
-------- -------
or its Restricted Subsidiaries in connection with a Market Swap do not include
assets used in or necessary for the ownership or operation of the Company's
business pertaining to its Area 1 Franchise in Chicago; provided further,
----------------
however, that the cash and other assets to be received by the Company or its
- -------
Restricted Subsidiaries which do not constitute Market Assets do not constitute
more than 15% of the total consideration to be
<PAGE>
37
received by the Company or its Restricted Subsidiaries in such Market Swap.
"Net Available Cash" from an Asset Disposition means cash payments
received therefrom (including any cash payments received by way of deferred
payment of principal pursuant to a note or installment receivable or otherwise
and proceeds from the sale or other disposition of any securities received as
consideration, but only as and when received, but excluding any other
consideration received in the form of assumption by the acquiring Person of
Indebtedness or other obligations relating to such properties or assets or
received in any other noncash form), in each case net of (i) all legal, title
and recording tax expenses, commissions and other fees and expenses incurred,
and all Federal, state, provincial, foreign and local taxes required to be
accrued as a liability under GAAP, as a consequence of such Asset Disposition,
(ii) all payments made on any Indebtedness which is secured by any assets
subject to such Asset Disposition, in accordance with the terms of any Lien upon
or other security agreement of any kind with respect to such assets, or which
must by its terms, or in order to obtain a necessary consent to such Asset
Disposition, or by applicable law, be repaid out of the proceeds from such Asset
Disposition, (iii) all distributions and other payments required to be made to
minority interest holders in Restricted Subsidiaries as a result of such Asset
Disposition and (iv) the deduction of appropriate amounts provided by the seller
as a reserve, in accordance with GAAP, against any liabilities associated with
the property or other assets disposed in such Asset Disposition and retained by
the Company or any Restricted Subsidiary after such Asset Disposition.
"Net Cash Proceeds", with respect to any issuance or sale of Capital
Stock, means the proceeds of such issuance or sale in the form of cash or cash
equivalents including payments in respect of deferred payment
<PAGE>
38
obligations (to the extent corresponding to the principal, but not interest,
component thereof) when received in such form of cash or cash equivalents and
the conversion of other property received when converted to such form of cash or
cash equivalents, net of any and all issuance costs, including attorneys' fees,
accountants' fees, underwriters' or placement agents' fees, discounts or
commissions and brokerage, consultant and other fees actually incurred in
connection with such issuance or sale and net of taxes paid or payable as a
result thereof.
"Officer" means the Chairman of the Board, the President, the Chief
Financial Officer, any Vice President, the Treasurer or the Secretary of the
Company.
"Officers' Certificate" means a certificate signed by two Officers.
"Opinion of Counsel" means a written opinion from
legal counsel who is acceptable to the Trustee. The counsel may be an employee
of or counsel to the Company or the Trustee.
"Parent" means any Person that owns directly or indirectly all the
Voting Stock of the Company.
"Permitted Holders" means Purnendu Chatterjee, JK&B Capital, L.P.,
JK&B Capital II, L.P., Farley, Inc., Boston Capital Ventures II, L.P., Glenn W.
Milligan, Edward T. Joyce and each of their affiliates.
<PAGE>
39
"Permitted Investment" means an Investment by the Company or any
Restricted Subsidiary in (i) the Company, a Restricted Subsidiary or a Person
that will, upon the making of such Investment, become a Restricted Subsidiary;
provided, however, that the primary business of such Restricted Subsidiary is a
- -------- -------
Related Business; (ii) another Person if as a result of such Investment such
other Person is merged or consolidated with or into, or transfers or conveys all
or substantially all its assets to, the Company or a Restricted Subsidiary;
provided, however, that such Person's primary business is a Related Business;
- -------- -------
(iii) Temporary Cash Investments; (iv) receivables owing to the Company or any
Restricted Subsidiary if created or acquired in the ordinary course of business
and payable or dischargeable in accordance with customary trade terms; provided,
--------
however, that such trade terms may include such concessionary trade terms as the
- -------
Company or any such Restricted Subsidiary deems reasonable under the
circumstances; (v) commissions, payroll, travel and similar advances to cover
matters that are expected at the time of such advances ultimately to be treated
as expenses for accounting purposes and that are made in the ordinary course of
business; (vi) loans or advances to employees made in the ordinary course of
business consistent with past practices of the Company or such Restricted
Subsidiary; (vii) stock, obligations or securities received in settlement of
debts created in the ordinary course of business and owing to the Company or any
Restricted Subsidiary or in satisfaction of judgments; (viii) any Person to the
extent such Investment represents either the non-cash portion of the
consideration received for an Asset Disposition as permitted pursuant to Section
4.06 or the consideration not constituting Market Assets received in a Market
Swap as permitted pursuant to Section 4.12; and (ix) any Person principally
engaged in a Related Business if (a) the Company or a Restricted Subsidiary,
after giving effect to such Investment, will own at least 20% of the Voting
Stock of such Person and (b) the amount of such Investment, when taken together
with the aggregate amount of all Investments made pursuant to this
<PAGE>
40
clause (ix) and then outstanding, does not exceed $10.0 million.
"Permitted Liens" means, with respect to any Person,
(a) pledges or deposits by such Person under worker's compensation
laws, unemployment insurance laws or similar legislation and other types of
social security, or good faith deposits in connection with bids, tenders,
contracts (other than for the payment of Indebtedness) or leases to which
such Person is a party, or deposits to secure public or statutory or
regulatory obligations of such Person or deposits of cash, cash equivalents
or United States government bonds to secure surety or appeal bonds to which
such Person is a party, or deposits as security for contested taxes or
import duties or for the payment of rent, in each case Incurred in the
ordinary course of business;
(b) Liens imposed by law, such as carriers', landlords',
warehousemen's and mechanics', suppliers', repairmen's or other similar
Liens, in each case for sums not yet due or being contested in good faith
by appropriate proceedings or other Liens arising out of judgments or
awards against such Person with respect to which such Person shall then be
proceeding with an appeal or other proceedings for review and Liens in
favor of customs and revenue authorities to secure payment of customs
duties;
(c) Liens for taxes, assessments, governmental charges or claims
subject to penalties for non-payment
<PAGE>
41
or which are being contested in good faith and by appropriate proceedings;
(d) Liens in favor of issuers of surety or payment and performance
bonds or letters of credit and bankers' acceptances issued pursuant to the
request of and for the account of such Person in the ordinary course of its
business; provided, however, that such letters of credit and bankers'
-------- -------
acceptances do not constitute Indebtedness;
(e) survey exceptions, encumbrances, easements or reservations of, or
rights of others for, licenses, rights-of-way, pole attachment, use of
conduit, use of trenches, or similar rights, sewers, electric lines,
telegraph and telephone lines and other similar purposes, or zoning or
other restrictions as to the use of real property or Liens incidental to
the conduct of the business of such Person or to the ownership of its
properties or other municipal and zoning ordinances, title defects or other
irregularities which were not Incurred in connection with Indebtedness and
which do not in the aggregate materially adversely affect the value of said
properties or materially impair their use in the operation of the business
of such Person;
(f) Liens securing Indebtedness Incurred after the Issue Date pursuant
to clause (b)(7) of Section 4.03 or otherwise Incurred to finance the
construction, purchase or lease of, or repairs, improvements or additions
to, property of such Person; provided, however, that the Liens securing
-------- -------
such Indebtedness may not extend to any property owned by such Person or
any of its Subsidiaries at the time the Lien is Incurred other than the
property financed with the proceeds of such Indebtedness and the proceeds
thereof, and the
<PAGE>
42
Indebtedness (other than any interest thereon) secured by the Lien may not
be Incurred more than 180 days after the later of the acquisition,
completion of construction, repair, improvement, addition or commencement
of full operation of the property subject to the Lien;
(g) Liens to secure Indebtedness permitted under Section 4.03(b)(1);
(h) Liens existing on the Issue Date;
(i) Liens on property or shares of Capital Stock of another Person at
the time such other Person becomes a Subsidiary of such Person; provided,
--------
however, that such Liens are not created, incurred or assumed in connection
-------
with, or in contemplation of, such other Person becoming such a Subsidiary;
provided further, however, that such Lien may not extend to any other
---------------- -------
property owned by such Person or any of its Subsidiaries;
(j) Liens on property at the time such Person or any of its
Subsidiaries acquires the property, including any acquisition by means of a
merger or consolidation with or into such Person or a Subsidiary of such
Person; provided, however, that such Liens are not created, incurred or
-------- -------
assumed in connection with, or in contemplation of, such acquisition;
provided further, however, that the Liens may not extend to any other
---------------- -------
property owned by such Person or any of its Subsidiaries;
<PAGE>
43
(k) Liens securing Indebtedness or other obligations of a Subsidiary
of such Person owing to such Person or a Subsidiary of such Person;
(l) Liens securing Hedging Obligations so long as such Hedging
Obligations relate to Indebtedness that is, and is permitted to be under
this Indenture, secured by a Lien on the same property securing such
Hedging Obligations;
(m) Liens arising from filing Uniform Commercial Code financing
statements regarding leases;
(n) Liens arising out of conditional sale, title retention,
consignment or similar arrangements for the sale of goods entered into by
the Company or any of its Restricted Subsidiaries in the ordinary course of
business; and
(o) Liens to secure any Refinancing (or successive Refinancings) as a
whole, or in part, of any Indebtedness secured by any Lien referred to in
the foregoing clauses (f), (h), (i) and (j); provided, however, that (I)
-------- -------
such new Lien shall be limited to all or part of the same property that
secured the original Lien (plus improvements to or on such property) and
(II) the Indebtedness secured by such Lien at such time is not increased to
any amount greater than the sum of (A) the outstanding principal amount or,
if greater, committed amount of the Indebtedness described under clauses
(f), (h), (i) or (j) at the time the original Lien became a Permitted Lien
and (B) an amount necessary to pay any accrued and unpaid interest, fees
<PAGE>
44
and expenses, including premiums, related to such refinancing, refunding,
extension, renewal or replacement.
Notwithstanding the foregoing, "Permitted Liens" will not include any Lien
described in clauses (f), (i) or (j) above to the extent such Lien applies to
any Additional Assets acquired directly or indirectly from Net Available Cash
pursuant to Section 4.06. For purposes of this definition, the term
"Indebtedness" shall be deemed to include interest on such Indebtedness.
"Person" means any individual, corporation, partnership, limited
liability company, joint venture, association, joint-stock company, trust,
unincorporated organization, government or any agency or political subdivision
thereof or any other entity.
"Preferred Stock", as applied to the Capital Stock of any Person,
means Capital Stock of any class or classes (however designated, whether voting
or nonvoting) which is preferred as to the payment of dividends or
distributions, or as to the distribution of assets upon any voluntary or
involuntary liquidation or dissolution of such Person, over shares of Capital
Stock of any other class of such Person.
"principal" of a Security means the Accreted Value of the Security
plus the premium, if any, payable on the Security which is due or overdue or is
to become due at the relevant time.
<PAGE>
45
"principal amount at maturity" of a Security means the amount
specified on the face of such Security.
"Qualified Preferred Stock" of a Restricted Subsidiary means a series
of Preferred Stock of such Restricted Subsidiary which (i) has a fixed
liquidation preference that is no greater in the aggregate than the sum of (x)
the fair market value (as determined in good faith by the Board of Directors at
the time of the issuance of such series of Preferred Stock) of the consideration
received by such Restricted Subsidiary for the issuance of such series of
Preferred Stock and (y) accrued and unpaid dividends to the date of liquidation,
(ii) has a fixed annual dividend and has no right to share in any dividend or
other distributions based on the financial or other similar performance of such
Restricted Subsidiary and (iii) does not entitle the holders thereof to vote in
the election of directors, managers or trustees of such Restricted Subsidiary
unless such Restricted Subsidiary has failed to pay dividends on such series of
Preferred Stock for a period of at least 12 consecutive calendar months.
"Refinance" means, in respect of any Indebtedness, to refinance,
extend, renew, refund, repay, prepay, redeem, defease or retire, or to issue
other Indebtedness in exchange or replacement for, such indebtedness.
"Refinanced" and "Refinancing" shall have correlative meanings.
"Refinancing Indebtedness" means Indebtedness that Refinances any
Indebtedness of the Company or any Restricted Subsidiary existing on the Issue
Date or Incurred in compliance with Section 4.03, including Indebtedness that
Refinances Refinancing Indebtedness; provided, however, that (i) such
-------- -------
Refinancing Indebtedness has a Stated Maturity no earlier than the Stated
Maturity of the Indebtedness being Refinanced, (ii) such Refinancing
Indebtedness has an
<PAGE>
46
Average Life at the time such Refinancing Indebtedness is Incurred that is equal
to or greater than the Average Life of the Indebtedness being Refinanced and
(iii) such Refinancing Indebtedness has an aggregate principal amount (or if
Incurred with original issue discount, an aggregate issue price) that is equal
to or less than the aggregate principal amount (or if Incurred with original
issue discount, the aggregate accreted value) then outstanding or committed
(plus accrued and unpaid interest, fees and expenses, including any premium and
defeasance costs) under the Indebtedness being Refinanced; provided further,
----------------
however, that Refinancing Indebtedness shall not include (x) Indebtedness of a
- -------
Subsidiary that Refinances Indebtedness of the Company or (y) Indebtedness of
the Company or a Restricted Subsidiary that Refinances Indebtedness of an
Unrestricted Subsidiary.
"Registration Rights Agreement" means the Registration Rights
Agreement dated as of February 2, 1998, among the Company and Credit Suisse
First Boston Corporation, BancBoston Securities Inc. and BancAmerica Robertson
Stephens.
"Related Business" means the businesses of the Company and the
Restricted Subsidiaries on the Issue Date and any business related, ancillary or
complementary to the businesses of the Company and the Restricted Subsidiaries
on the Issue Date.
"Restricted Payment" with respect to any Person means
(i) the declaration or payment of any dividends or any other
distributions of any sort (including any
<PAGE>
47
payment in connection with any merger or consolidation involving such
Person) in respect of its Capital Stock held by Persons other than the
Company or any Restricted Subsidiary or similar payment to the direct or
indirect holders (other than the Company or a Restricted Subsidiary) of its
Capital Stock (other than dividends or distributions payable solely in its
Capital Stock (other than Disqualified Stock), and other than pro rata
dividends or other distributions made by a Subsidiary that is not a Wholly
Owned Subsidiary to minority stockholders (or owners of an equivalent
interest in the case of a Subsidiary that is an entity other than a
corporation)),
(ii) the purchase, redemption or other acquisition or retirement for
value of any Capital Stock of the Company held by any Person or of any
Capital Stock of a Restricted Subsidiary held by any Affiliate of the
Company (other than a Restricted Subsidiary), including the exercise of any
option to exchange any Capital Stock (other than into Capital Stock of the
Company that is not Disqualified Stock),
(iii) the purchase, repurchase, redemption, defeasance or other
acquisition or retirement for value, prior to scheduled maturity, scheduled
repayment or scheduled sinking fund payment of any Subordinated Obligations
(other than the purchase, repurchase, redemption or other acquisition of
Subordinated Obligations purchased in anticipation of satisfying a sinking
fund obligation, principal installment or final maturity, in each case due
within one year of the date of such purchase, repurchase, redemption or
acquisition) or
<PAGE>
48
(iv) the making of any Investment (other than a Permitted Investment)
in any Person.
"Restricted Subsidiary" means any Subsidiary of the Company that is
not an Unrestricted Subsidiary.
"Sale/Leaseback Transaction" means an arrangement relating to property
now owned or hereafter acquired whereby the Company or a Restricted Subsidiary
transfers such property to a Person and the Company or a Restricted Subsidiary
leases it from such Person.
"SEC" means the Securities and Exchange Commission.
"Secured Indebtedness" means any Indebtedness of the Company secured
by a Lien.
"Securities" means the Securities issued under this Indenture.
"Senior Indebtedness" means Indebtedness (including interest on such
Indebtedness) of the Company, whether outstanding on the Issue Date or
thereafter Incurred, unless in the instrument creating or evidencing the same or
pursuant to which the same is outstanding, it is provided that such obligations
are subordinate in right of payment to the Securities; provided, however, that
-------- -------
Senior Indebtedness shall not include (1) any obligation of the Company to any
Subsidiary, (2) any liability for Federal,
<PAGE>
49
state, local or other taxes owed or owing by the Company, (3) any accounts
payable or other liability to trade creditors arising in the ordinary course of
business (including guarantees thereof or instruments evidencing such
liabilities), (4) any Indebtedness of the Company (and any accrued and unpaid
interest in respect thereof) which is subordinate or junior in any respect to
any other Indebtedness or other obligation of the Company or (5) that portion of
any Indebtedness which at the time of Incurrence is Incurred in violation of
this Indenture.
"Significant Subsidiary" means any Restricted Subsidiary that would be
a "Significant Subsidiary" of the Company within the meaning of Rule 1-02 under
Regulation S-X promulgated by the SEC.
"Stated Maturity" means, with respect to any security, the date
specified in such security as the fixed date on which the final payment of
principal of such security is due and payable, including pursuant to any
mandatory redemption provision (but excluding any provision providing for the
repurchase of such security at the option of the holder thereof upon the
happening of any contingency unless such contingency has occurred).
"Subordinated Obligation" means any Indebtedness of the Company
(whether outstanding on the Issue Date or thereafter Incurred) which is
expressly subordinate or junior in right of payment to the Securities pursuant
to a written agreement to that effect.
"Subsidiary" means, in respect of any Person, any corporation,
association, partnership or other business entity of which more than 50% of the
total voting power of
<PAGE>
50
shares of Voting Stock is at the time owned or controlled, directly or
indirectly, by (i) such Person, (ii) such Person and one or more Subsidiaries of
such Person or (iii) one or more Subsidiaries of such Person.
"Temporary Cash Investments" means any of the following:
(i) any investment in direct obligations of the United States of
America or any agency thereof or obligations guaranteed by the United
States of America or any agency thereof,
(ii) investments in time deposit accounts, certificates of deposit
and money market deposits maturing within 365 days of the date of
acquisition thereof issued by a bank or trust company which is organized
under the laws of the United States of America, any state thereof or any
foreign country recognized by the United States, and which bank or trust
company has capital, surplus and undivided profits aggregating in excess of
$50,000,000 (or the foreign currency equivalent thereof) and has
outstanding debt which is rated "A" (or such similar equivalent rating) or
higher by at least one nationally recognized statistical rating
organization (as defined in Rule 436 under the Securities Act) or any
money-market fund sponsored by a registered broker dealer or mutual fund
distributor,
(iii) repurchase obligations with a term of not more than 30 days for
underlying securities of the types described in clause (i) above entered
into with a
<PAGE>
51
bank meeting the qualifications described in clause (ii) above,
(iv) investments in commercial paper, maturing not more than 270 days
after the date of acquisition, issued by a corporation (other than an
Affiliate of the Company) organized and in existence under the laws of the
United States of America or any foreign country recognized by the United
States of America with a rating at the time as of which any investment
therein is made of "P-1" (or higher) according to Moody's Investors
Service, Inc. or "A-1" (or higher) according to Standard and Poor's Ratings
Group,
(v) investments in securities with maturities of six months or less
from the date of acquisition issued or fully guaranteed by any state,
commonwealth or territory of the United States of America, or by any
political subdivision or taxing authority thereof, and rated at least "A"
by Standard & Poor's Ratings Group or "A" by Moody's Investors Service,
Inc., and
(vi) investments in money-market funds (other than single-state funds)
that make investments in instruments of the type described in clause (i)-
(v) above in accordance with the regulations of the Securities and Exchange
Commission under the Investment Company Act of 1940, as amended.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. ..
------
77aaa-77bbbb) as in effect on the date of this Indenture.
<PAGE>
52
"Trust Officer" means the Chairman of the Board, the President or any
other officer or assistant officer of the Trustee assigned by the Trustee to
administer its corporate trust matters or to whom any corporate trust matter is
referred because of his or her knowledge of and familiarity with the particular
subject.
"Trustee" means the party named as such in this Indenture until a
successor replaces it and, thereafter, means the successor.
"Uniform Commercial Code" means the New York Uniform Commercial Code
as in effect form time to time.
"Units" means 50,000 units, each consisting of one share of the
Company's 13-3/4% Senior Cumulative Exchangeable Preferred Stock Due 2010 and
one warrant to purchase 8.7774 shares of the Company's common stock, no par
value, at an exercise price of $.01 per share.
"Unrestricted Subsidiary" means (i) any Subsidiary of the Company that
at the time of determination shall be designated an Unrestricted Subsidiary by
the Board of Directors in the manner provided below and (ii) any Subsidiary of
an Unrestricted Subsidiary. The Board of Directors may designate any Subsidiary
of the Company (including any newly acquired or newly formed Subsidiary) to be
an Unrestricted Subsidiary unless such Subsidiary or any of its Subsidiaries
owns any Capital Stock or Indebtedness of, or holds any Lien on any property of,
the Company or any other Subsidiary of the Company that is not a Subsidiary of
the Subsidiary to be so designated; provided, however, that either (A) the
-------- -------
Subsidiary to be so designated has total
<PAGE>
53
assets of $1,000 or less or (B) if such Subsidiary has assets greater than
$1,000, such designation would be permitted under Section 4.04. The Board of
Directors may designate any Unrestricted Subsidiary to be a Restricted
Subsidiary; provided, however, that immediately after giving effect to such
-------- -------
designation (x) the Company could Incur $1.00 of additional Indebtedness under
Section 4.03(a) and (y) no Default shall have occurred and be continuing. Any
such designation by the Board of Directors shall be evidenced to the Trustee by
promptly filing with the Trustee a copy of the resolution of the Board of
Directors giving effect to such designation and an Officers' Certificate
certifying that such designation complied with the foregoing provisions.
"U.S. Government Obligations" means direct obligations (or
certificates representing an ownership interest in such obligations) of the
United States of America (including any agency or instrumentality thereof) for
the payment of which the full faith and credit of the United States of America
is pledged and which are not callable at the issuer's option.
"Voting Stock" of a Person means all classes of Capital Stock or other
interests (including partnership interests) of such Person then outstanding and
normally entitled (without regard to the occurrence of any contingency) to vote
in the election of directors, managers or trustees thereof.
"Wholly Owned Subsidiary" means a Restricted Subsidiary all the
Capital Stock of which (other than directors' qualifying shares) is owned by the
Company or one or more Wholly Owned Subsidiaries.
<PAGE>
54
SECTION 1.02. Other Definitions.
------------------
<TABLE>
<CAPTION>
Term Defined in
---- Section
-------
<S> <C>
"Affiliate Transaction" 4.07
"Appendix" 2.01
"Bankruptcy Law" 6.01
"Change of Control Offer" 4.09(b)
"covenant defeasance option" 8.01(b)
"Custodian" 6.01
"Default Amount" 6.02
"Event of Default" 6.01
"Exchange Securities" recitals
"Initial Securities" recitals
"legal defeasance option" 8.01(b)
"Offer Amount" 4.06(b)
"Offer Period" 4.06(b)
"Paying Agent" 2.03
"Private Exchange Securities" recitals
"Purchase Date" 4.06(b)
"Registrar" 2.03
"Successor Company" 5.01
</TABLE>
<PAGE>
55
SECTION 1.03. Incorporation by Reference of Trust Indenture Act.
--------------------------------------------------
This Indenture is subject to the mandatory provisions of the TIA which are
incorporated by reference in and made a part of this Indenture. The following
TIA terms have the following meanings:
"Commission" means the SEC;
"indenture securities" means the Securities;
"indenture security holder" means a Securityholder;
"indenture to be qualified" means this Indenture;
"indenture trustee" or "institutional trustee" means the Trustee; and
"obligor" on the indenture securities means the Company and any other
obligor on the indenture securities.
All other TIA terms used in this Indenture that are defined by the
TIA, defined by TIA reference to another statute or defined by SEC rule have the
meanings assigned to them by such definitions.
<PAGE>
56
SECTION 1.04. Rules of Construction. Unless the context otherwise
----------------------
requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning assigned
to it in accordance with GAAP;
(3) "or" is not exclusive;
(4) "including" means including without limitation;
(5) words in the singular include the plural and words in the plural
include the singular;
(6) unsecured Indebtedness shall not be deemed to be subordinate or
junior to Secured Indebtedness merely by virtue of its nature as unsecured
Indebtedness;
(7) the principal amount of any noninterest bearing or other discount
security at any date shall be the principal amount thereof that would be
shown on a balance sheet of the issuer dated such date prepared in
accordance with GAAP;
<PAGE>
57
(8) the principal amount of any Preferred Stock shall be (i) the
maximum liquidation value of such Preferred Stock or (ii) the maximum
mandatory redemption or mandatory repurchase price with respect to such
Preferred Stock, whichever is greater;
(9) all references to the date the Securities were originally issued
shall refer to the date the Initial Securities were originally issued; and
(10) whenever in this Indenture or the Securities it is provided that
the Accreted Value, the principal amount or the principal amount at
maturity with respect to a Security shall be paid, such provision shall be
deemed to require (whether or not so expressly stated) the simultaneous
payment of any accrued and unpaid interest to the date of payment on such
Security payable pursuant to paragraph 1 of the Securities.
ARTICLE 2
The Securities
--------------
SECTION 2.01. Form and Dating. Provisions relating to the Initial
----------------
Securities, the Private Exchange Securities and the Exchange Securities are set
forth in the Rule 144A/Regulation S Appendix attached hereto (the "Appendix")
which is hereby incorporated in and expressly made part of this Indenture. The
Initial Securities and the
<PAGE>
60
Trustee's certificate of authentication shall be substantially in the form of
Exhibit 1 to the Appendix which is hereby incorporated in and expressly made a
part of this Indenture. The Exchange Securities, the Private Exchange Securities
and the Trustee's certificate of authentication shall be substantially in the
form of Exhibit A, which is hereby incorporated in and expressly made a part of
this Indenture. The Securities may have notations, legends or endorsements
required by law, stock exchange rule, agreements to which the Company is
subject, if any, or usage (provided that any such notation, legend or
--------
endorsement is in a form acceptable to the Company). Each Security shall be
dated the date of its authentication. The terms of the Securities set forth in
the Appendix and Exhibit A are part of the terms of this Indenture.
SECTION 2.02. Execution and Authentication. Two Officers shall sign
-----------------------------
the Securities for the Company by manual or facsimile signature. The Company's
seal shall be impressed, affixed, imprinted or reproduced on the Securities and
may be in facsimile form.
If an Officer whose signature is on a Security no longer holds that
office at the time the Trustee authenticates the Security, the Security shall
be valid nevertheless.
A Security shall not be valid until an authorized signatory of the
Trustee manually signs the certificate of authentication on the Security. The
signature shall be conclusive evidence that the Security has been authenticated
under this Indenture.
<PAGE>
59
The Trustee may appoint an authenticating agent reasonably acceptable
to the Company to authenticate the Securities. Unless limited by the terms of
such appointment, an authenticating agent may authenticate Securities whenever
the Trustee may do so. Each reference in this Indenture to authentication by
the Trustee includes authentication by such agent. An authenticating agent has
the same rights as any Registrar, Paying Agent or agent for service of notices
and demands.
SECTION 2.03. Registrar and Paying Agent. The Company shall maintain
---------------------------
an office or agency where Securities may be presented for registration of
transfer or for exchange (the "Registrar") and an office or agency where
Securities may be presented for payment (the "Paying Agent"). The Registrar
shall keep a register of the Securities and of their transfer and exchange.
The Company may have one or more co-registrars and one or more additional paying
agents. The term "Paying Agent" includes any additional paying agent.
The Company shall enter into an appropriate agency agreement with any
Registrar, Paying Agent or co-registrar not a party to this Indenture, which
shall incorporate the terms of the TIA. The agreement shall implement the
provisions of this Indenture that relate to such agent. The Company shall notify
the Trustee of the name and address of any such agent. If the Company fails to
maintain a Registrar or Paying Agent, the Trustee shall act as such and shall
be entitled to appropriate compensation therefor pursuant to Section 7.07. The
Company or any of its domestically incorporated Wholly Owned Subsidiaries may
act as Paying Agent, Registrar, co-registrar or transfer agent.
<PAGE>
60
The Company initially appoints the Trustee as Registrar and Paying
Agent in connection with the Securities.
SECTION 2.04. Paying Agent To Hold Money in Trust. Prior to each due
------------------------------------
date of the principal and interest on any Security, the Company shall deposit
with the Paying Agent a sum sufficient to pay such principal and interest when
so becoming due. If on any date on which principal of or interest on a Security
is due the Company shall be required to pay additional interest resulting from a
Registration Default, then the Company shall certify by an Officers' Certificate
delivered to the Trustee as to the amount of such interest payable on each
Security. The Company shall require each Paying Agent (other than the Trustee)
to agree in writing that the Paying Agent shall hold in trust for the benefit of
Securityholders or the Trustee all money held by the Paying Agent for the
payment of principal of or interest on the Securities and shall notify the
Trustee of any default by the Company in making any such payment. If the
Company or a Subsidiary acts as Paying Agent, it shall segregate the money held
by it as Paying Agent and hold it as a separate trust fund. The Company at any
time may require a Paying Agent to pay all money held by it to the Trustee and
to account for any funds disbursed by the Paying Agent. Upon complying with
this Section, the Paying Agent shall have no further liability for the money
delivered to the Trustee.
SECTION 2.05. Securityholder Lists. The Trustee shall preserve in as
---------------------
current a form as is reasonably practicable the most recent list available to
it of the names and addresses of Securityholders. If the Trustee is not the
Registrar, the Company shall furnish to the Trustee, in writing at least five
Business Days before each interest payment date and at such other times as the
Trustee may request in writing, a list in such form and as of such date
<PAGE>
61
as the Trustee may reasonably require of the names and addresses of
Securityholders.
SECTION 2.06. Transfer and Exchange. The Securities shall be issued
----------------------
in registered form and shall be transferable only upon the surrender of a
Security for registration of transfer. When a Security is presented to the
Registrar or a co-registrar with a request to register a transfer, the Registrar
shall register the transfer as requested if the Security is duly endorsed or
accompanied by a written instrument of transfer, duly executed by the Holder
thereof and the requirements of Section 8-401(1) of the Uniform Commercial Code
are met. When Securities are presented to the Registrar or a co-registrar with
a request to exchange them for an equal principal amount at maturity of
Securities of other denominations, the Registrar shall make the exchange as
requested if the same requirements are met. To permit registration of transfers
and exchanges, the Company shall execute and the Trustee shall authenticate
Securities at the Registrar's or co-registrar's request. The Company may require
payment of a sum sufficient to pay all taxes, assessments or other governmental
charges in connection with any transfer or exchange pursuant to this Section.
The Company shall not be required to make and the Registrar need not register
transfers or exchanges of Securities selected for redemption (except, in the
case of Securities to be redeemed in part, the portion thereof not to be
redeemed) or any Securities for a period of 15 days before a selection of
Securities to be redeemed or 15 days before an interest payment date.
Prior to the due presentation for registration of transfer of any
Security, the Company, the Trustee, the Paying Agent, the Registrar or any co-
registrar may deem and treat the person in whose name a Security is registered
as the absolute owner of such Security for the purpose of receiving payment of
principal of and interest on such Security and for all other purposes
whatsoever, whether or
<PAGE>
62
not such Security is overdue, and none of the Company, the Trustee, the Paying
Agent, the Registrar or any co-registrar shall be affected by notice to the
contrary.
All Securities issued upon any transfer or exchange pursuant to the
terms of this Indenture will evidence the same debt and will be entitled to the
same benefits under this Indenture as the Securities surrendered upon such
transfer or exchange.
SECTION 2.07. Replacement Securities. If a mutilated Security is
-----------------------
surrendered to the Registrar or if the Holder of a Security claims that the
Security has been lost, destroyed or wrongfully taken, the Company shall issue
and the Trustee shall authenticate a replacement Security if the requirements of
Section 8-405 of the Uniform Commercial Code are met and the Holder satisfies
any other reasonable requirements of the Trustee. If required by the Trustee or
the Company, such Holder shall furnish an indemnity bond sufficient in the
judgment of the Company and the Trustee to protect the Company, the Trustee, the
Paying Agent, the Registrar and any co-registrar from any loss which any of them
may suffer if a Security is replaced. The Company and the Trustee may charge
the Holder for their expenses in replacing a Security.
Every replacement Security is an additional obligation of the Company.
SECTION 2.08. Outstanding Securities. Securities outstanding at any
-----------------------
time are all Securities authenticated by the Trustee except for those canceled
by it, those delivered to it for cancelation and those described in this Section
as not outstanding. A Security does not cease to be outstand
<PAGE>
63
ing because the Company or an Affiliate of the Company holds the Security.
If a Security is replaced pursuant to Section 2.07, it ceases to be
outstanding unless the Trustee and the Company receive proof satisfactory to
them that the replaced Security is held by a bona fide purchaser.
If the Paying Agent segregates and holds in trust, in accordance with
this Indenture, on a redemption date or maturity date money sufficient to pay
all principal and interest payable on that date with respect to the Securities
(or portions thereof) to be redeemed or maturing, as the case may be, then on
and after that date such Securities (or portions thereof) cease to be
outstanding and interest on them ceases to accrue.
SECTION 2.09. Temporary Securities. Until definitive Securities are
---------------------
ready for delivery, the Company may prepare and the Trustee shall authenticate
temporary Securities. Temporary Securities shall be substantially in the form
of definitive Securities but may have variations that the Company considers
appropriate for temporary Securities. Without unreasonable delay, the Company
shall prepare and the Trustee shall authenticate definitive Securities and
deliver them in exchange for temporary Securities.
SECTION 2.10. Cancelation. The Company at any time may deliver
------------
Securities to the Trustee for cancelation. The Registrar and the Paying Agent
shall forward to the Trustee any Securities surrendered to them for registration
of transfer, exchange or payment. The Trustee and no one else shall cancel and
destroy (subject to the record reten
<PAGE>
64
tion requirements of the Exchange Act) all Securities surrendered for
registration of transfer, exchange, payment or cancelation and deliver a
certificate of such destruction to the Company unless the Company directs the
Trustee to deliver canceled Securities to the Company. The Company may not issue
new Securities to replace Securities it has redeemed, paid or delivered to the
Trustee for cancelation.
SECTION 2.11. Defaulted Interest. If the Company defaults in a
-------------------
payment of interest on the Securities, the Company shall pay defaulted interest
(plus interest on such defaulted interest to the extent lawful) in any lawful
manner. The Company may pay the defaulted interest to the persons who are
Securityholders on a subsequent special record date. The Company shall fix or
cause to be fixed any such special record date and payment date to the
reasonable satisfaction of the Trustee and shall promptly mail to each
Securityholder a notice that states the special record date, the payment date
and the amount of defaulted interest to be paid.
SECTION 2.12. CUSIP Numbers. The Company in issuing the Securities
----------------
may use "CUSIP" numbers (if then generally in use) and, if so, the Trustee shall
use "CUSIP" numbers in notices of redemption as a convenience to Holders;
provided, however, that any such notice may state that no representation is made
- -------- -------
as to the correctness of such numbers either as printed on the Securities or as
contained in any notice of a redemption and that reliance may be placed only on
the other identification numbers printed on the Securities, and any such
redemption shall not be affected by any defect in or omission of such numbers.
ARTICLE 3
<PAGE>
65
Redemption
----------
SECTION 3.01. Notices to Trustee. If the Company elects to redeem
-------------------
Securities pursuant to paragraph 5 of the Securities, it shall notify the
Trustee in writing of the redemption date and the principal amount at maturity
of Securities to be redeemed.
The Company shall give each notice to the Trustee provided for in this
Section at least 60 days before the redemption date unless the Trustee consents
to a shorter period. Such notice shall be accompanied by an Officers'
Certificate and an Opinion of Counsel from the Company to the effect that such
redemption will comply with the conditions herein.
SECTION 3.02. Selection of Securities To Be Redeemed. If fewer than
---------------------------------------
all the Securities are to be redeemed, the Trustee shall select the Securities
to be redeemed pro rata or by lot or by a method that complies with applicable
legal and securities exchange requirements, if any, and that the Trustee in its
sole discretion shall deem to be fair and appropriate and in accordance with
methods generally used at the time of selection by fiduciaries in similar
circumstances. The Trustee shall make the selection from outstanding Securities
not previously called for redemption. The Trustee may select for redemption
portions of the principal amount at maturity of Securities that have
denominations larger than $1,000. Securities and portions of them the Trustee
selects shall be in amounts of principal amount at maturity of $1,000 or a whole
multiple of $1,000. Provisions of this Indenture that apply to Securities
called for redemption also apply to portions of Securities called for
redemption. The Trustee
<PAGE>
66
shall notify the Company promptly of the Securities or portions of Securities
to be redeemed.
SECTION 3.03. Notice of Redemption. At least 30 days but not more
---------------------
than 60 days before a date for redemption of Securities, the Company shall mail
a notice of redemption by first-class mail to each Holder of Securities to be
redeemed at such Holder's registered address.
The notice shall identify the Securities to be redeemed and shall
state:
(1) the redemption date;
(2) the redemption price;
(3) the name and address of the Paying Agent;
(4) that Securities called for redemption must be surrendered to the
Paying Agent to collect the redemption price;
(5) if fewer than all the outstanding Securities are to be redeemed,
the identification and principal amounts at maturity of the particular
Securities to be redeemed and if any Security is being redeemed in part,
the portion of the principal amount at maturity of such Security to be
redeemed and that after the redemption
<PAGE>
67
date and upon surrender of such Security a new Security or Securities will
be issued having a principal amount at maturity equal to the principal
amount at maturity of the Security surrendered less the principal amount at
maturity of the portion of the Security redeemed;;
(6) that, unless the Company defaults in making such redemption
payment, the Accreted Value of the Securities (or portion thereof) called
for redemption ceases to increase, and interest, if any, on Securities (or
portion thereof) called for redemption ceases to accrue, in each case on
and after the redemption date; and
(7) that no representation is made as to the correctness or accuracy
of the CUSIP number, if any, listed in such notice or printed on the
Securities.
At the Company's request, the Trustee shall give the notice of
redemption in the Company's name and at the Company's expense. In such event,
the Company shall provide the Trustee with the information required by this
Section.
SECTION 3.04. Effect of Notice of Redemption. Once notice of
-------------------------------
redemption is mailed, Securities called for redemption become due and payable on
the redemption date and at the redemption price stated in the notice. Upon
surrender to the Paying Agent, such Securities shall be paid at the redemption
price stated in the notice, plus accrued interest to the redemption date
(subject to the right of Holders of record on the relevant record date to
receive interest due on the related interest payment date). Failure to give
notice or any defect in the notice to any Holder
<PAGE>
68
shall not affect the validity of the notice to any other Holder.
SECTION 3.05. Deposit of Redemption Price. Prior to the redemption
----------------------------
date, the Company shall deposit with the Paying Agent (or, if the Company or a
Subsidiary is the Paying Agent, shall segregate and hold in trust) money
sufficient to pay the redemption price of and accrued inter est on all
Securities to be redeemed on that date other than Securities or portions of
Securities called for redemption which have been delivered by the Company to the
Trustee for cancelation.
SECTION 3.06. Securities Redeemed in Part. Upon surrender of a
----------------------------
Security that is redeemed in part, the Company shall execute and the Trustee
shall authenticate for the Holder (at the Company's expense) a new Security
equal in principal amount at maturity to the unredeemed portion of the Security
surrendered.
ARTICLE 4
Covenants
---------
SECTION 4.01. Payment of Securities. The Company shall promptly pay
----------------------
the principal of and interest on the Securities on the dates and in the manner
provided in the Securities and in this Indenture. Principal and interest shall
be considered paid on the date due if on such date the Trustee or the Paying
Agent holds in accordance with this
<PAGE>
69
Indenture money sufficient to pay all principal and interest then due.
The Company shall pay interest on overdue principal at the rate
specified therefor in the Securities, and it shall pay interest on overdue
installments of interest at the same rate to the extent lawful.
SECTION 4.02. SEC Reports. Notwithstanding that the Company may not
------------
be subject to the reporting requirements of Section 13 or 15(d) of the Exchange
Act, the Company shall file with the SEC and provide the Trustee and Noteholders
with such annual reports and such information, documents and other reports as
are specified in Sections 13 and 15(d) of the Exchange Act and applicable to a
U.S. corporation subject to such Sections, such information, documents and other
reports to be so filed and provided at the times specified for the filing of
such information, documents and reports under such Sections if it were subject
thereto (unless the SEC will not accept such a filing, in which case the Company
shall provide such documents to the Trustee). In addition, for so long as any
of the Initial Securities or Private Exchange Securities are outstanding, the
Company will make available to any prospective purchaser of the Initial
Securities or Private Exchange Securities or beneficial owner thereof (upon
written request to the Company) in connection with any sales thereof the
information required by Rule 144A(d)(4) under the Securities Act.
SECTION 4.03. Limitation on Indebtedness. (a) The Company shall not
---------------------------
Incur, and shall not permit any of its Restricted Subsidiaries to Incur,
directly or indirectly, any Indebtedness, except that the Company may Incur
Indebtedness if, on the date of such Incurrence and after giving effect thereto,
the Consolidated Leverage Ratio
<PAGE>
70
would be less than 6.0 to 1.0, for Indebtedness Incurred prior to or on December
31, 1999, and less than 5.0 to 1.0 for Indebtedness Incurred thereafter.
(b) Notwithstanding Section 4.03(a), the Company and (except as
specified below) any Restricted Subsidiary may Incur any or all of the following
Indebtedness:
(1) Indebtedness Incurred pursuant to the Credit Agreement; provided,
--------
however, that the aggregate amount of such Indebtedness, when taken
-------
together with all other Indebtedness Incurred pursuant to this clause (1)
and then outstanding, does not exceed the remainder of (x) $50 million
minus (y) the sum of all principal payments with respect to the permanent
retirement of such Indebtedness pursuant to Section 4.06(a)(ii)(A);
(2) Indebtedness owed to and held by the Company or a Restricted
Subsidiary; provided, however, that any subsequent issuance or transfer of
-------- -------
any Capital Stock which results in any such Restricted Subsidiary ceasing
to be a Restricted Subsidiary or any subsequent transfer of such
Indebtedness (other than to the Company or another Restricted Subsidiary)
shall be deemed, in each case, to constitute the Incurrence of such
Indebtedness by the issuer thereof;
(3) the Initial Securities to be issued on the Issue Date and the
Exchange Notes;
<PAGE>
71
(4) Indebtedness outstanding on the Issue Date (other than
Indebtedness described in clause (1), (2) or (3) of this Section 4.03(b));
(5) Refinancing Indebtedness in respect of Indebtedness Incurred
pursuant to Section 4.03(a) or pursuant to clause (3), (4), (5), (7), (8)
or (11) of this Section 4.03(b); provided, however, that to the extent such
-------- -------
Refinancing Indebtedness directly or indirectly Refinances Indebtedness of
a Restricted Subsidiary described in such clause (11), such Refinancing
Indebtedness shall be Incurred only by such Restricted Subsidiary;
(6) Hedging Obligations consisting of Interest Rate Agreements
directly related to Indebtedness permitted to be Incurred by the Company or
any Restricted Subsidiary pursuant to Section 4.03(a) or (b);
(7) Indebtedness, including Indebtedness of a Restricted Subsidiary
Incurred and outstanding on or prior to the date on which such Subsidiary
was acquired by the Company, Incurred to finance the cost (including the
cost of design, development, acquisition, construction, installation,
improvement, transportation or integration) to acquire equipment, inventory
or network assets (including real estate) (including acquisitions by way of
capital lease and acquisitions of the Capital Stock of a Person that
becomes a Restricted Subsidiary to the extent of the fair market value of
the equipment, inventory or networks assets so acquired) by the Company or
a Restricted Subsidiary after the Issue Date for use in a Related Business;
<PAGE>
72
(8) Indebtedness of the Company in an amount which, when taken
together with the amount of Indebtedness Incurred pursuant to this clause
(8) and then outstanding, does not exceed two times the Net Cash Proceeds
received by the Company after the Issue Date as a capital contribution
from, or from the issuance and sale of its Capital Stock (other than
Disqualified Stock) to, a Person that is not a Subsidiary of the Company,
to the extent such Net Cash Proceeds have not been used pursuant to Section
4.04(a)(3)(B) or Section 4.04(b)(i) to make a Restricted Payment; provided,
--------
however, that such Indebtedness does not mature prior to the Stated
-------
Maturity of the Securities and has an Average Life longer than the Average
Life of the Securities;
(9) Indebtedness in respect of performance, surety or appeal bonds or
similar obligations, in each case Incurred in the ordinary course of
business of the Company and its Restricted Subsidiaries and Indebtedness
due and owing to governmental entities in connection with any licenses and
franchises issued by a governmental entity and necessary or desirable to
conduct a Related Business;
(10) Guarantees of the Securities issued by any Restricted Subsidiary;
(11) Indebtedness of a Restricted Subsidiary Incurred and outstanding
on or prior to the date on which such Subsidiary was acquired by the
Company (other than Indebtedness Incurred in connection with, or to provide
all or any portion of the funds or credit support utilized to consummate,
the transaction or series of related transactions pursuant to which such
<PAGE>
73
Subsidiary became a Subsidiary or was acquired by the Company); provided,
--------
however, that on the date of such acquisition and after giving effect
-------
thereto, the Company would have been able to Incur at least $1.00 of
additional Indebtedness pursuant to Section 4.03(a); and
(12) Indebtedness Incurred in an aggregate amount which, when taken
together with the aggregate amount of all other Indebtedness of the Company
and its Restricted Subsidiaries outstanding on the date of such Incurrence
(other than Indebtedness permitted by clauses (1) through (11) of this
Section 4.03 or Section 4.03(a)) does not exceed the greater of (a) $10
million and (b) an amount equal to 5% of the Company's Consolidated Net
Tangible Assets as of such date.
(c) Notwithstanding the foregoing, the Company shall not Incur any
Indebtedness pursuant to Section 4.03(b) if the proceeds thereof are used,
directly or indirectly, to Refinance any Subordinated Obligations unless such
Indebtedness shall be subordinated to the Securities to at least the same extent
as such Subordinated Obligations.
(d) For purposes of determining compliance with this Section 4.03,
(i) in the event that an item of Indebtedness meets the criteria of more than
one of the types of Indebtedness described in Section 4.03(a) or (b), the
Company, in its sole discretion, will classify such item of Indebtedness and
only be required to include the amount and type of such Indebtedness in one of
the above clauses and (ii) an item of Indebtedness may be divided and classified
in more than one of the types of Indebtedness described in Section 4.03(a) or
(b).
<PAGE>
74
(e) For the purposes of determining the amount of Indebtedness
outstanding at any time, Guarantees with respect to Indebtedness otherwise
included in the determination of such amount shall not be included.
SECTION 4.04. Limitation on Restricted Payments. (a) The Company
----------------------------------
shall not, and shall not permit any Restricted Subsidiary to, directly or
indirectly, make a Restricted Payment if at the time the Company or such
Restricted Subsidiary makes such Restricted Payment: (1) a Default shall have
occurred and be continuing (or would result therefrom); (2) the Company is not
able to Incur an additional $1.00 of Indebtedness pursuant to Section 4.03(a);
or (3) the aggregate amount of such Restricted Payment and all other Restricted
Payments (the amount of any Restricted Payment, if other than in cash, to be
determined in good faith by the Board of Directors and to be evidenced by a
resolution of such Board set forth in an Officer's Certificate delivered to the
Trustee) since the Issue Date would exceed the sum of, without duplication:
(A) the remainder of (x) cumulative EBITDA during the period (taken as
a single accounting period) beginning on the first day of the fiscal
quarter of the Company beginning after the Issue Date and ending on the
last day of the most recent fiscal quarter for which financial statements
have been made publicly available but in no event ending more than 135 days
prior to the date of such determination minus (y) the product of 1.5 times
cumulative Consolidated Interest Expense during such period;
(B) the aggregate Net Cash Proceeds received by the Company from the
issuance or sale of its Capital
<PAGE>
75
Stock (other than Disqualified Stock) subsequent to the Issue Date (other
than an issuance or sale to a Subsidiary of the Company and other than an
issuance or sale to an employee stock ownership plan or to a trust
established by the Company or any of its Subsidiaries for the benefit of
their employees);
(C) the amount by which Indebtedness of the Company is reduced on the
Company's balance sheet upon the conversion or exchange (other than by a
Subsidiary of the Company) subsequent to the Issue Date of any Indebtedness
of the Company convertible or exchangeable for Capital Stock (other than
Disqualified Stock) of the Company (less the amount of any cash, or the
fair value of any other property, distributed by the Company upon such
conversion or exchange); and
(D) an amount equal to the sum of (i) the net reduction in Investments
in Unrestricted Subsidiaries resulting from payments of interest,
dividends, repayments of loans or advances or other transfers of assets, in
each case to the Company or any Restricted Subsidiary from Unrestricted
Subsidiaries, and (ii) the portion (proportionate to the Company's equity
interest in such Subsidiary) of the fair market value of the net assets of
an Unrestricted Subsidiary at the time such Unrestricted Subsidiary is
designated a Restricted Subsidiary; provided, however, that the foregoing
-------- -------
sum shall not exceed, in the case of any Unrestricted Subsidiary, the
amount of Investments previously made (and treated as a Restricted Payment)
by the Company or any Restricted Subsidiary in such Unrestricted
Subsidiary.
(b) The provisions of Section 4.04(a) shall not prohibit:
<PAGE>
76
(i) any acquisition of any Capital Stock of the Company or any
Restricted Subsidiary or any purchase, repurchase, redemption, defeasance
or other acquisition or retirement for value of Subordinated Obligations
made out of the proceeds of the substantially concurrent sale of, or made
by exchange for, Capital Stock of the Company (other than Disqualified
Stock and other than Capital Stock issued or sold to a Subsidiary of the
Company or an employee stock ownership plan or to a trust established by
the Company or any of its Subsidiaries for the benefit of their employees);
provided, however, that (A) such acquisition of Capital Stock or of
-------- -------
Subordinated Obligations shall be excluded in the calculation of the amount
of Restricted Payments pursuant to Section 4.04(a)(3) and (B) the Net Cash
Proceeds from such sale shall be excluded from the calculation of amounts
under Section 4.04(a)(3)(B);
(ii) any purchase, repurchase, redemption, defeasance or other
acquisition or retirement for value of Subordinated Obligations in whole or
in part (including premium, if any, and accrued and unpaid interest) made
by exchange for, or out of the proceeds of the substantially concurrent
sale of, Indebtedness of the Company which is permitted to be Incurred
pursuant to Section 4.03; provided, however, that such purchase,
-------- -------
repurchase, redemption, defeasance or other acquisition or retirement for
value shall be excluded in the calculation of the amount of Restricted
Payments pursuant to Section 4.04(a)(3);
(iii) dividends paid within 60 days after the date of declaration
thereof if at such date of declaration such dividend would have complied
with this Section 4.04; provided, however, that at the time of payment of
-------- -------
such dividend, no other Default shall have
<PAGE>
77
occurred and be continuing (or result therefrom); provided further,
-------- -------
however, that such dividend shall be included in the calculation of the
-------
amount of Restricted Payments pursuant to Section 4.04(a)(3);
(iv) the purchase, redemption, retirement, repurchase or other
acquisition of shares of, or options to purchase shares of, Capital Stock
(other than Disqualified Stock) of the Company or Capital Stock (other than
Preferred Stock) of any of its Subsidiaries from employees, former
employees, directors or former directors of the Company or any of its
Subsidiaries (or permitted transferees of such employees, former employees,
directors or former directors including their estates or beneficiaries
under their estates), (a) upon their death, disability, retirement or
termination of employment or (b) otherwise pursuant to the terms of
agreements (including employment agreements) or plans (or amendments
thereto) approved by the Board of Directors under which such individuals
received such Capital Stock; provided, however, that the aggregate amount
-------- -------
of consideration paid for such purchases, redemptions, retirements,
repurchases and other acquisitions made pursuant to this clause (iv) shall
not exceed $500,000 in any calendar year; provided further, however, that
---------------- -------
such purchases, redemptions, retirements, repurchases and other
acquisitions pursuant to this clause (iv) shall be excluded in the
calculation of the amount of Restricted Payments pursuant to Section
4.04(a)(3);
(v) any purchase or redemption of Subordinated Obligations in whole
or in part (including premium, if any, and accrued and unpaid interest)
from Net Available Cash to the extent permitted by Section 4.06; provided,
--------
however, that such purchase or redemption shall be excluded in the
-------
calculation of the amount of Restricted Payments pursuant to Section
4.04(a)(3) ;
<PAGE>
78
(vi) the purchase, redemption, acquisition, cancelation or other
retirement for value of shares of Capital Stock of the Company or any of
its Restricted Subsidiaries to the extent necessary, as determined in good
faith by a majority of the disinterested members of the Board of Directors,
to prevent the loss or to secure the renewal or reinstatement of any
license or franchise held by the Company or any Restricted Subsidiary from
any governmental entity; provided, however, that such purchase or
-------- -------
redemption shall be included in the calculation of the amount of Restricted
Payments pursuant to Section 4.04(a)(3);
(vii) any purchase or redemption of Subordinated Obligations or
Preferred Stock following a Change of Control pursuant to an obligation in
the instruments governing such Subordinated Obligations or Preferred Stock
to purchase or redeem such Subordinated Obligations or Preferred Stock as a
result of such Change of Control; provided, however, that no such purchase
-------- -------
or redemption shall be permitted until the Company has completely
discharged its obligations described under Section 4.09 (including the
purchase of all Securities tendered for purchase by holders) arising as a
result of such Change of Control; provided further, however, that such
---------------- -------
purchase or redemption shall be included in the calculation of the amount
of Restricted Payments pursuant to Section 4.04(a)(3); or
(viii) cash dividends paid after February 15, 2003 in respect of the
Exchangeable Preferred Stock in an aggregate amount in any twelve month
period not to exceed 13-3/4% of the aggregate liquidation preference
outstanding at the beginning of such twelve month period; provided,
--------
however, that at the time of payment of any such dividends, no Default
-------
shall have occurred
<PAGE>
79
and be continuing; provided further, however, that all such dividends shall
---------------- -------
be included in the calculation of the amount of Restricted Payments
pursuant to Section 4.04(a)(3).
SECTION 4.05. Limitation on Restrictions on Distributions from
------------------------------------------------
Restricted Subsidiaries. The Company shall not, and shall not permit any
- ------------------------
Restricted Subsidiary to, create or otherwise cause or permit to exist or become
effective any consensual encumbrance or restriction on the ability of any
Restricted Subsidiary to (a) pay dividends or make any other distributions on
its Capital Stock to the Company or a Restricted Subsidiary, (b) pay any
Indebtedness owed to the Company, (c) make any loans or advances to the Company
or (d) transfer any of its property or assets to the Company, except:
(i) any encumbrance or restriction pursuant to this Indenture, the
Exchangeable Preferred Stock or any other agreement in effect at or entered
into on the Issue Date;
(ii) any encumbrance or restriction with respect to a Restricted
Subsidiary pursuant to an agreement relating to any Indebtedness Incurred
by such Restricted Subsidiary on or prior to the date on which such
Restricted Subsidiary was acquired by the Company (other than Indebtedness
Incurred as consideration in, or to provide all or any portion of the funds
or credit support utilized to consummate, the transaction or series of
related transactions pursuant to which such Restricted Subsidiary became a
Restricted Subsidiary or was acquired by the Company) and outstanding on
such date;
<PAGE>
80
(iii) any encumbrance or restriction pursuant to an agreement
effecting a Refinancing of Indebtedness Incurred pursuant to an agreement
or instrument referred to in clause (i) or (ii) of this Section 4.05 or
this clause (iii) or contained in any amendment to an agreement or
instrument referred to in clause (i) or (ii) of this Section 4.05 or this
clause (iii); provided, however, that the encumbrances and restrictions
-------- -------
with respect to such Restricted Subsidiary contained in any such
refinancing agreement or amendment are no less favorable to the
Securityholders than encumbrances and restrictions with respect to such
Restricted Subsidiary contained in such predecessor agreements;
(iv) any such encumbrance or restriction consisting of customary non-
assignment or anti-alienation provisions in (a) leases governing leasehold
interests to the extent such provisions restrict the transfer of the lease
or the property leased thereunder or subletting and (b) licenses or
franchises to the extent such provisions restrict the transfer of the
license or franchise;
(v) in the case of clause (d) above, restrictions contained in
security agreements or mortgages securing Indebtedness of a Restricted
Subsidiary to the extent such restrictions restrict the transfer of the
property subject to such security agreements or mortgages;
(vi) any restriction with respect to a Restricted Subsidiary imposed
pursuant to an agreement entered into for the sale or disposition of all or
substantially all the Capital Stock or assets of such
<PAGE>
81
Restricted Subsidiary pending the closing of such sale or disposition; and
(vii) any encumbrance or restriction contained in the terms of any
Indebtedness or any agreement pursuant to which such Indebtedness was
Incurred if the Board of Directors determines in good faith that any such
encumbrance or restriction will not materially affect the Company's ability
to pay principal or interest on the Securities when due and such
encumbrance or restriction by its terms expressly permits such Restricted
Subsidiary, (A) in the absence of a payment default in respect of such
Indebtedness or other agreement, to make cash payments to the Company (in
any form) sufficient to pay when due all amounts of principal and interest
on the Securities and (B) following the occurrence and during the
continuance of a payment default in respect of such Indebtedness or other
agreement, to resume making cash payments to the Company (in any form)
sufficient to pay when due all amounts of principal and interest on the
Securities upon the earlier of the cure of such payment default and the
lapse of 179 consecutive days following the date when such encumbrance or
restriction became operative to prohibit or limit such Restricted
Subsidiary from making such payments to the Company; provided, however,
-------- -------
that no Restricted Subsidiary shall be affected by the operation of any
such encumbrances or restrictions following the occurrence of a payment
default on more than one occasion in any consecutive 360-day period.
SECTION 4.06. Limitation on Sales of Assets and Subsidiary Stock.
---------------------------------------------------
(a) The Company shall not, and shall not permit any Restricted Subsidiary to,
directly or indirectly, consummate any Asset Disposition unless (i) the Company
or such Restricted Subsidiary receives consideration at the time of such Asset
Disposition at least equal to the fair
<PAGE>
82
market value (including the value of all non-cash consideration), as determined
in good faith by the Board of Directors, of the shares and assets subject to
such Asset Disposition and at least 75% of the consideration thereof received by
the Company or such Restricted Subsidiary is in the form of cash or cash
equivalents and (ii) an amount equal to 100% of the Net Available Cash from such
Asset Disposition is applied by the Company (or such Restricted Subsidiary, as
the case may be)
(A) first, to the extent the Company elects in its sole discretion (or
-----
is required by the terms of any Indebtedness), to prepay, repay, redeem or
purchase Senior Indebtedness or Indebtedness (other than any Disqualified
Stock) of a Restricted Subsidiary (in each case other than Indebtedness
owed to the Company or an Affiliate of the Company) within one year from
the later of the date of such Asset Disposition or the receipt of such Net
Available Cash;
(B) second, to the extent of the balance of such Net Available Cash
------
after application in accordance with clause (A) of this Section 4.06(a), to
the extent the Company elects in its sole discretion, to acquire Additional
Assets within one year after the receipt of such Net Available Cash;
(C) third, to the extent of the balance of such Net Available Cash
-----
after application in accordance with clauses (A) and (B) of this Section
4.06(a), to make an offer to the holders of the Securities (and to holders
of other Senior Indebtedness designated by the Company) to purchase
Securities (and such other Senior Indebtedness) pursuant to and subject to
the conditions contained in Section 4.06(b); and
<PAGE>
83
(D) fourth, to the extent of the balance of such Net Available Cash
------
after application in accordance with clauses (A), (B) and (C) of this
Section 4.06(a), for the general corporate and working capital purposes of
the Company and its Restricted Subsidiaries;
provided, however, that in connection with any prepayment, repayment or purchase
- -------- -------
of Indebtedness pursuant to clause (A) or (C) of this Section 4.06(a), the
Company or such Restricted Subsidiary shall permanently retire such Indebtedness
and shall cause the related loan commitment (if any) to be permanently reduced
in an amount equal to the principal amount so prepaid, repaid or purchased.
Notwithstanding the foregoing provisions of this Section 4.06(a), the Company
and the Restricted Subsidiaries shall not be required to apply any Net Available
Cash in accordance with this Section 4.06(a) except to the extent that the
aggregate Net Available Cash from all Asset Dispositions occurring after the
Issue Date which are not applied in accordance with this Section 4.06(a) exceeds
$5 million. Pending application of Net Available Cash pursuant to this Section
4.06, such Net Available Cash shall be invested in Permitted Investments.
For the purposes of this Section 4.06, the following are deemed to be
cash or cash equivalents: (x) the assumption of Indebtedness of the Company or
any Restricted Subsidiary and the release of the Company or such Restricted
Subsidiary from all liability on such Indebtedness in connection with such Asset
Disposition, (y) securities received by the Company or any Restricted Subsidiary
from the transferee that are promptly converted by the Company or such
Restricted Subsidiary into cash; and (z) Temporary Cash Investments.
<PAGE>
84
(b) In the event of an Asset Disposition that requires the purchase
of the Securities (and other Senior Indebtedness) pursuant to Section
4.06(a)(ii)(C), the Company will be required to purchase Securities tendered
pursuant to an offer by the Company for the Securities (and other Senior
Indebtedness) at a purchase price of 100% of their Accreted Value (in the case
of Securities) or 100% of their principal amount (in the case of other Senior
Indebtedness) plus accrued but unpaid interest, if any, to the date of purchase
(or, in respect of such other Senior Indebtedness, such lesser price, if any, as
may be provided for by the terms of such Senior Indebtedness) in accordance with
the procedures (including prorating in the event of oversubscription) set forth
in Section 4.06(c). If the aggregate purchase price of Securities (and any
other Senior Indebtedness) tendered pursuant to such offer is less than the Net
Available Cash allotted to the purchase thereof, the Company will be required to
apply the remaining Net Available Cash in accordance with Section
4.06(a)(ii)(D). The Company shall not be required to make such an offer to
purchase Securities (and other Senior Indebtedness) pursuant to this Section
4.06 if the Net Available Cash available therefor is less than $5.0 million
(which lesser amount shall be carried forward for purposes of determining
whether such an offer is required with respect to the Net Available Cash from
any subsequent Asset Disposition).
(c) (1) Promptly, and in any event within 10 days after the Company
becomes obligated to make an Offer, the Company shall be obligated to deliver to
the Trustee and send, by first-class mail to each Holder, a written notice
stating that the Holder may elect to have his Securities purchased by the
Company either in whole or in part (subject to prorating as hereinafter
described in the event the Offer is oversubscribed) in integral multiples of
$1,000 of prin principal amount at maturity, at the applicable purchase price.
The notice shall specify a purchase date not less than 30 days nor more than 60
days after the date of such notice
<PAGE>
85
(the "Purchase Date") and shall contain such information concerning the business
of the Company which the Company in good faith believes will enable such Holders
to make an informed decision (which at a minimum will include (i) the most
recently filed Annual Report on Form 10-K (including audited consolidated
financial statements) of the Company, the most recent subsequently filed
Quarterly Report on Form 10-Q and any Current Report on Form 8-K of the Company
filed subsequent to such Quarterly Report, other than Current Reports describing
Asset Dispositions otherwise described in the offering materials (or
corresponding successor reports), (ii) a description of material developments in
the Company's business subsequent to the date of the latest of such Reports, and
(iii) if material, appropriate pro forma financial information) and all
instructions and materials necessary to tender Securities pursuant to the Offer,
together with the information contained in clause (3).
(2) Not later than the date upon which written notice of an Offer is
delivered to the Trustee as provided below, the Company shall deliver to the
Trustee an Officers' Certificate as to (i) the amount of the Offer (the "Offer
Amount"), (ii) the allocation of the Net Available Cash from the Asset
Dispositions pursuant to which such Offer is being made, (iii) the Accreted
Value of a Security on the Purchase Date and (iv) the compliance of such
allocation with the provisions of Section 4.06(a). On such date, the Company
shall also irrevocably deposit with the Trustee or with a paying agent (or, if
the Company is acting as its own paying agent, segregate and hold in trust) in
Temporary Cash Investments, maturing on the last day prior to the Purchase Date
or on the Purchase Date if funds are immediately available by open of business,
an amount equal to the Offer Amount to be held for payment in accordance with
the provi provisions of this Section. Upon the expiration of the period for
which the Offer remains open (the "Offer Period"), the Company shall deliver to
the Trustee for cancellation the Securities or portions thereof which have been
properly
<PAGE>
86
tendered to and are to be accepted by the Company. The Trustee shall, on the
Purchase Date, mail or deliver payment to each tendering Holder in the amount of
the purchase price. In the event that the aggregate purchase price of the
Securities delivered by the Company to the Trustee is less than the Offer Amount
applicable to the Securities, the Trustee shall deliver the excess to the
Company immediately after the expiration of the Offer Period for application in
accordance with this Section.
(3) Holders electing to have a Security purchased shall be required
to surrender the Security, with an appropriate form duly completed, to the
Company at the address specified in the notice at least three Business Days
prior to the Purchase Date. Holders shall be entitled to withdraw their
election if the Trustee or the Company receives not later than one Business Day
prior to the Purchase Date, a telex, facsimile transmission or letter setting
forth the name of the Holder, the principal amount at maturity of the Security
which was delivered for purchase by the Holder and a statement that such Holder
is withdrawing his election to have such Security purchased. If at the
expiration of the Offer Period the aggregate principal amount at maturity of
Securities (and any other Senior Indebtedness included in the Offer) surrendered
by holders thereof exceeds the Offer Amount, the Company shall select the
Securities and the other Senior Indebtedness to be purchased on a pro rata basis
(with such adjustments as may be deemed appropriate by the Company so that only
Securities and the other Senior Indebtedness in denominations of $1,000, or
integral multiples thereof, shall be purchased). Holders whose Securities are
purchased only in part shall be issued new Securities equal in principal amount
at maturity to the unpurchased portion of the Securities surrendered.
(4) At the time the Company delivers Securities to the Trustee which
are to be accepted for purchase, the Company shall also deliver an Officers'
Certificate stating
<PAGE>
87
that such Securities are to be accepted by the Company pursuant to and in
accordance with the terms of this Section. A Security shall be deemed to have
been accepted for purchase at the time the Trustee, directly or through an
agent, mails or delivers payment therefor to the surrendering Holder.
(d) The Company shall comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other securities laws
or regulations in connection with the repurchase of Securities pursuant to this
Section 4.06. To the extent that the provisions of any securities laws or
regulations conflict with provisions of this Section 4.06, the Company shall
comply with the applicable securities laws and regulations and shall not be
deemed to have breached its obligations under this Section 4.06 by virtue
thereof.
SECTION 4.07. Limitation on Affiliate Transactions. (a) The Company
-------------------------------------
shall not, and shall not permit any Restricted Subsidiary to, enter into or
permit to exist any transaction (including the purchase, sale, license, lease or
exchange of any property, employee compensation arrangements or the rendering of
any service) with any Affiliate of the Company (an "Affiliate Transaction")
unless the terms thereof (1) are no less favorable to the Company or such
Restricted Subsidiary than those that could be obtained at the time of such
transaction in arm's-length dealings with a Person who is not such an Affiliate,
(2) if such Affiliate Transaction involves an amount in excess of $1.0 million,
(i) are set forth in writing and (ii) have been approved by a majority of the
members of the Board of Directors having no personal stake in such Affiliate
Transaction and (3) if such Affiliate Transaction involves an amount in excess
of $5.0 million, have been determined by a nationally recognized investment
banking firm or other qualified appraiser under the relevant
<PAGE>
88
circumstances to be fair, from a financial standpoint, to the Company and its
Restricted Subsidiaries.
(b) The provisions of Section 4.07(a) shall not prohibit (i) any
Permitted Investment or any Restricted Payment permitted to be paid pursuant to
Section 4.04, (ii) any issuance of securities, or other payments, awards or
grants in cash, securities or otherwise pursuant to, or the funding of,
employment arrangements, stock options and stock ownership plans approved by the
Board of Directors, (iii) the grant of stock options or similar rights to
employees and directors of the Company pursuant to plans approved by the Board
of Directors, (iv) loans or advances to employees in the ordinary course of
business in accordance with the past practices of the Company or its Restricted
Subsidiaries, but in any event not to exceed $500,000 in the aggregate
outstanding at any one time, (v) the payment of reasonable fees to directors of
the Company and its Restricted Subsidiaries who are not employees of the Company
or its Restricted Subsidiaries, (vi) any Affiliate Transaction between the
Company and a Restricted Subsidiary or between Restricted Subsidiaries;
provided, however, that no beneficial owner (as defined in Rule 13d-1 and 13d-5
- -------- -------
of the Exchange Act) of 5% or more of the Capital Stock of the Company holds,
directly or indirectly, any Investments in any such Restricted Subsidiary (other
than indirectly through the Company), (vii) the issuance or sale of any Capital
Stock (other than Disqualified Stock) of the Company and (viii) any transaction
pursuant to an agreement or arrangement in effect on the Issue Date.
SECTION 4.08. Limitation on the Sale or Issuance of Capital Stock of
------------------------------------------------------
Certain Restricted Subsidiaries. The Company shall not sell or otherwise
- --------------------------------
dispose of any Capital Stock (other than Qualified Preferred Stock) of an
Existing Restricted Subsidiary, and shall not permit any Existing Restricted
Subsidiary, directly or indirectly, to issue or
<PAGE>
91
sell or otherwise dispose of any of its Capital Stock (other than Qualified
Preferred Stock), except (i) to the Company or a Wholly Owned Subsidiary, (ii)
if, immediately after giving effect to such issuance, sale or other disposition,
neither the Company nor any of its Subsidiaries own any Capital Stock of such
Restricted Subsidiary, (iii) if, immediately after giving effect to such
issuance, sale or other disposition, such Existing Restricted Subsidiary would
no longer constitute a Restricted Subsidiary and any Investment in such Person
remaining after giving effect thereto would have been permitted to be made under
Section 4.04 if made on the date of such issuance, sale or other disposition,
(iv) to directors of directors' qualifying shares of common stock of any
Restricted Subsidiary, to the extent mandated by applicable law, or (v) the
issuance or sale of Capital Stock of a Restricted Subsidiary that has a class of
equity security registered under Section 12 of the Exchange Act pursuant to an
employee stock option plan approved by the Board of Directors.
SECTION 4.09. Change of Control. (a) Upon the occurrence of a
------------------
Change of Control, each Holder shall have the right to require that the Company
repurchase such Holder's Securities at a purchase price in cash equal to 101% of
the Accreted Value thereof plus accrued and unpaid interest, if any, to the date
of purchase (subject to the right of holders of record on the relevant record
date to receive interest on the relevant interest payment date), in accordance
with the terms contemplated in Section 4.09(b).
(b) Within 30 days following any Change of Control, the Company shall
mail a notice to each Holder with a copy to the Trustee (the "Change of Control
Offer") stating:
<PAGE>
90
(1) that a Change of Control has occurred and that such Holder has the
right to require the Company to purchase such Holder's Securities at a
purchase price in cash equal to 101% of the Accreted Value thereof plus
accrued and unpaid interest, if any, to the date of purchase (subject to
the right of Holders of record on the relevant record date to receive
interest on the relevant interest payment date);
(2) the circumstances and relevant facts regarding such Change of
Control (including information with respect to pro forma historical income,
cash flow and capitalization, each after giving effect to such Change of
Control);
(3) the repurchase date (which shall be no earlier than 30 days nor
later than 60 days from the date such notice is mailed); and
(4) the instructions determined by the Company, consistent with this
Section, that a Holder must follow in order to have its Securities
purchased.
(c) Holders electing to have a Security purchased will be required to
surrender the Security, with an appropriate form duly completed, to the Company
at the address specified in the notice at least three Business Days prior to the
purchase date. Holders will be entitled to withdraw their election if the
Trustee or the Company receives not later than one Business Day prior to the
purchase date, a telegram, telex, facsimile transmission or letter setting forth
the name of the Holder, the principal amount at maturity of the Security which
was delivered for purchase by
<PAGE>
91
the Holder and a statement that such Holder is withdrawing his election to have
such Security purchased.
(d) On the purchase date, all Securities purchased by the Company
under this Section shall be delivered by the Trustee for cancelation, and the
Company shall pay the purchase price plus accrued and unpaid interest, if any,
to the Holders entitled thereto. Upon surrender of a Security that is
repurchased under this Section in part, the Company shall execute and the
Trustee shall authenticate for the Holder thereof (at the Company's expense) a
new Security having a principal amount at maturity equal to the principal amount
at maturity of the Security surrendered less the portion of the principal amount
at maturity of the Security purchased.
(e) Notwithstanding the foregoing provisions of this Section, the
Company will not be required to make a Change of Control Offer upon a Change of
Control if a third party makes the Change of Control Offer in the manner, at the
times and otherwise in compliance with the requirements set forth in this
Section applicable to a Change of Control Offer made by the Company and
purchases all Securities validly tendered and not withdrawn under such Change of
Control Offer.
(f) The Company shall comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other securities laws
or regulations in connection with the repurchase of Securities pursuant to this
Section. To the extent that the provisions of any securities laws or
regulations conflict with provisions of this Section, the Company shall comply
with the applicable securities laws and regulations and shall not be deemed to
have breached its obligations under this Section by virtue thereof.
<PAGE>
92
SECTION 4.10. Limitation on Liens. The Company shall not, and shall
-------------------
not permit any Restricted Subsidiary to, directly or indirectly, Incur or permit
to exist any Lien of any nature whatsoever on any of its properties (including
Capital Stock of a Restricted Subsidiary), whether owned at the Issue Date or
thereafter acquired, other than Permitted Liens, without effectively providing
that the Securities shall be secured equally and ratably with (or, if the
obligation or liability to be secured by such Lien is subordinated in respect of
payment to the Securities, prior to) the obligations so secured for so long as
such obligations are so secured; provided, however, that the Company and its
-------- -------
Restricted Subsidiaries may Incur other Liens to secure Indebtedness as long as
the amount of outstanding Indebtedness secured by Liens Incurred pursuant to
this proviso at any time does not exceed $5.0 million.
SECTION 4.11. Limitation on Sale/Leaseback Transactions. The Company
-----------------------------------------
shall not, and shall not permit any Restricted Subsidiary to, enter into any
Sale/Leaseback Transaction with respect to any property unless (i) the Company
or such Subsidiary would be entitled to (A) Incur Indebtedness in an amount
equal to the Attributable Debt with respect to such Sale/Leaseback Transaction
pursuant to Section 4.03 and (B) create a Lien on such property securing such
Attributable Debt without equally and ratably securing the Securities pursuant
to Section 4.10, (ii) the net proceeds received by the Company or any Restricted
Subsidiary in connection with such Sale/Leaseback Transaction are at least equal
to the fair value (as determined by the Board of Directors) of such property and
(iii) the Company applies the proceeds of such transaction in compliance with
Section 4.06.
<PAGE>
93
SECTION 4.12. Limitation on Market Swaps. The Company will not, and
---------------------------
will not permit any Restricted Subsidiary to, engage in any Market Swaps,
unless:
(i) at the time of entering into the agreement to swap markets and
immediately after giving effect to the proposed Market Swap, no Default
shall have occurred and be continuing;
(ii) the respective fair market values of the markets and other
assets (to be determined in good faith by the Board of Directors and to be
evidenced by a resolution of such Board set forth in an Officer's
Certificate delivered to the Trustee) being purchased and sold by the
Company or any of its Restricted Subsidiaries are substantially the same at
the time of entering into the agreement to swap markets; and
(iii) the cash payments, if any, received by the Company or such
Restricted Subsidiary in connection with such Market Swap are treated as
Net Available Cash received from an Asset Disposition.
SECTION 4.13. Limitation on Lines of Business. The Company shall not,
-------------------------------
and shall not permit any Restricted Subsidiary to, engage in any trade or
business other than a Related Business.
SECTION 4.14. Compliance Certificate. The Company shall deliver to
----------------------
the Trustee within 120 days after the end of each fiscal year of the Company an
Officers' Certificate stating that in the course of the performance by
<PAGE>
94
the signers of their duties as Officers of the Company they would normally have
knowledge of any Default and whether or not the signers know of any Default that
occurred during such period. If they do, the certificate shall describe the
Default, its status and what action the Company is taking or proposes to take
with respect thereto. The Company also shall comply with TIA . 314 (a) (4).
SECTION 4.15. Further Instruments and Acts. Upon request of the
----------------------------
Trustee, the Company will execute and deliver such further instruments and do
such further acts as may be reasonably necessary or proper to carry out more
effectively the purpose of this Indenture.
ARTICLE 5
Successor Company
-----------------
SECTION 5.01. When Company May Merge or Transfer Assets. The Company
------------------------------------------
shall not consolidate with or merge with or into, or convey, transfer or lease,
in one transaction or a series of transactions, all or substantially all its
assets to, any Person, unless:
(i) the resulting, surviving or transferee Person (the "Successor
Company") shall be a Person organized and existing under the laws of the
United States of America, any State thereof or the District of Columbia
<PAGE>
95
and the Successor Company (if not the Company) shall expressly assume, by
an indenture supplemental hereto, executed and delivered to the Trustee, in
form satisfactory to the Trustee, all the obligations of the Company under
the Securities and this Indenture;
(ii) immediately after giving effect to such transaction (and
treating any Indebtedness which becomes an obligation of the Successor
Company or any Subsidiary as a result of such transaction as having been
Incurred by such Successor Company or such Subsidiary at the time of such
transaction), no Default shall have occurred and be continuing,
(iii) immediately after giving effect to such transaction, the
Successor Company would be able to Incur an additional $1.00 of
Indebtedness pursuant to Section 4.03(a);
(iv) immediately after giving effect to such transaction, the
Successor Company shall have Consolidated Net Worth in an amount that is
not less than the Consolidated Net Worth of the Company immediately prior
to such transaction;
(v) the Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that such
consolidation, merger or transfer and such supplemental indenture (if any)
comply with this Indenture; and
<PAGE>
96
(vi) the Company shall have delivered to the Trustee an Opinion of
Counsel to the effect that the holders of the Securities will not recognize
income, gain or loss for Federal income tax purposes as a result of such
transaction and will be subject to Federal income tax on the same amounts,
in the same manner and at the same times as would have been the case if
such transaction had not occurred.
The Successor Company shall be the successor to the Company and shall
succeed to, and be substituted for, and may exercise every right and power of,
the Company under the Indenture, but the predecessor Company in the case of a
conveyance, transfer or lease shall not be released from the obligation to pay
the principal of and interest on the Securities.
ARTICLE 6
Defaults and Remedies
---------------------
SECTION 6.01. Events of Default. An "Event of Default" occurs if:
------------------
(1) the Company defaults in any payment of interest on any Security
when the same becomes due and payable, and such default continues for a
period of 30 days;
<PAGE>
97
(2) the Company (i) defaults in the payment of the principal of any
Security when the same becomes due and payable at its Stated Maturity, upon
optional redemption, upon required repurchase, upon declaration or
otherwise, or (ii) fails to redeem or purchase Securities when required
pursuant to this Indenture or the Securities;
(3) the Company fails to comply with Section 5.01;
(4) the Company fails to comply with Section 4.02, 4.03, 4.04, 4.05,
4.06, 4.07, 4.08, 4.09, 4.10, 4.11, 4.12 or 4.13 (other than a failure to
purchase Securities when required under Section 4.06 or 4.09) and such
failure continues for 30 days after the notice specified below;
(5) the Company fails to comply with any of its agreements in the
Securities or this Indenture (other than those referred to in clause (1),
(2), (3) or (4) above) and such failure continues for 60 days after the
notice specified below;
(6) Indebtedness of the Company or any Significant Subsidiary is not
paid within any applicable grace period after final maturity or is
accelerated by the holders thereof because of a default and the total
amount of such Indebtedness unpaid or accelerated exceeds $10.0 million, or
its foreign currency equivalent at the time and such non-payment continues,
or such acceleration is not rescinded, for 10 days after the notice
specified below;
<PAGE>
98
(7) the Company or any Significant Subsidiary pursuant to or within
the meaning of any Bankruptcy Law:
(A) commences a voluntary case;
(B) consents to the entry of an order for relief against it in an
involuntary case;
(C) consents to the appointment of a Custodian of it or for any
substantial part of its property; or
(D) makes a general assignment for the benefit of its creditors;
or takes any comparable action under any foreign laws relating to
insolvency;
(8) a court of competent jurisdiction enters an order or decree under
any Bankruptcy Law that:
(A) is for relief against the Company or any Significant
Subsidiary in an involuntary case;
<PAGE>
99
(B) appoints a Custodian of the Company or any Significant
Subsidiary or for any substantial part of its property; or
(C) orders the winding up or liquidation of the Company or any
Significant Subsidiary;
or any similar relief is granted under any foreign laws and the order or
decree remains unstayed and in effect for 60 days; or
(9) any judgment or decree for the payment of money in excess of
$10.0 million or its foreign currency equivalent at the time is entered
against the Company or any Significant Subsidiary, remains outstanding for
a period of 60 days following the entry of such judgment or decree and is
not discharged, waived or the execution thereof stayed within 10 days after
the notice specified below.
The foregoing will constitute Events of Default whatever the reason
for any such Event of Default and whether it is voluntary or involuntary or is
effected by operation of law or pursuant to any judgment, decree or order of any
court or any order, rule or regulation of any administrative or governmental
body.
The term "Bankruptcy Law" means Title 11, United States Code, or any
------------------
similar Federal or state law for the relief of debtors. The term "Custodian"
means any receiver, trustee, assignee, liquidator, custodian or similar official
under any Bankruptcy Law.
<PAGE>
100
A Default under clauses (4), (5), (6) or (9) is not an Event of
Default until the Trustee or the holders of at least 25% in principal amount at
maturity of the outstanding Securities notify the Company of the Default and the
Company does not cure such Default within the time specified after receipt of
such notice. Such notice must specify the Default, demand that it be remedied
and state that such notice is a "Notice of Default".
The Company shall deliver to the Trustee, within 30 days after the
Company becomes aware of the occurrence thereof, written notice in the form of
an Officers' Certificate of any event which with the giving of notice or the
lapse of time would become an Event of Default under clause (4), (5), (6) or
(9), its status and what action the Company is taking or proposes to take with
respect thereto.
The Trustee shall not be deemed to have knowledge of a Default
hereunder unless a Trust Officer administering this Indenture has actual
knowledge thereof or the Company has delivered written notice thereof in
accordance with this Indenture.
SECTION 6.02. Acceleration. If an Event of Default (other than an
-------------
Event of Default specified in Section 6.01(7) or (8) with respect to the
Company) occurs and is continuing, the Trustee by notice to the Company, or the
Holders of at least 25% in principal amount at maturity of the Securities by
notice to the Company and the Trustee, may declare the Accreted Value of and
accrued but unpaid interest (if any) on all the Securities (the "Default
Amount") to be due and payable. Upon such a declaration, such Default Amount
shall be due and payable immediately. If an Event of Default specified in
Section 6.01(7) or (8) with
<PAGE>
101
respect to the Company occurs and is continuing, the Default Amount shall ipso
----
facto become and be immediately due and payable without any declaration or other
- -----
act on the part of the Trustee or any Securityholders. The Holders of a majority
in principal amount at maturity of the Securities by notice to the Trustee may
rescind an acceleration and its consequences if the rescission would not
conflict with any judgment or decree and if all existing Events of Default have
been cured or waived except nonpayment of principal or interest that has become
due solely because of acceleration. No such rescission shall affect any
subsequent Default or impair any right consequent thereto.
SECTION 6.03. Other Remedies. If an Event of Default occurs and is
---------------
continuing, the Trustee may pursue any available remedy to collect the payment
of principal of or interest on the Securities or to enforce the performance of
any provision of the Securities or this Indenture.
The Trustee may maintain a proceeding even if it does not possess any
of the Securities or does not produce any of them in the proceeding. A delay or
omission by the Trustee or any Securityholder in exercising any right or remedy
accruing upon an Event of Default shall not impair the right or remedy or
constitute a waiver of or acquies acquiescence in the Event of Default. No
remedy is exclusive of any other remedy. All available remedies are cumulative.
SECTION 6.04. Waiver of Past Defaults. The Holders of a majority in
------------------------
principal amount at maturity of the Securities by notice to the Trustee may
waive an existing Default and its consequences except (i) a Default in the
payment of the principal of or interest on a Security, (ii) a Default arising
from the failure to redeem or purchase any Security when required pursuant to
this Indenture or (iii) a Default in respect of a provision that
<PAGE>
102
under Section 9.02 cannot be amended without the consent of each Securityholder
affected. When a Default is waived, it is deemed cured, but no such waiver shall
extend to any subsequent or other Default or impair any consequent right.
SECTION 6.05. Control by Majority. The Holders of a majority in
--------------------
principal amount at maturity of the Securities may direct the time, method and
place of conducting any proceeding for any remedy available to the Trustee or of
exercising any trust or power conferred on the Trustee. However, the Trustee
may refuse to follow any direction that conflicts with law or this Indenture or,
subject to Section 7.01, that the Trustee determines is unduly prejudicial to
the rights of other Securityholders or would involve the Trustee in personal
liability; provided, however, that the Trustee may take any other action deemed
-------- -------
proper by the Trustee that is not inconsistent with such direction. Prior to
taking any action hereunder, the Trustee shall be entitled to indemnification
satisfactory to it in its sole discretion against all losses and expenses caused
by taking or not taking such action.
SECTION 6.06. Limitation on Suits. Except to enforce the right to
--------------------
receive payment of principal, premium (if any) or interest when due, no
Securityholder may pursue any remedy with respect to this Indenture or the
Securities unless:
(1) the Holder gives to the Trustee written notice stating that an
Event of Default is continuing;
(2) the Holders of at least 25% in principal amount at maturity of the
Securities make a written request to the Trustee to pursue the remedy;
<PAGE>
103
(3) such Holder or Holders offer to the Trustee reasonable security or
indemnity against any loss, liability or expense;
(4) the Trustee does not comply with the request within 60 days after
receipt of the request and the offer of security or indemnity; and
(5) the Holders of a majority in principal amount at maturity of the
Securities do not give the Trustee a direction inconsistent with the
request during such 60-day period.
A Securityholder may not use this Indenture to prejudice the rights of
another Securityholder or to obtain a preference or priority over another
Securityholder.
SECTION 6.07. Rights of Holders to Receive Payment. Notwithstanding
-------------------------------------
any other provision of this Indenture, the right of any Holder to receive
payment of principal pal of and interest on the Securities held by such Holder,
on or after the respective due dates expressed in the Securities, or to bring
suit for the enforcement of any such payment on or after such respective dates,
shall not be impaired or affected without the consent of such Holder.
SECTION 6.08. Collection Suit by Trustee. If an Event of Default
---------------------------
specified in Section 6.01(1) or (2) occurs and is continuing, the Trustee may
recover judgment in its own name and as trustee of an express trust against the
<PAGE>
104
Company for the whole amount then due and owing (together with interest on any
unpaid interest to the extent lawful) and the amounts provided for in Section
7.07.
SECTION 6.09. Trustee May File Proofs of Claim. The Trustee may file
---------------------------------
such proofs of claim and other papers or documents and take such actions as may
be necessary or advisable in order to have the claims of the Trustee and the
Securityholders allowed in any judicial proceedings relative to the Company, its
creditors or its property and, unless prohibited by law or applicable
regulations, may vote on behalf of the Holders in any election of a trustee in
bankruptcy or other Person performing similar functions, and any Custodian in
any such judicial proceeding is hereby authorized by each Holder to make
payments to the Trustee and, in the event that the Trustee shall consent to the
making of such payments directly to the Holders, to pay to the Trustee any
amount due it for the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and its counsel, and any other amounts due
the Trustee under Section 7.07.
SECTION 6.10. Priorities. If the Trustee collects any money or
-----------
property pursuant to this Article 6, it shall pay out the money or property in
the following order:
FIRST: to the Trustee for amounts due under Sec Section 7.07;
SECOND: to Securityholders for amounts due and unpaid on the
Securities for principal and interest, ratably, without preference or
priority of any kind, according to the amounts due and payable on the
Securities for principal and interest, respectively; and
<PAGE>
105
THIRD: to the Company.
The Trustee may fix a record date and payment date for any payment to
Securityholders pursuant to this Section. At least 15 days before such record
date, the Company shall mail to each Securityholder and the Trustee a notice
that states the record date, the payment date and amount to be paid.
SECTION 6.11. Undertaking for Costs. In any suit for the enforcement
----------------------
of any right or remedy under this Indenture or in any suit against the Trustee
for any action taken or omitted by it as Trustee, a court in its discretion may
require the filing by any party litigant in the suit of an undertaking to pay
the costs of the suit, and the court in its discretion may assess reasonable
costs, including reasonable attorneys' fees, against any party litigant in the
suit, having due regard to the merits and good faith of the claims or defenses
made by the party litigant. This Section does not apply to a suit by the
Trustee, a suit by a Holder pursuant to Section 6.07 or a suit by Holders of
more than 10% in principal amount at maturity of the Securities.
SECTION 6.12. Waiver of Stay or Extension Laws. The Company (to the
---------------------------------
extent it may lawfully do so) shall not at any time insist upon, or plead, or in
any manner whatsoever ever claim or take the benefit or advantage of, any stay
or extension law wherever enacted, now or at any time hereafter in force, which
may affect the covenants or the performance of this Indenture; and the Company
(to the extent that it may lawfully do so) hereby expressly waives all benefit
or advantage of any such law, and shall not hinder, delay or impede the
execution of any power herein granted to the
<PAGE>
106
Trustee, but shall suffer and permit the execution of every such power as though
no such law had been enacted.
ARTICLE 7
Trustee
-------
SECTION 7.01. Duties of Trustee. (a) If an Event of Default has
------------------
occurred and is continuing, the Trustee shall exercise the rights and powers
vested in it by this Indenture and use the same degree of care and skill in
their exercise as a prudent Person would exercise or use under the circumstances
in the conduct of such Person's own affairs.
(b) Except during the continuance of an Event of Default:
(1) the Trustee undertakes to perform such duties and only such
duties as are specifically set forth in this Indenture and no implied
covenants or obligations shall be read into this Indenture against the
Trustee; and
(2) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness of
the opinions expressed therein, upon certificates or opinions furnished to
the Trustee and conforming to the require
<PAGE>
107
ments of this Indenture. However, the Trustee shall examine the
certificates and opinions to determine whether or not they conform to the
requirements of this Indenture.
(c) The Trustee may not be relieved from liability for its own
negligent action, its own negligent failure to act or its own wilful misconduct,
except that:
(1) this paragraph does not limit the effect of paragraph (b) of this
Section;
(2) the Trustee shall not be liable for any error of judgment made in
good faith by a Trust Officer unless it is proved that the Trustee was
negligent in ascertaining the pertinent facts; and
(3) the Trustee shall not be liable with respect to any action it
takes or omits to take in good faith in accordance with a direction
received by it pursuant to Section 6.05.
(d) Every provision of this Indenture that in any way relates to the
Trustee is subject to paragraphs (a), (b) and (c) of this Section.
(e) The Trustee shall not be liable for interest on any money
received by it except as the Trustee may agree in writing with the Company.
<PAGE>
108
(f) Money held in trust by the Trustee need not be segregated from
other funds except to the extent required by law.
(g) No provision of this Indenture shall require the Trustee to
expend or risk its own funds or otherwise incur financial liability in the
performance of any of its duties hereunder or in the exercise of any of its
rights or powers, if it shall have reasonable grounds to believe that repayment
of such funds or adequate indemnity against such risk or liability is not
reasonably assured to it.
(h) Every provision of this Indenture relating to the conduct or
affecting the liability of or affording protection to the Trustee shall be
subject to the provisions of this Section and to the provisions of the TIA.
(i) The Trustee shall not be charged with notice or knowledge of any
event or matter the occurrence of which would require it to take action or omit
to take action hereunder unless such event or matter is actually known to a
Trust Officer of the Trustee or unless written notice thereof delivered in
accordance with this Indenture (making reference to this Indenture or the
Securities) has been received by the Trustee at its Corporate Trust Office.
(j) Unless otherwise expressly provided herein, the Trustee shall not
have any responsibility with respect to reports, notices, certificates or other
documents filed with it hereunder except to make them available for inspection,
at reasonable times, by the Holders.
<PAGE>
109
SECTION 7.02. Rights of Trustee. (a) The Trustee may rely on any
------------------
document believed by it to be genuine and to have been signed or presented by
the proper person. The Trustee need not investigate any fact or matter stated in
the document.
(b) Before the Trustee acts or refrains from acting, it may require
an Officers' Certificate or an Opinion of Counsel. The Trustee shall not be
liable for any action it takes or omits to take in good faith in reliance on the
Officers' Certificate or Opinion of Counsel.
(c) The Trustee may act through agents and shall not be responsible
for the misconduct or negligence of any agent appointed with due care.
(d) The Trustee shall not be liable for any action it takes or omits
to take in good faith which it believes to be authorized or within its rights or
powers; provided, however, that the Trustee's conduct does not constitute wilful
-------- -------
misconduct or negligence.
(e) The Trustee may consult with counsel, and the advice or opinion
of counsel with respect to legal matters relating to this Indenture and the
Securities shall be full and complete authorization and protection from
liability in respect to any action taken, omitted or suffered by it here under
in good faith and in accordance with the advice or opinion of such counsel.
<PAGE>
110
SECTION 7.03. Individual Rights of Trustee. The Trustee in its
-----------------------------
individual or any other capacity may become the owner or pledgee of Securities
and may otherwise deal with the Company or its Affiliates with the same rights
it would have if it were not Trustee. Any Paying Agent, Registrar, co-registrar
or co-paying agent may do the same with like rights. However, the Trustee must
comply with Sections 7.10 and 7.11.
SECTION 7.04. Trustee's Disclaimer. The Trustee shall not be
---------------------
responsible for and makes no representation as to the validity or adequacy of
this Indenture or the Securities, it shall not be accountable for the Company's
use of the proceeds from the Securities, and it shall not be responsible for any
statement of the Company in the Indenture or in any document issued in
connection with the sale of the Securities or in the Securities other than the
Trustee's certificate of authentication.
SECTION 7.05. Notice of Defaults. If a Default occurs and is
-------------------
continuing and if it is known to the Trustee, the Trustee shall mail to each
Securityholder notice of the Default within 90 days after it occurs. Except in
the case of a Default in payment of principal of or interest on any Security,
the Trustee may withhold the notice if and so long as a committee of its Trust
Officers in good faith determines that withholding the notice is in the
interests of Securityholders.
SECTION 7.06. Reports by Trustee to Holders. To the extent required
------------------------------
by the TIA as promptly as practicable after each May 15 beginning with the May
15 following the date of this Indenture, and in any event prior to July 15 in
each year, the Trustee shall mail to each Securityholder a brief report dated as
of May 15 that complies with TIA . 313(a). The Trustee also shall comply with
TIA . 313(b)
<PAGE>
111
A copy of each report at the time of its mailing to Securityholders
shall be filed with the SEC and each stock exchange (if any) on which the
Securities are listed. The Company agrees to notify promptly the Trustee
whenever the Securities become listed on any stock exchange and of any delisting
thereof.
SECTION 7.07. Compensation and Indemnity. The Company shall pay to the
--------------------------
Trustee from time to time reasonable compensation for its services. The
Trustee's compensation shall not be limited by any law on compensation of a
trustee of an express trust. The Company shall reimburse the Trustee upon
request for all reasonable out-of-pocket expenses incurred or made by it,
including costs of collection, in addition to the compensation for its services.
Such expenses shall include the reasonable compensation and expenses,
disbursements and advances of the Trustee's agents, counsel, accountants and
experts. The Company shall indemnify the Trustee, its officers, directors and
employees against any and all loss, liability or expense (including attorneys'
fees) incurred by it in connection with the administration of this trust and the
performance of its duties hereunder. The Trustee shall notify the Company
promptly of any claim for which it may seek indemnity. Failure by the Trustee to
so notify the Company shall not relieve the Company of its obligations
hereunder. The Company shall defend the claim and the Trustee may have separate
counsel and the Company shall pay the fees and expenses of such counsel. The
Company need not reimburse any expense or indemnify against any loss, liability
or expense incurred by the Trustee through the Trustee's own wilful misconduct,
negligence or bad faith.
To secure the Company's payment obligations in this Section, the
Trustee shall have a lien prior to the Securities on all money or property held
or collected by the
<PAGE>
112
Trustee other than money or property held in trust to pay principal of and
interest on particular Securities.
The Company's payment obligations pursuant to this Section shall
survive the discharge of this Indenture. When the Trustee incurs expenses after
the occurrence of a Default specified in Section 6.01(7) or (8) with respect to
the Company, the expenses are intended to constitute expenses of administration
under the Bankruptcy Law.
SECTION 7.08. Replacement of Trustee. The Trustee may resign at any
-----------------------
time by so notifying the Company. The Holders of a majority in principal amount
at maturity of the Securities may remove the Trustee by so notifying the Trustee
and may appoint a successor Trustee. The Company shall remove the Trustee if:
(1) the Trustee fails to comply with Section 7.10;
(2) the Trustee is adjudged bankrupt or insolvent;
(3) a receiver or other public officer takes charge of the Trustee or
its property; or
(4) the Trustee otherwise becomes incapable of acting.
<PAGE>
113
If the Trustee resigns, is removed by the Company or by the Holders of
a majority in principal amount at maturity of the Securities and such Holders do
not reasonably promptly appoint a successor Trustee, or if a vacancy exists in
the office of Trustee for any reason (the Trustee in such event being referred
to herein as the retiring Trustee), the Company shall promptly appoint a
successor Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Thereupon the
resignation or removal of the retiring Trustee shall become effective, and the
successor Trustee shall have all the rights, powers and duties of the Trustee
under this Indenture. The successor Trustee shall mail a notice of its
succession to Securityholders. The retiring Trustee shall promptly transfer all
property held by it as Trustee to the successor Trustee, subject to the lien
provided for in Section 7.07.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee or the Holders of
10% in principal amount at maturity of the Securities may petition any court of
competent jurisdiction for the appointment of a successor Trustee.
If the Trustee fails to comply with Section 7.10, any Securityholder
may petition any court of competent jurisdiction for the removal of the Trustee
and the appointment of a successor Trustee.
Notwithstanding the replacement of the Trustee pursuant to this
Section, the Company's obligations under
<PAGE>
114
Section 7.07 shall continue for the benefit of the retiring Trustee.
SECTION 7.09. Successor Trustee by Merger. If the Trustee
----------------------------
consolidates with, merges or converts into, or transfers all or substantially
all its corporate trust business or assets to, another corporation or banking
association, the resulting, surviving or transferee corporation without any
further act shall be the successor Trustee.
In case at the time such successor or successors by merger, conversion
or consolidation to the Trustee shall succeed to the trusts created by this
Indenture any of the Securities shall have been authenticated but not delivered,
any such successor to the Trustee may adopt the certificate of authentication of
any predecessor trustee, and deliver such Securities so authenticated; and in
case at that time any of the Securities shall not have been authenticated, any
successor to the Trustee may authenticate such Securities either in the name of
any predecessor hereunder or in the name of the successor to the Trustee; and in
all such cases such certificates shall have the full force which it is anywhere
in the Securities or in this Indenture provided that the certificate of the
Trustee shall have.
SECTION 7.10. Eligibility; Disqualification. The Trustee shall at
------------------------------
all times satisfy the requirements of TIA . 310(a). The Trustee shall have a
combined capital and surplus of at least $50,000,000 as set forth in its most
recent published annual report of condition. The Trustee shall comply with Tia .
310(b); provided, however, that there shall be excluded from the operation of
-------- -------
TIA . 310(b)(1) any indenture or indentures under which other securities or
certificates of interest or participation in other securities of the Company are
outstanding if the
<PAGE>
115
requirements for such exclusion set forth in TIA . 310(b)(1) are met.
SECTION 7.11. Preferential Collection of Claims Against Company. The
--------------------------------------------------
Trustee shall comply with TIA . 311(a), excluding any creditor relationship
listed in TIA . 311(b). A Trustee who has resigned or been removed shall be
subject to TIA . 311(a) to the extent indicated.
ARTICLE 8
Discharge of Indenture; Defeasance
----------------------------------
SECTION 8.01. Discharge of Liability on Securities; Defeasance. (a)
-------------------------------------------------
When (i) the Company delivers to the Trustee all outstanding Securities (other
than Securities replaced pursuant to Section 2.07) for cancelation or (ii) all
outstanding Securities have become due and payable, whether at maturity or as a
result of the mailing of a notice of redemption pursuant to Article 3 hereof and
the Company irrevocably deposits with the Trustee funds sufficient to pay at
maturity or upon redemption all outstanding Securities, including interest
thereon to maturity or such redemption date (other than Securities replaced
pursuant to Section 2.07), and if in either case the Company pays all other sums
payable hereunder by the Company, then this Indenture shall, subject to Section
8.01(c), cease to be of further effect. The Trustee shall acknowledge
satisfaction and discharge of this Indenture on demand of the Company
accompanied by an Officers' Certificate and an Opinion of Counsel and at the
cost and expense of the Company.
<PAGE>
118
(b) Subject to Sections 8.01(c) and 8.02, the Company at any time may
terminate (i) all its obligations under the Securities and this Indenture
("legal defeasance option") or (ii) its obligations under Sections 4.02, 4.03,
4.04, 4.05, 4.06, 4.07, 4.08, 4.09, 4.10, 4.11, 4.12 and 4.13 and the operation
of Sections 6.01(4), 6.01(6), 6.01(7), 6.01(8) and 6.01(9) (but, in the case of
Sections 6.01(7) and (8), with respect only to Significant Subsidiaries) and the
limitations contained in Sections 5.01(iii) and (iv) ("covenant defeasance
option"). The Company may exercise its legal defeasance option not withstanding
its prior exercise of its covenant defeasance option.
If the Company exercises its legal defeasance option, payment of the
Securities may not be accelerated because of an Event of Default with respect
thereto. If the Company exercises its covenant defeasance option, payment of
the Securities may not be accelerated because of an Event of Default specified
in Sections 6.01(4), 6.01(6), 6.01(7), 6.01(8) and 6.01(9) (but, in the case of
Sections 6.01(7) and (8), with respect only to Significant Subsidiaries) or
because of the failure of the Company to comply with Section 5.01(iii) or (iv).
Upon satisfaction of the conditions set forth herein and upon request
of the Company, the Trustee shall acknowledge in a writing prepared by the
Company and reasonably satisfactory to the Trustee the discharge of those
obligations that the Company terminates.
(c) Notwithstanding clauses (a) and (b) above, the Company's
obligations in Sections 2.03, 2.04, 2.05, 2.06, 2.07, 2.08, 7.07 and 7.08 and in
this Article 8 shall
<PAGE>
117
survive until the Securities have been paid in full. Thereafter, the Company's
obligations in Sections 7.07, 8.04 and 8.05 shall survive.
SECTION 8.02. Conditions to Defeasance. The Company may exercise its
-------------------------
legal defeasance option or its covenant defeasance option only if:
(1) the Company irrevocably deposits in trust with the Trustee money
or U.S. Government Obligations for the payment of principal of and interest
on the Securities to maturity or redemption, as the case may be;
(2) the Company delivers to the Trustee a certificate from a
nationally recognized firm of independent accountants expressing their
opinion that the payments of principal and interest when due and without
reinvestment on the deposited U.S. Government Obligations plus any
deposited money without investment will provide cash at such times and in
such amounts as will be sufficient to pay principal and interest when due
on all the Securities to maturity or redemption, as the case may be;
(3) 123 days pass after the deposit is made and during the 123-day
period no Default specified in Sections 6.01(7) or (8) with respect to the
Company occurs which is continuing at the end of the period;
(4) the deposit does not constitute a default under any other
agreement binding on the Company;
<PAGE>
118
(5) the Company delivers to the Trustee an Opinion of Counsel to the
effect that the trust resulting from the deposit does not constitute, or is
qualified as, a regulated investment company under the Investment Company
Act of 1940;
(6) in the case of the legal defeasance option, the Company shall have
delivered to the Trustee an Opinion of Counsel stating that (i) the Company
has received from, or there has been published by, the Internal Revenue
Service a ruling, or (ii) since the date of this Indenture there has been a
change in the applicable Federal income tax law, in either case to the
effect that, and based thereon such Opinion of Counsel shall confirm that,
the Securityholders will not recognize income, gain or loss for Federal
income tax purposes as a result of such defeasance and will be subject to
Federal income tax on the same amounts, in the same manner and at the same
times as would have been the case if such defeasance had not occurred;
(7) in the case of the covenant defeasance option, the Company shall
have delivered to the Trustee an Opinion of Counsel to the effect that the
Security holders will not recognize income, gain or loss for Federal income
tax purposes as a result of such covenant defeasance and will be subject
to Federal income tax on the same amounts, in the same manner and at the
same times as would have been the case if such covenant defeasance had not
occurred; and
(8) the Company delivers to the Trustee an Officers' Certificate and
an Opinion of Counsel, each stating that all conditions precedent to the
defeasance
<PAGE>
119
and discharge of the Securities as contemplated by this Article 8 have been
complied with.
Before or after a deposit, the Company may make arrangements
satisfactory to the Trustee for the redemption of Securities at a future date in
accordance with Article 3.
SECTION 8.03. Application of Trust Money. The Trustee shall hold in
---------------------------
trust money or U.S. Government Obligations deposited with it pursuant to this
Article 8. It shall apply the deposited money and the money from U.S.
Government Obligations through the Paying Agent and in accordance with this
Indenture to the payment of principal of and interest on the Securities.
SECTION 8.04. Repayment to Company. The Trustee and the Paying Agent
---------------------
shall promptly turn over to the Company upon request any excess money or
securities held by them at any time.
Subject to any applicable abandoned property law, the Trustee and the
Paying Agent shall pay to the Company upon request any money held by them for
the payment of principal or interest that remains unclaimed for two years, and,
thereafter, Securityholders entitled to the money must look to the Company for
payment as general creditors.
SECTION 8.05. Indemnity for Government Obligations. The Company
-------------------------------------
shall pay and shall indemnify the Trustee against any tax, fee or other charge
imposed on or assessed against deposited U.S. Government Obligations or
<PAGE>
120
the principal and interest received on such U.S. Government Obligations.
SECTION 8.06. Reinstatement. If the Trustee or Paying Agent is
--------------
unable to apply any money or U.S. Government Obligations in accordance with this
Article 8 by reason of any legal proceeding or by reason of any order or
judgment of any court or governmental authority enjoining, restraining or
otherwise prohibiting such application, the Company's obligations under this
Indenture and the Securities shall be revived and reinstated as though no
deposit had occurred pursuant to this Article 8 until such time as the Trustee
or Paying Agent is permitted to apply all such money or U.S. Government
Obligations in accordance with this Article 8; provided, however, that, if the
-------- -------
Company has made any payment of interest on or principal of any Securities
because of the reinstatement of its obligations, the Company shall be subrogated
to the rights of the Holders of such Securities to receive such payment from the
money or U.S. Government Obligations held by the Trustee or Paying Agent.
ARTICLE 9
Amendments
----------
SECTION 9.01. Without Consent of Holders. The Company and the
---------------------------
Trustee may amend this Indenture or the Securities without notice to or consent
of any Security holder:
<PAGE>
121
(1) to cure any ambiguity, omission, defect or inconsistency;
(2) to comply with Article 5;
(3) to provide for uncertificated Securities in addition to or in
place of certificated Securities; provided, however, that the
-------- -------
uncertificated Securities are issued in registered form for purposes of
Section 163(f) of the Code or in a manner such that the uncertificated
Securities are described in Section 163(f)(2)(B) of the Code;
(4) to add guarantees with respect to the Securities or to secure the
Securities;
(5) to add to the covenants of the Company for the benefit of the
Holders or to surrender any right or power herein conferred upon the
Company;
(6) to comply with any requirements of the SEC in connection with
qualifying, or maintaining the qualification of, this Indenture under the
TIA; or
(7) to make any change that does not adversely affect the rights of
any Securityholder.
<PAGE>
122
After an amendment under this Section becomes effective, the Company
shall mail to Securityholders a notice briefly describing such amendment. The
failure to give such notice to all Securityholders, or any defect therein, shall
not impair or affect the validity of an amendment under this Section.
SECTION 9.02. With Consent of Holders. The Company and the Trustee
------------------------
may amend this Indenture or the Securities without notice to any Securityholder
but with the written consent of the Holders of at least a majority in principal
amount at maturity of the Securities then outstanding (including consents
obtained in connection with a tender offer or exchange for the Securities).
However, without the consent of each Securityholder affected thereby, an
amendment may not:
(1) reduce the principal amount at maturity of Securities whose
Holders must consent to an amendment;
(2) reduce the rate of or extend the time for payment of interest on
any Security;
(3) reduce the principal of or extend the Stated Maturity of any
Security;
(4) reduce the amount payable upon the redemption of any Security or
change the time at which any Security may be redeemed in accordance with
Article 3;
<PAGE>
125
(5) make any Security payable in money other than that stated in the
Security; or
(6) make any change in Section 6.04 or 6.07 or the second sentence of
this Section.
It shall not be necessary for the consent of the Holders under this
Section to approve the particular form of any proposed amendment, but it shall
be sufficient if such consent approves the substance thereof.
After an amendment under this Section becomes effective, the Company
shall mail to Securityholders a notice briefly describing such amendment. The
failure to give such notice to all Securityholders, or any defect therein, shall
not impair or affect the validity of an amendment under this Section.
SECTION 9.03. Compliance with Trust Indenture Act. Every amendment
------------------------------------
to this Indenture or the Securities shall comply with the TIA as then in effect.
SECTION 9.04. Revocation and Effect of Consents and Waivers. A
----------------------------------------------
consent to an amendment or a waiver by a Holder of a Security shall bind the
Holder and every subsequent Holder of that Security or portion of the Security
that evidences the same debt as the consenting Holder's Security, even if
notation of the consent or waiver is not made on the Security. However, any
such Holder or subsequent Holder may revoke the consent or waiver as to such
Holder's Security or portion of the Security if the Trustee receives the notice
of revocation before the date
<PAGE>
124
the amendment or waiver becomes effective. After an amendment or waiver becomes
effective, it shall bind every Security holder. An amendment or waiver becomes
effective upon the execution of such amendment or waiver by the Trustee.
The Company may, but shall not be obligated to, fix a record date for
the purpose of determining the Securityholders entitled to give their consent or
take any other action described above or required or permitted to be taken
pursuant to this Indenture. If a record date is fixed, then notwithstanding the
immediately preceding paragraph, those Persons who were Securityholders at such
record date (or their duly designated proxies), and only those Persons, shall be
entitled to give such consent or to revoke any consent previously given or to
take any such action, whether or not such Persons continue to be Holders after
such record date. No such consent shall be valid or effective for more than 120
days after such record date.
SECTION 9.05. Notation on or Exchange of Securities. If an amendment
--------------------------------------
changes the terms of a Security, the Trustee may require the Holder of the
Security to deliver it to the Trustee. The Trustee may place an appropriate
notation on the Security regarding the changed terms and return it to the
Holder. Alternatively, if the Company or the Trustee so determines, the Company
in exchange for the Security shall issue and the Trustee shall authenticate a
new Security that reflects the changed terms. Failure to make the appropriate
notation or to issue a new Security shall not affect the validity of such
amendment.
SECTION 9.06. Trustee To Sign Amendments. The Trustee shall sign any
---------------------------
amendment authorized pursuant to this Article 9 if the amendment does not
adversely affect the rights, duties, liabilities or immunities of the Trustee.
If it does, the Trustee may but need not sign it. In signing
<PAGE>
125
such amendment the Trustee shall be entitled to receive indemnity reasonably
satisfactory to it and to receive, and (subject to Section 7.01) shall be fully
protected in relying upon, an Officers' Certificate and an Opinion of Counsel
stating that such amendment is authorized or permit ted by this Indenture.
SECTION 9.07. Payment for Consent. Neither the Company nor any
--------------------
Affiliate of the Company shall, directly or indirectly, pay or cause to be paid
any consideration, whether by way of interest, fee or otherwise, to any Holder
for or as an inducement to any consent, waiver or amendment of any of the terms
or provisions of this Indenture or the Securities unless such consideration is
offered to be paid to all Holders that so consent, waive or agree to amend in
the time frame set forth in solicitation documents relating to such consent,
waiver or agreement.
ARTICLE 10
Miscellaneous
-------------
SECTION 10.01. Trust Indenture Act Controls. If any provision of
-----------------------------
this Indenture limits, qualifies or conflicts with another provision which is
required to be included in this Indenture by the TIA, the required provision
shall control.
SECTION 10.02. Notices. Any notice or communication shall be in
--------
writing and delivered in by hand or
<PAGE>
126
overnight courier service, mailed by certified or registered mail or sent by
telecopy, as follows:
if to the Company:
21st Century Telecom Group, Inc.
350 North Orleans, Suite 600
Chicago, IL 60654
Attention of: Chief Financial Officer
Telecopy: (312) 470-2111
with a copy to:
Piper & Marbury LLP
1200 Nineteenth Street, N.W.
Washington, D.C. 20036-2430
Attention: Edwin M. Martin, Jr.
Telecopy: (202) 223-2085
<PAGE>
127
if to the Trustee:
State Street Bank and Trust Company
Two International Place
Boston, MA 02110-2804
Attention: Max Goldsmith
Telecopy: (617) 664-5742
All notices and other communications given to any party hereto in accordance
with the provisions of this Agreement shall be deemed to have been given on the
date of receipt if delivered by hand or overnight courier service or sent by
telecopy or on the date five Business Days after dispatch by certified or
registered mail if mailed, in each case delivered, sent or mailed (properly
addressed) to such party as provided in this Section 10.02 or in accordance with
the latest unrevoked direction from such party given in accordance with this
Section 10.02.
The Company or the Trustee by notice to the other may designate
additional or different addresses for subsequent notices or communications.
Any notice or communication mailed to a Security holder shall be
mailed to the Securityholder at the Securityholder's address as it appears on
the registration books of the Registrar and shall be sufficiently given if so
mailed within the time prescribed.
<PAGE>
128
Failure to mail a notice or communication to a Securityholder or any
defect in it shall not affect its sufficiency with respect to other
Securityholders. If a notice or communication is mailed in the manner provided
above, it is duly given, whether or not the addressee receives it.
SECTION 10.03. Communication by Holders with Other Holders.
--------------------------------------------
Securityholders may communicate pursuant to TIA . 312(b) with other
Securityholders with respect to their rights under this Indenture or the
Securities. The Company, the Trustee, the Registrar and anyone else shall have
the protection of TIA . 312(c).
SECTION 10.04. Certificate and Opinion as to Conditions Precedent.
---------------------------------------------------
Upon any request or application by the Company to the Trustee to take or refrain
from taking any action under this Indenture, the Company shall furnish to the
Trustee:
(1) an Officers' Certificate in form and substance reasonably
satisfactory to the Trustee stating that, in the opinion of the signers,
all conditions precedent, if any, provided for in this Indenture relating
to the proposed action have been complied with; and
(2) an Opinion of Counsel in form and substance reasonably
satisfactory to the Trustee stating that, in the opinion of such counsel,
all such conditions precedent have been complied with.
<PAGE>
129
SECTION 10.05. Statements Required in Certificate or Opinion. Each
----------------------------------------------
certificate or opinion with respect to compliance with a covenant or condition
provided for in this Indenture shall include:
(1) a statement that the individual making such certificate or opinion
has read such covenant or condition;
(2) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(3) a statement that, in the opinion of such individual, he has made
such examination or investigation as is necessary to enable him to express
an informed opinion as to whether or not such covenant or condition has
been complied with; and
(4) a statement as to whether or not, in the opinion of such
individual, such covenant or condition has been complied with.
SECTION 10.06. When Securities Disregarded. In determining whether
----------------------------
the Holders of the required principal amount at maturity of Securities have
concurred in any direction, waiver or consent, Securities owned by the Company
or by any Person directly or indirectly controlling or controlled by or under
direct or indirect common control with the Company shall be disregarded and
deemed not to be
<PAGE>
130
outstanding, except that, for the purpose of determining whether the Trustee
shall be protected in relying on any such direction, waiver or consent, only
Securities which the Trustee knows are so owned shall be so disregarded. Also,
subject to the foregoing, only Securities outstanding at the time shall be
considered in any such determination.
SECTION 10.07. Rules by Trustee, Paying Agent and Registrar. The
---------------------------------------------
Trustee may make reasonable rules for action by or a meeting of Securityholders.
The Registrar and the Paying Agent may make reasonable rules for their
functions.
SECTION 10.08. Legal Holidays. If a payment date is not a Business
---------------
Day, payment shall be made on the next succeeding day that is a Business Day,
and no interest shall accrue for the intervening period. If a regular record
date is not a Business Day, the record date shall not be affected.
SECTION 10.09. Governing Law. This Indenture and the Securities
--------------
shall be governed by, and construed in accordance with, the laws of the State of
New York but without giving effect to applicable principles of conflicts of law
to the extent that the application of the laws of another jurisdiction would be
required thereby.
SECTION 10.10. No Recourse Against Others. A director, officer,
---------------------------
employee or stockholder, as such, of the Company shall not have any liability
for any obligations of the Company under the Securities or this Indenture or for
any claim based on, in respect of or by reason of such obligations or their
creation. By accepting a Security, each Securityholder shall waive and release
all such lia
<PAGE>
131
bility. The waiver and release shall be part of the consideration for the issue
of the Securities.
SECTION 10.11. Successors. All agreements of the Company in this
-----------
Indenture and the Securities shall bind its successors. All agreements of the
Trustee in this Indenture shall bind its successors.
SECTION 10.12. Multiple Originals. The parties may sign any number
-------------------
of copies of this Indenture. Each signed copy shall be an original, but all of
them together represent the same agreement. One signed copy is enough to prove
this Indenture.
SECTION 10.13. Table of Contents; Headings. The table of contents,
----------------------------
cross-reference sheet and headings of the Articles and Sections of this
Indenture have been inserted for convenience of reference only, are not intended
to be considered a part hereof and shall not modify or restrict any of the terms
or provisions hereof.
<PAGE>
132
IN WITNESS WHEREOF, the parties have caused this Indenture to be duly
executed as of the date first written above.
21ST CENTURY TELECOM GROUP, INC.,
by /s/ Ronald D. Webster
-------------------------
Name: Ronald D. Webster
Title: CFO
STATE STREET BANK AND TRUST COMPANY,
by /s/ Renee Ragland
------------------------
Name: Renee Ragland
Title: Corporate Trust
<PAGE>
1
Exhibit 4.2
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE
OF THE DEPOSITARY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), NEW YORK, NEW
YORK, TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR
PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR
SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY
PAYMENT IS MADE TO CEDE & CO., OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF DTC) ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR
VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED
OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN
WHOLE, BUT NOT IN PART, TO NOMINEES OF DTC OR TO A SUCCESSOR THEREOF OR SUCH
SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY SHALL BE
LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THE
INDENTURE REFERRED TO ON THE REVERSE HEREOF.
THIS SECURITY (OR ITS PREDECESSOR) WAS ORIGINALLY ISSUED IN A
TRANSACTION EXEMPT FROM REGISTRATION UNDER THE UNITED STATES SECURITIES ACT OF
1933 (THE "SECURITIES ACT"), AND THIS SECURITY MAY NOT BE OFFERED, SOLD OR
OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE
EXEMPTION THEREFROM. EACH PURCHASER OF THIS SECURITY IS HEREBY NOTIFIED THAT
THE SELLER OF THIS SECURITY MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS
OF
<PAGE>
2
SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER.
THE HOLDER OF THIS SECURITY AGREES FOR THE BENEFIT OF THE COMPANY THAT
(A) THIS SECURITY AND ANY SECURITY INTO WHICH SUCH SECURITY IS EXCHANGEABLE MAY
BE OFFERED, RESOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY (i) WITHIN THE UNITED
STATES TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A "QUALIFIED
INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) IN A
TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (ii) OUTSIDE THE UNITED
STATES IN A TRANSACTION IN ACCORDANCE WITH RULE 904 UNDER THE SECURITIES ACT,
(iii) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT
PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE), (iv) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR (v) TO THE COMPANY, IN EACH
OF CASES (i) THROUGH (iv) IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF
ANY STATE OF THE UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION, AND (B) THE
HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER OF
THIS SECURITY FROM IT OF THE RESALE RESTRICTIONS REFERRED TO IN (A) ABOVE.
FOR PURPOSES OF SECTION 1273 OF THE INTERNAL REVENUE CODE OF 1986, AS
AMENDED (THE "CODE"), THIS SECURITY HAS ORIGINAL ISSUE DISCOUNT. FOR PURPOSES
OF SECTION 1273 OF THE CODE, THE ISSUE PRICE IS $550.76 AND THE AMOUNT OF
ORIGINAL ISSUE DISCOUNT IS $449.24, IN EACH CASE PER $1000 PRINCIPAL AMOUNT AT
MATURITY OF THIS SECURITY. FOR PURPOSES OF SECTION 1275 OF THE CODE, THE ISSUE
DATE OF THIS SECURITY IS FEBRUARY 9, 1998. FOR PURPOSES OF SECTION 1272 OF THE
CODE, THE YIELD TO MATURITY (COMPOUNDED SEMI-ANNUALLY) IS 12-1/4%.
<PAGE>
3
No. N-1
$200,000,000
CUSIP No. 90130P AA6
12-1/4% Senior Discount Notes Due 2008
21ST CENTURY TELECOM GROUP, INC., an Illinois corporation, promises to
pay to CEDE & CO., or registered assigns, the principal sum of TWO HUNDRED
MILLION DOLLARS on February 15, 2008.
Interest Payment Dates: February 15 and August 15.
Record Dates: February 1 and August 1.
Additional provisions of this Security are set forth on the other side
of this Security.
Dated: February 9, 1998
<PAGE>
4
21ST CENTURY TELECOM GROUP, INC.,
by
/s/ Glenn Milligan
------------------------------------
Name: Glenn Milligan
Title: President, Chief
Executive Officer
/s/ Charles Kaegi
------------------------------------
Name: Charles Kaegi
Title: Secretary
TRUSTEE'S CERTIFICATE OF
AUTHENTICATION
STATE STREET BANK AND
TRUST COMPANY, as Trustee,
certifies that this is
one of the Securities
referred to in the Indenture.
<PAGE>
5
by
/s/ Renee Ragland
--------------------------------
Authorized Signatory
<PAGE>
6
12-1/4% Senior Discount Note Due 2008
1. Interest
--------
21st Century Telecom Group, Inc., an Illinois corporation (such
corporation, and its successors and assigns under the Indenture hereinafter
referred to, being herein called the "Company"), promises to pay to the
registered holder of this Security interest on the Accreted Value of this
Security at a rate of 12-1/4% per annum. The Accreted Value of this Security
will increase in the manner provided in the Indenture. Interest on this
Security shall accrue from and including the most recent date to which interest
has been paid, or if no interest has been paid, from and including February 15,
2003, through but excluding the date on which interest is paid. Interest shall
be payable semiannually in arrears on each February 15 and August 15, commencing
August 15, 2003. Interest will be computed on the basis of a 360-day year of
twelve 30-day months. Notwithstanding the foregoing, if a Registration Default
(as defined in the Registration Rights Agreement) occurs, interest will accrue
on this Security at a rate of 12-3/4% per annum from and including the date on
which any such Registration Default shall occur to but excluding the date on
which all Registration Defaults have been cured. Such interest will be paid
semiannually on February 15 and August 15 of each year. The Company shall pay
interest on overdue principal at the rate borne by the Securities plus 1% per
annum, and it shall pay interest on overdue installments of interest at the same
rate to the extent lawful.
<PAGE>
7
2. Method of Payment
-----------------
The Company will pay interest on the Securities (except defaulted
interest) to the Persons who are registered holders of Securities at the close
of business on the February 1 or August 1 next preceding the interest payment
date even if Securities are canceled after the record date and on or before the
interest payment date. Holders must surrender Securities to a Paying Agent to
collect principal payments. The Company will pay principal and interest in
money of the United States that at the time of payment is legal tender for
payment of public and private debts. Payments in respect of the Securities
represented by a Global Security (including principal, premium and interest)
will be made by wire transfer of immediately available funds to the accounts
specified by The Depository Trust Company. The Company will make all payments
in respect of a certificated Security (including principal, premium and
interest) by mailing a check to the registered address of each Holder thereof;
provided, however, that payments on a certificated Security will be made by wire
- -------- -------
transfer to a U.S. dollar account maintained by the payee with a bank in the
United States if such Holder elects payment by wire transfer by giving written
notice to the Trustee or the Paying Agent to such effect designating such
account no later than 30 days immediately preceding the relevant due date for
payment (or such other date as the Trustee may accept in its discretion).
3. Paying Agent and Registrar
--------------------------
<PAGE>
8
Initially, State Street Bank and Trust Company, a Massachusetts trust
company ("Trustee"), will act as Paying Agent and Registrar. The Company may
appoint and change any Paying Agent, Registrar or co-registrar without notice.
The Company or any of its domestically incorporated Wholly Owned Subsidiaries
may act as Paying Agent, Registrar or co-registrar.
4. Indenture
---------
The Company issued the Securities under an Indenture dated as of
February 15, 1998 ("Indenture"), between the Company and the Trustee. The terms
of the Securities include those stated in the Indenture and those made part of
the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S.C. ..
------
77aaa-77bbbb) as in effect on the date of the Indenture (the "Act"). Terms
defined in the Indenture and not defined herein have the meanings ascribed
thereto in the Indenture. The Securities are subject to all such terms, and
Securityholders are referred to the Indenture and the Act for a statement of
those terms.
The Securities are general unsecured obligations of the Company. The
Company may, subject to Article 4 of the Indenture, issue Securities in an
unlimited principal amount at maturity. All Securities issued under the
Indenture will be treated as a single class of securities for all purposes under
the Indenture. The Indenture contains certain covenants that, among other
things, limit (i) the incurrence of additional Indebtedness by the Company and
its Restricted Subsidiaries (as defined), (ii) the payment of dividends and
other distributions by the Company and its Restricted Subsidiaries in respect of
their capital stock, (iii) investments or other restricted payments by the
<PAGE>
9
Company and its Restricted Subsidiaries, (iv) asset sales, (v) certain
transactions with affiliates, (vi) the sale or issuance of capital stock of
Restricted Subsidiaries, (vii) the incurrence of liens and the entering into of
sale/leaseback transactions and (viii) mergers and consolidations. The Indenture
also prohibits certain restrictions on distributions from Restricted
Subsidiaries. All these limitations and prohibitions, however, are subject to a
number of important qualifications and exceptions.
5. Optional Redemption
-------------------
Except as set forth in the next paragraph, the Securities may not be
redeemed prior to February 15, 2003. On and after that date, the Company may
redeem the Securities in whole or in part, at any time or from time to time, at
the following redemption prices (expressed in percentages of Accreted Value),
plus accrued interest to the redemption date (subject to the right of Holders of
record on the relevant record date to receive interest due on the related
interest payment date):
If redeemed during the 12-month period commencing on February 15 of
the years set forth below:
<TABLE>
<CAPTION>
Redemption
Period Price
---------- ----------
<S> <C>
2003 106.1250%
</TABLE>
<PAGE>
10
<TABLE>
<S> <C>
2004 104.0833
2005 102.0417
2006 and thereafter 100.0000
</TABLE>
In addition, at any time and from time to time prior to February 15,
2001, the Company may redeem in the aggregate up to 35% of the original
principal amount at maturity of the Securities with the proceeds of one or more
Equity Offerings following which there is a Public Market, at a redemption price
(expressed as a percentage of Accreted Value) of 112-1/4% plus accrued interest
to redemption date (subject to the right of Holders of record on the relevant
record date to receive interest due on the related interest payment date);
provided, however, that at least $236.0 million aggregate principal amount at
- -------- -------
maturity of the Securities must remain outstanding after each such redemption.
6. Notice of Redemption
--------------------
Notice of redemption will be mailed at least 30 days but not more than
60 days before the redemption date to each Holder of Securities to be redeemed
at his registered address. Securities in denominations of principal amount at
maturity larger than $1,000 may be redeemed in part but only in whole multiples
of $1,000. If money sufficient to pay the redemption price of and accrued
interest (if any) on all Securities (or portions thereof) to be redeemed on the
redemption date is deposited with the Paying Agent on or before the redemption
date and certain other conditions are satisfied, on and after such date Accreted
Value ceases to increase and interest ceases to accrue on such Securities (or
such portions thereof) called for redemption.
<PAGE>
11
7. Put Provisions
--------------
Upon a Change of Control, any Holder of Securities will have the right
to cause the Company to repurchase all or any part of the Securities of such
Holder at a repurchase price equal to 101% of the Accreted Value of the
Securities to be repurchased plus accrued interest to the date of repurchase
(subject to the right of holders of record on the relevant record date to
receive interest due on the related interest payment date) as provided in, and
subject to the terms of, the Indenture.
8. Denominations; Transfer; Exchange
---------------------------------
The Securities are in registered form without coupons in denominations
of principal amount at maturity of $1,000 and whole multiples of $1,000. A
Holder may transfer or exchange Securities in accordance with the Indenture. The
Registrar may require a Holder, among other things, to furnish appropriate
endorsements or transfer documents and to pay any taxes and fees required by law
or permitted by the Indenture. The Registrar need not register the transfer of
or exchange any Securities selected for redemption (except, in the case of a
Security to be redeemed in part, the portion of the Security not to be redeemed)
or any Securities for a period of 15 days before a selection of Securities to be
redeemed or 15 days before an interest payment date.
<PAGE>
12
9. Persons Deemed Owners
---------------------
The registered Holder of this Security may be treated as the owner of
it for all purposes.
10. Unclaimed Money
---------------
If money for the payment of principal or interest remains unclaimed
for two years, the Trustee or Paying Agent shall pay the money back to the
Company at its request unless an abandoned property law designates another
Person. After any such payment, Holders entitled to the money must look only to
the Company and not to the Trustee for payment.
11. Discharge and Defeasance
------------------------
Subject to certain conditions, the Company at any time may terminate
some or all of its obligations under the Securities and the Indenture if the
Company deposits with the Trustee money or U.S. Government Obligations for the
payment of principal and interest on the Securities to redemption or maturity,
as the case may be.
<PAGE>
13
12. Amendment, Waiver
-----------------
Subject to certain exceptions set forth in the Indenture, (i) the
Indenture or the Securities may be amended with the written consent of the
Holders of at least a majority in principal amount at maturity outstanding of
the Securities and (ii) any default or noncompliance with any provision may be
waived with the written consent of the Holders of a majority in principal amount
at maturity outstanding of the Securities. Subject to certain exceptions set
forth in the Indenture, without the consent of any Securityholder, the Company
and the Trustee may amend the Indenture or the Securities to cure any ambiguity,
omission, defect or inconsistency, or to comply with Article 5 of the Indenture,
or to provide for uncertificated Securities in addition to or in place of
certificated Securities, or to add guarantees with respect to the Securities or
to secure the Securities, or to add additional covenants or surrender rights and
powers conferred on the Company, or to comply with any request of the SEC in
connection with qualifying the Indenture under the Act, or to make any change
that does not adversely affect the rights of any Securityholder.
13. Defaults and Remedies
---------------------
Under the Indenture, Events of Default include (i) default for 30 days
in payment of interest on the Securities; (ii) default in payment of principal
on the Securities at maturity, upon redemption pursuant to paragraph 5 of the
Securities, upon acceleration or otherwise, or failure by the Company to redeem
or purchase Securities when required; (iii) failure by the Company to comply
with other agreements in the Indenture or the Securities, in certain cases
subject to notice and lapse of time;
<PAGE>
14
(iv) certain accelerations (including failure to pay within any grace period
after final maturity) of other Indebtedness of the Company if the amount
accelerated (or so unpaid) exceeds $10 million, subject to notice and lapse of
time; (v) certain events of bankruptcy or insolvency with respect to the Company
and the Significant Subsidiaries; and (vi) certain judgments or decrees for the
payment of money in excess of $10 million. If an Event of Default occurs and is
continuing, the Trustee or the Holders of at least 25% in principal amount at
maturity of the Securities may declare all the Securities to be due and payable
immediately. Certain events of bankruptcy or insolvency are Events of Default
which will result in the Securities being due and payable immediately upon the
occurrence of such Events of Default.
Securityholders may not enforce the Indenture or the Securities except
as provided in the Indenture. The Trustee may refuse to enforce the Indenture
or the Securities unless it receives reasonable indemnity or security. Subject
to certain limitations, Holders of a majority in principal amount at maturity of
the Securities may direct the Trustee in its exercise of any trust or power.
The Trustee may withhold from Securityholders notice of any continuing Default
(except a Default in payment of principal or interest) if it determines that
withholding notice is in the interest of the Holders.
14. Trustee Dealings with the Company
---------------------------------
Subject to certain limitations imposed by the Act, the Trustee under
the Indenture, in its individual or any other capacity, may become the owner or
pledgee of Securities and may otherwise deal with and collect obligations owed
to it by the Company or its Affiliates and may other
<PAGE>
15
wise deal with the Company or its Affiliates with the same rights it would have
if it were not Trustee.
15. No Recourse Against Others
--------------------------
A director, officer, employee or stockholder, as such, of the Company
or the Trustee shall not have any liability for any obligations of the Company
under the Securities or the Indenture or for any claim based on, in respect of
or by reason of such obligations or their creation. By accepting a Security,
each Securityholder waives and releases all such liability. The waiver and
release are part of the consideration for the issue of the Securities.
16. Authentication
--------------
This Security shall not be valid until an authorized signatory of
the Trustee (or an authenticating agent) manually signs the certificate of
authentication on the other side of this Security.
17. Abbreviations
-------------
Customary abbreviations may be used in the name of a Securityholder or
an assignee, such as TEN COM (=tenants
<PAGE>
16
in common), TEN ENT (=tenants by the entireties), JT TEN (=joint tenants with
rights of survivorship and not as tenants in common), CUST (=custodian), and
U/G/M/A (=Uniform Gift to Minors Act).
18. CUSIP Numbers
-------------
Pursuant to a recommendation promulgated by the Committee on Uniform
Security Identification Procedures the Company has caused CUSIP numbers to be
printed on the Securities and has directed the Trustee to use CUSIP numbers in
notices of redemption as a convenience to Securityholders. No representation is
made as to the accuracy of such numbers either as printed on the Securities or
as contained in any notice of redemption and reliance may be placed only on the
other identification numbers placed thereon.
19. Holders' Compliance with Registration Rights Agreement.
------------------------------------------------------
Each Holder of a Security, by acceptance hereof, acknowledges and
agrees to the provisions of the Registration Rights Agreement, including,
without limitation, the obligations of the Holders with respect to a
registration and the indemnification of the Company to the extent provided
therein.
<PAGE>
17
20. Governing Law.
-------------
THIS SECURITY SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF NEW YORK BUT WITHOUT GIVING EFFECT TO APPLICABLE
PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF
ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY.
The Company will furnish to any Securityholder upon written request
and without charge to the Security holder a copy of the Indenture which has in
it the text of this Security in larger type. Requests may be made to:
21st Century Telecom Group, Inc.
350 North Orleans, Suite 600
Chicago, IL 60654
Telecopy: (312) 470-2111
Attention of: Chief Financial Officer
<PAGE>
18
ASSIGNMENT FORM
To assign this Security, fill in the form below:
I or we assign and transfer this Security to
- --------------------------------------------------------------------------------
(Print or type assignee's name, address and zip code)
- --------------------------------------------------------------------------------
(Insert assignee's soc. sec. or tax I.D. No.)
and irrevocably appoint agent to transfer this
Security on the books of the Company. The agent may substitute another to act
for him.
Date: Your Signature:
--------------------- ------------------------------------
(Sign exactly as your name
appears on the other side
of the Security)
<PAGE>
19
In connection with any transfer of any of the Securities evidenced by this
certificate occurring prior to the expiration of the period referred to in Rule
144(k) under the Securities Act after the later of the date of original issuance
of such Securities and the last date, if any, on which such Securities were
owned by the Company or any Affiliate of the Company, the undersigned confirms
that such Securities are being transferred in accordance with its terms:
CHECK ONE BOX BELOW
(1) [ ] to the Company; or
(2) [ ] pursuant to an effective registration statement under the
Securities Act of 1933; or
(3) [ ] inside the United States to a "qualified institutional buyer" (as
defined in Rule 144A under the Securities Act of 1933) that purchases
for its own account or for the account of a qualified institutional
buyer to whom notice is given that such transfer is being made in
reliance on Rule 144A, in each case pursuant to and in compliance with
Rule 144A under the Securities Act of 1933; or
<PAGE>
20
(4) [ ] outside the United States in an offshore transaction within the
meaning of Regulation S under the Securities Act in compliance with
Rule 904 under the Securities Act of 1933; or
(5) [ ] pursuant to another available exemption from registration
provided by Rule 144 under the Securities Act of 1933.
Unless one of the boxes is checked, the Trustee will refuse to register any
of the Securities evidenced by this certificate in the name of any person
other than the registered holder thereof; provided, however, that if box
-------- -------
(4) or (5) is checked, the Trustee may require, prior to registering any
such transfer of the Securities, such legal opinions, certifications and
other information as the Company has reasonably requested to confirm that
such transfer is being made pursuant to an exemption from, or in a
transaction not subject to, the registration requirements of the Securities
Act of 1933, such as the exemption provided by Rule 144 under such Act.
-------------------------------------
Signature
<PAGE>
21
Signature Guarantee:
- ----------------------------------- ---------------------------------------
(Signature must be guaranteed by a
member firm of the New York Signature
Stock Exchange or a commercial
bank or trust company)
- --------------------------------------------------------------------------------
TO BE COMPLETED BY PURCHASER IF (3) ABOVE IS CHECKED.
The undersigned represents and warrants that it is purchasing this
Security for its own account or an account with respect to which it exercises
sole investment discretion and that it and any such account is a "qualified
institutional buyer" within the meaning of Rule 144A under the Securities Act of
1933, and is aware that the sale to it is being made in reliance on Rule 144A
and acknowledges that it has received such information regarding the Company as
the undersigned has requested pursuant to Rule 144A or has determined not to
request such information and that it is aware that the transferor is relying
upon the undersigned's foregoing representations in order to claim the exemption
from registration provided by Rule 144A.
<PAGE>
22
Dated:
----------------------- -----------------------------------------
NOTICE: To be executed by
an executive officer
<PAGE>
23
SCHEDULE OF INCREASES OR DECREASES IN GLOBAL SECURITY
The following increases or decreases in this Global Security have
been made:
<TABLE>
<S> <C> <C> <C> <C>
Date of Amount of decrease Amount of increase Principal amount at Signature of
Exchange in Principal Amount in Principal Amount Maturity of this authorized officer
at Maturity of this at Maturity of this Global Security of Trustee or
Global Security Global Security following such Securities
decrease or Custodian
increase)
</TABLE>
<PAGE>
24
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Security purchased by the Company
pursuant to Section 4.06 or 4.09 of the Indenture, check the box:
[ ]
If you want to elect to have only part of this Security purchased by
the Company pursuant to Section 4.06 or 4.09 of the Indenture, state the amount
in principal amount at maturity (must be integral multiple of $1,000): $
Date: Your Signature:
----------------------- ---------------------------------
(Sign exactly as your name
appears on the other side of
this Security.)
Signature Guarantee:
-----------------------------------------------------------
(Signature must be guaranteed by a member firm of the
New York Stock Exchange or a commercial bank or trust
company)
<PAGE>
Contents, p. 1
EXHIBIT 4.3
21st Century Telecom Group, Inc.
Issuer
13-3/4% Subordinated Exchange Debentures Due 2010
____________________
INDENTURE
Dated as of February 15, 1998
<PAGE>
Contents, p. 2
_____________________
IBJ Schroder Bank & Trust Company
Trustee
<PAGE>
Contents, p. 3
CROSS-REFERENCE TABLE
TIA Indenture
Section Section
------- -------
310(a)(1) 7.10
(a)(2) 7.10
(a)(3) N.A.
(a)(4) N.A.
(b) 7.08; 7.10
(c) N.A.
311(a) 7.11
(b) 7.11
(c) N.A.
312(a) 2.05
<PAGE>
Contents, p. 4
(b) 11.03
(c) 11.03
313(a) 7.06
(b)(1) N.A.
(b)(2) 7.06
(d) 7.06
314(a) 4.02;
4.12
(b) N.A.
(c)(3) N.A.
(d) N.A.
(f) 4.12
315(a) 7.01
(b) 7.05
(c) 7.01
(d) 7.01
(e) 6.11
(a)(1)(A) 6.05
(a)(1)(B) 6.04
(a)(2) N.A.
(b) 6.07
317(a)(1) 6.08
(a)(2) 6.09
<PAGE>
Contents, p. 5
(b) 2.04
N.A. means Not Applicable.
Note: This Cross-Reference Table shall not, for any
purpose, be deemed to be part of the Indenture.
<PAGE>
Contents, p. 6
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
------
<S> <C> <C>
ARTICLE I
Definitions and Incorporation by Reference
------------------------------------------
SECTION 1.01. Definitions 1
SECTION 1.02. Other Definitions 26
SECTION 1.03. Incorporation by 26
Reference of Trust
Indenture Act
SECTION 1.04. Rules of Construction 27
</TABLE>
<PAGE>
Contents, p. 7
ARTICLE II
The Securities
--------------
SECTION 2.01. Form and Dating 28
SECTION 2.02. Execution and Authentication 28
SECTION 2.03. Registrar and Paying Agent 29
SECTION 2.04. Paying Agent To Hold Money in Trust 29
SECTION 2.05. Securityholder Lists 30
SECTION 2.06. Transfer and Exchange 30
SECTION 2.07. Replacement Securities 31
SECTION 2.08. Outstanding Securities 31
SECTION 2.09. Temporary Securities 32
SECTION 2.10. Cancelation 32
SECTION 2.11. Defaulted Interest 32
SECTION 2.12. CUSIP Numbers 32
<PAGE>
Contents, p. 8
ARTICLE III
Redemption
----------
SECTION 3.01. Notices to Trustee 33
SECTION 3.02. Selection of Securities 33
To Be Redeemed
SECTION 3.03. Notice of Redemption 33
SECTION 3.04. Effect of Notice of Redemption 34
SECTION 3.05. Deposit of Redemption Price 35
SECTION 3.06. Securities Redeemed in Part 35
ARTICLE IV
Covenants
---------
SECTION 4.01. Payment of Securities 35
SECTION 4.02. SEC Reports 35
SECTION 4.03. Limitation on Indebtedness 36
SECTION 4.04. Limitation on Restricted Payments 39
<PAGE>
Contents, p. 9
SECTION 4.05. Limitation on 42
Restrictions on
Distributions from
Restricted Subsidiaries
SECTION 4.06. Limitation on Sales of Assets and 44
Subsidiary Stock
SECTION 4.07. Limitation on Affiliate Transactions 48
SECTION 4.08. Limitation on the Sale or Issuance 49
of Capital Stock of Certain Restricted
Subsidiaries
SECTION 4.09. Change of Control 50
SECTION 4.10. Limitation on Market Swaps 52
SECTION 4.11. Limitation on Lines of Business 52
SECTION 4.12. Compliance Certificate 52
SECTION 4.13. Further Instruments and Acts 52
ARTICLE IV
Successor Company
-----------------
SECTION 5.01. When Company May Merge 53
or Transfer Assets
<PAGE>
Contents, p. 10
ARTICLE VI
Defaults and Remedies
---------------------
SECTION 6.01. Events of Default 54
SECTION 6.02. Acceleration 56
SECTION 6.03. Other Remedies 57
SECTION 6.04. Waiver of Past Defaults 57
SECTION 6.05. Control by Majority 57
SECTION 6.06. Limitation on Suits 58
SECTION 6.07. Rights of Holders to 58
Receive Payment
SECTION 6.08. Collection Suit by Trustee 58
SECTION 6.09. Trustee May File Proofs of Claim 59
SECTION 6.10. Priorities 59
SECTION 6.11. Undertaking for Costs 59
SECTION 6.12. Waiver of Stay or Extension Laws 60
<PAGE>
Contents, p. 11
ARTICLE VII
Trustee
-------
SECTION 7.01. Duties of Trustee 60
SECTION 7.02. Rights of Trustee 62
SECTION 7.03. Individual Rights of Trustee 62
SECTION 7.04. Trustee's Disclaimer 63
SECTION 7.05. Notice of Defaults 63
SECTION 7.06. Reports by Trustee to Holders 63
SECTION 7.07. Compensation and Indemnity 63
SECTION 7.08. Replacement of Trustee 64
SECTION 7.09. Successor Trustee by Merger 65
SECTION 7.10. Eligibility; Disqualification 66
SECTION 7.11. Preferential Collection 66
of Claims
Against Company
<PAGE>
Contents, p. 12
ARTICLE VIII
Discharge of Indenture; Defeasance
----------------------------------
SECTION 8.01. Discharge of Liability 66
on Securi-
ties; Defeasance
SECTION 8.02. Conditions to Defeasance 67
SECTION 8.03. Application of Trust Money 69
SECTION 8.04. Repayment to Company 69
SECTION 8.05. Indemnity for Government Obligations 69
SECTION 8.06. Reinstatement 69
ARTICLE IX
Amendments
----------
SECTION 9.01. Without Consent of Holders 70
SECTION 9.02. With Consent of Holders 71
SECTION 9.03. Compliance with Trust 72
Indenture Act 72
<PAGE>
Contents, p. 13
SECTION 9.04. Revocation and Effect of Consents and 72
Waivers
SECTION 9.05. Notation on or Exchange of Securities 72
SECTION 9.06. Trustee To Sign Amendments 73
SECTION 9.07. Payment for Consent 73
ARTICLE X
Subordination
-------------
SECTION 10.01. Agreement To Subordinate 73
SECTION 10.02. Liquidation, 73
Dissolution,
Bankruptcy
SECTION 10.03. Default on Senior Indebtedness 74
SECTION 10.04. Acceleration of Payment of Securities 75
SECTION 10.05. When Distribution Must Be Paid Over 75
SECTION 10.06. Subrogation 75
SECTION 10.07. Relative Rights 75
SECTION 10.08. Subordination May Not Be Impaired 76
by Company
SECTION 10.09. Rights of Trustee and Paying Agent 76
SECTION 10.10. Distribution or Notice to 76
Representative
<PAGE>
Contents, p. 14
SECTION 10.11. Article 10 Not To Prevent Events 76
of Default or Limit Right To Accelerate
SECTION 10.12. Trust Moneys Not Subordinated 77
SECTION 10.13. Trustee Entitled To Rely 77
SECTION 10.14. Trustee To Effectuate Subordination 77
SECTION 10.15. Trustee Not Fiduciary for Holders 78
of Senior Indebtedness
SECTION 10.16. Reliance by Holders of Senior 78
Indebtedness on Subordination
Provisions
ARTICLE XI
Miscellaneous
-------------
SECTION 11.01. Trust Indenture Act Controls 78
SECTION 11.02. Notices 78
SECTION 11.03. Communication by Holders 80
with Other Holders
SECTION 11.04. Certificate and Opinion as to 80
Conditions Precedent
SECTION 11.05. Statements Required in Certificate or 80
Opinion
SECTION 11.06. When Securities Disregarded 81
<PAGE>
Contents, p. 15
SECTION 11.07. Rules by Trustee, Paying Agent 81
and Registrar
SECTION 11.08. Legal Holidays 81
SECTION 11.09. Governing Law 81
SECTION 11.10. No Recourse Against Others 81
SECTION 11.11. Successors 81
SECTION 11.12. Multiple Originals 82
SECTION 11.13. Table of Contents; Headings 82
Rule 144A/Regulation S Appendix - Provisions Relating to Initial Securities,
Private Exchange Securities and Exchange Securities
Exhibit 1 to Rule 144A/Regulation S Appendix - Form of Initial Security
Exhibit A - Form of Exchange Security or Private Exchange Security
<PAGE>
Contents, p. 16
INDENTURE dated as of February 15, 1998, between 21ST CENTURY TELECOM
GROUP, INC., an Illinois corporation (the "Company") and IBJ SCHRODER
BANK & TRUST COMPANY, a New York banking corporation (the "Trustee").
Each party agrees as follows for the benefit of the other party and
for the equal and ratable benefit of the Holders of the Company's 13-3/4%
Subordinated Exchange Debentures Due 2010 (the "Initial Securities") and, if and
when issued pursuant to a registered exchange for Initial Securities, the
Company's 13-3/4% Subordinated Exchange Debentures Due 2010 (the "Exchange
Securities") and if and when issued pursuant to a private exchange for Initial
Securities, the Company's 13-3/4% Subordinated Exchange Debentures Due 2010 (the
"Private Exchange Securities", together with the Exchange Securities and the
Initial Securities, the "Securities"):
ARTICLE I
Definitions and Incorporation by Reference
------------------------------------------
<PAGE>
17
SECTION 1.01. Definitions.
------------
"Additional Assets" means (i) any property or assets (other than
Indebtedness and Capital Stock) in a Related Business; (ii) the Capital Stock of
a Person that becomes a Restricted Subsidiary as a result of the acquisition of
such Capital Stock by the Company or another Restricted Subsidiary; or (iii)
Capital Stock constituting a minority interest in any Person that at such time
is or becomes a Restricted Subsidiary; provided, however, that any such
-------- -------
Restricted Subsidiary described in clauses (ii) or (iii) above is primarily
engaged in a Related Business.
"Affiliate" of any specified Person means any other Person, directly
or indirectly, controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing. For
purposes of the provisions described under Sections 4.04, 4.06 and 4.07 only,
"Affiliate" shall also mean any beneficial owner of Capital Stock representing
5% or more of the total voting power of the Voting Stock (on a fully diluted
basis) of the Company or of rights or warrants to purchase such Capital Stock
(whether or not currently exercisable) and any Person who would be an Affiliate
of any such beneficial owner pursuant to the first sentence hereof.
"Annualized EBITDA" as of any date of determination means EBITDA for
the most recent two consecutive fiscal quarters for which financial statements
have been made publicly available but in no event ending
<PAGE>
18
more than 135 days prior to the date of such determination multiplied by two.
"Area 1 Franchise" means the Company's cable television franchise
pursuant to a Franchise Agreement between the Company and the City of Chicago in
effect on the Issue Date.
"Asset Disposition" means any sale, lease, transfer or other
disposition (or series of related sales, leases, transfers or dispositions)
(that is not for security purposes) by the Company or any Restricted Subsidiary,
including any disposition by means of a merger, consolidation or similar
transaction (each referred to for the purposes of this definition as a
"disposition"), of (i) any shares of Capital Stock (other than Qualified
Preferred Stock) of a Restricted Subsidiary (other than directors' qualifying
shares or shares required by applicable law to be held by a Person other than
the Company or a Restricted Subsidiary), (ii) all or substantially all the
assets of any division or line of business of the Company or any Restricted
Subsidiary or (iii) any other assets (other than Capital Stock or other
Investments in an Unrestricted Subsidiary) of the Company or any Restricted
Subsidiary outside of the ordinary course of business of the Company or such
Restricted Subsidiary (other than, in the case of (i), (ii) and (iii) above, (a)
a disposition by a Restricted Subsidiary to the Company or by the Company or a
Restricted Subsidiary to another Restricted Subsidiary, (b) for purposes of
Section 4.06 only, a disposition that (x) constitutes a Permitted Investment or
a Restricted Payment permitted by Section 4.04, (y) complies with Section 5.01
or (z) constitutes a Market Swap permitted by Section 4.10 and (c) a disposition
of assets with a fair market value of less than $250,000).
<PAGE>
19
"Attributable Debt" in respect of a Sale/Leaseback Transaction means,
as at the time of determination, the present value (discounted at the interest
rate borne by the Senior Discount Notes, compounded annually) of the total
obligations of the lessee for rental payments during the remaining term of the
lease included in such Sale/Leaseback Transaction (including any period for
which such lease has been extended).
"Average Life" means, as of the date of determination, with respect to
any Indebtedness or Preferred Stock, the quotient obtained by dividing (i) the
sum of the products of numbers of years (calculated to the nearest one-twelfth)
from the date of determination to the dates of each successive scheduled
principal payment of such Indebtedness or redemption or similar payment with
respect to such Preferred Stock multiplied by the amount of each such principal
payment by (ii) the sum of all such principal payments.
"Board of Directors" means the Board of Directors of the Company or
any committee thereof duly authorized to act on behalf of such Board.
"Business Day" means any day other than a Saturday, Sunday or day on
which banking institutions are not required to be open in the States of New York
or Illinois.
"Capital Lease Obligation" means an obligation that is required to be
classified and accounted for as a capital lease for financial reporting purposes
in accordance with GAAP, and the amount of Indebtedness represented by such
obligation shall be the capitalized amount of such
<PAGE>
20
obligation determined in accordance with GAAP; and the Stated Maturity thereof
shall be the date of the last payment of rent or any other amount due under such
lease prior to the first date upon which such lease may be terminated by the
lessee without payment of a penalty.
"Capital Stock" of any Person means any and all shares, interests,
rights to purchase, warrants, options, participations or other equivalents of or
interests in (however designated, whether voting or nonvoting) equity of such
Person, including any common stock and Preferred Stock, whether outstanding on
the Issue Date or issued after the Issue Date, but excluding any debt securities
convertible into such equity.
"Change of Control" means the occurrence of any of the following
events:
(i) Prior to the earlier to occur of (A) the first public offering of common
stock of Parent or (B) the first public offering of common stock of the
Company, the Permitted Holders cease to be the "beneficial owner" (as defined
in Rules 13d-3 and 13d-5 under the Exchange Act), directly or indirectly, of a
majority in the aggregate of the total voting power of the Voting Stock of the
Company, whether as a result of issuance of securities of the Parent or the
Company, any merger, consolidation, liquidation or dissolution of the Parent
or the Company, any direct or indirect transfer of securities by Parent or
otherwise (for purposes of this clause (i) and clause (ii) below, the
Permitted Holders shall be deemed to beneficially own any Voting Stock of a
corporation (the "specified corporation") held by any other corporation (the
"parent corporation") so long as the Permitted Holders beneficially own (as so
defined), directly or indirectly, in the aggregate a majority of
<PAGE>
21
the voting power of the Voting Stock of the parent corporation);
(ii) Any "person" (as such term is used in Sections 13(d) and 14(d) of the
Exchange Act), other than one or more Permitted Holders, is or becomes the
beneficial owner (as defined in clause (i) above, except that for purposes of
this clause (ii) such person shall be deemed to have "beneficial ownership" of
all shares that any such person has the right to acquire, whether such right
is exercisable immediately or only after the passage of time), directly or
indirectly, of more than 35% of the total voting power of the Voting Stock of
the Company; provided, however, that the Permitted Holders beneficially own
-------- -------
(as defined in clause (i) above), directly or indirectly, in the aggregate a
lesser percentage of the total voting power of the Voting Stock of the Company
than such other person and do not have the right or ability by voting power,
contract or otherwise to elect or designate for election a majority of the
Board of Directors (for the purposes of this clause (ii), such other person
shall be deemed to beneficially own any Voting Stock of a specified
corporation held by a parent corporation, if such other person is the
beneficial owner (as defined in this clause (ii)), directly or indirectly, of
more than 35% of the voting power of the Voting Stock of such parent
corporation and the Permitted Holders beneficially own (as defined in clause
(i) above), directly or indirectly, in the aggregate a lesser percentage of
the voting power of the Voting Stock of such parent corporation and do not
have the right or ability by voting power, contract or otherwise to elect or
designate for election a majority of the board of directors of such parent
corporation);
(iii) during any period of two consecutive years, individuals who at the
beginning of such period constituted the Board of Directors (together with
any new
<PAGE>
22
directors whose election or appointment by such Board of Directors or whose
nomination for election by the shareholders of the Company was approved by a
vote of 66-2/3% of the directors of the Company then still in office who were
either directors at the beginning of such period or whose election or
nomination for election was previously so approved) cease for any reason to
constitute a majority of the Board of Directors then in office; or
(iv) the merger or consolidation of the Company with or into another Person
or the merger of another Person with or into the Company, or the sale of all
or substantially all the assets of the Company to another Person (other than a
Person that is controlled by the Permitted Holders), and, in the case of any
such merger or consolidation, the securities of the Company that are
outstanding immediately prior to such transaction and which represent 100% of
the aggregate voting power of the Voting Stock of the Company are changed into
or exchanged for cash, securities or property, unless pursuant to such
transaction such securities are changed into or exchanged for, in addition to
any other consideration, securities of the surviving corporation that
represent immediately after such transaction, at least a majority of the
aggregate voting power of the Voting Stock of the surviving corporation.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" means the party named as such in this Indenture until a
successor replaces it and, thereafter, means the successor and, for purposes of
any provision contained herein and required by the TIA, each other obligor on
the indenture securities.
<PAGE>
23
"consolidated" means the consolidation of accounts of the Company and
its Subsidiaries in accordance with GAAP.
"Consolidated Current Liabilities" as of the date of determination
means the aggregate amount of liabilities of the Company and its Restricted
Subsidiaries which may properly be classified as current liabilities (including
taxes accrued as estimated), on a consolidated basis, after eliminating (i) all
intercompany items between the Company and any Restricted Subsidiary and (ii)
all current maturities of long-term Indebtedness, all as determined in
accordance with GAAP consistently applied.
"Consolidated Interest Expense" means, for any period, the total
interest expense of the Company and its consolidated Restricted Subsidiaries,
plus, to the extent not included in such total interest expense, and to the
extent incurred in such period by the Company or its Restricted Subsidiaries,
without duplication, (i) interest expense attributable to capital leases and the
interest expense attributable to leases constituting part of a Sale/Leaseback
Transaction, (ii) amortization of debt discount and debt issuance cost, (iii)
capitalized interest, (iv) non-cash interest expense, (v) commissions, discounts
and other fees and charges owed with respect to letters of credit and bankers'
acceptance financing, (vi) net costs associated with Hedging Obligations
(including amortization of fees), (vii) Preferred Stock dividends in respect of
all Preferred Stock held by Persons other than the Company or a Restricted
Subsidiary, (viii) interest incurred in connection with Investments in
discontinued operations, (ix) interest accruing on any Indebtedness of any other
Person to the extent such Indebtedness is Guaranteed by (or secured by the
assets of) the Company or any Restricted Subsidiary and (x) the cash
contributions to any employee stock ownership plan or similar trust to the
extent such
<PAGE>
24
contributions are used by such plan or trust to pay interest or fees to any
Person (other than the Company) in connection with Indebtedness Incurred by such
plan or trust; excluding, however, (y) a proportional amount of any of the
foregoing items or other interest expense incurred by a Restricted Subsidiary in
such period to the extent the net income of such Restricted Subsidiary is
excluded in the calculation of Consolidated Net Income pursuant to clause (iii)
of the definition thereof and (z) any fees or debt issuance costs (and any
amortization thereof) payable in connection with the sale of the Senior Discount
Notes and Units on the Issue Date.
"Consolidated Leverage Ratio" as of any date of determination means
the ratio of (i) the aggregate amount of Indebtedness of the Company and its
Restricted Subsidiaries calculated on a consolidated basis as of the end of the
most recent fiscal quarter for which financial statements have been made
publicly available but in no event ending more than 135 days prior to the date
of such determination to (ii) Annualized EBITDA as of such date of
determination; provided, however, that
-------- -------
(1) if the transaction giving rise to the need to calculate the Consolidated
Leverage Ratio is an Incurrence of Indebtedness, the amount of Indebtedness
outstanding at the end of such fiscal quarter shall be calculated after giving
effect on a pro forma basis to the Incurrence of such Indebtedness as if such
Indebtedness had been outstanding as of the end of such fiscal quarter and to
the discharge of any other Indebtedness to the extent it was outstanding as of
the end of such fiscal quarter and is to be repaid, repurchased, defeased or
otherwise discharged with the proceeds of such new Indebtedness as if such
Indebtedness had been discharged as of the end of such fiscal quarter,
<PAGE>
25
(2) if the Company or any Restricted Subsidiary has repaid, repurchased,
defeased or otherwise discharged any Indebtedness that was outstanding as of
the end of such fiscal quarter or if any Indebtedness that was outstanding as
of the end of such fiscal quarter is to be repaid, repurchased, defeased or
otherwise discharged on the date of the transaction giving rise to the need to
calculate the Consolidated Leverage Ratio, the aggregate amount of
Indebtedness outstanding as of the end of such fiscal quarter shall be
calculated on a pro forma basis as if such discharge had occurred as of the
end of such fiscal quarter and EBITDA shall be calculated as if the Company or
such Restricted Subsidiary had not earned the interest income, if any,
actually earned during the period of the most recent two consecutive fiscal
quarters for which financial statements have been made publicly available but
in no event ending more than 135 days prior to the date of such determination
(the "Reference Period") in respect of cash or Temporary Cash Investments used
to repay, repurchase, defease or otherwise discharge such Indebtedness,
(3) if since the beginning of the Reference Period the Company or any
Restricted Subsidiary shall have made any Asset Disposition, the EBITDA for
the Reference Period shall be reduced by an amount equal to the EBITDA (if
positive) directly attributable to the assets which are the subject of such
Asset Disposition for the Reference Period, or increased by an amount equal to
the EBITDA (if negative), directly attributable thereto for the Reference
Period,
(4) if since the beginning of the Reference Period the Company or any
Restricted Subsidiary (by merger or otherwise) shall have made an Investment
in any Restricted Subsidiary (or any person which becomes a Restricted
Subsidiary) or an acquisition of assets,
<PAGE>
26
including any acquisition of assets occurring in connection with a transaction
requiring a calculation to be made hereunder, which constitutes all or
substantially all an operating unit of a business, EBITDA for the Reference
Period shall be calculated after giving pro forma effect thereto (including
the Incurrence of any Indebtedness) as if such Investment or acquisition
occurred on the first day of the Reference Period,
(5) if since the beginning of the Reference Period any Person (that
subsequently became a Restricted Subsidiary or was merged with or into the
Company or any Restricted Subsidiary since the beginning of such Reference
Period) shall have made any Asset Disposition, any Investment or acquisition
of assets that would have required an adjustment pursuant to clause (3) or (4)
above if made by the Company or a Restricted Subsidiary during the Reference
Period, EBITDA for the Reference Period shall be calculated after giving pro
forma effect thereto as if such Asset Disposition, Investment or acquisition
occurred on the first day of the Reference Period, and
(6) the aggregate amount of Indebtedness outstanding at the end of such most
recent fiscal quarter will be deemed to include the total principal amount of
funds outstanding or available to be borrowed on the date of determination
under any revolving credit or similar facilities of the Company or its
Restricted Subsidiaries.
For purposes of this definition, whenever pro forma effect is to be given to an
acquisition of assets or the amount of income or earnings relating thereto, the
pro forma calculations shall be determined in good faith by a responsible
financial or accounting Officer of the Company.
<PAGE>
27
"Consolidated Net Income" means, for any period, the aggregate net
income of the Company and its consolidated Subsidiaries for such period;
provided, however, that the following shall not be included in such Consolidated
- -------- -------
Net Income:
(i) any net income (or loss) of any Person (other than the Company) if such
Person is not a Restricted Subsidiary, except that subject to the exclusion
contained in clause (iv) below, the Company's equity in the net income of any
such Person for such period shall be included in such Consolidated Net Income
up to the aggregate amount of cash actually distributed by such Person during
such period to the Company or a Restricted Subsidiary as a dividend or other
distribution (subject, in the case of a dividend or other distribution paid to
a Restricted Subsidiary, to the limitations contained in clause (iii) below);
(ii) any net income (or loss) of any Person acquired by the Company or a
Subsidiary in a pooling of interests transaction for any period prior to the
date of such acquisition;
(iii) any net income of any Restricted Subsidiary if such Restricted
Subsidiary is subject to restrictions, directly or indirectly, on the payment
of dividends or the making of distributions by such Restricted Subsidiary,
directly or indirectly, to the Company, except that (A) subject to the
exclusion contained in clause (iv) below, the Company's equity in the net
income of any such Restricted Subsidiary for such period shall be included in
such Consolidated Net Income up to the aggregate amount of cash actually
distributed by such Restricted Subsidiary during such period to the Company
<PAGE>
28
or another Restricted Subsidiary as a dividend or other distribution (subject,
in the case of a dividend or other distribution paid to another Restricted
Subsidiary, to the limitation contained in this clause) and (B) the Company's
equity in a net loss of any such Restricted Subsidiary for such period shall
be included in determining such Consolidated Net Income;
(iv) the after-tax gain or loss realized upon the sale or other disposition
of any assets of the Company, its consolidated Subsidiaries or any other
Person (including pursuant to any sale-and-leaseback arrangement) which is not
sold or otherwise disposed of in the ordinary course of business and the
after-tax gain or loss realized upon the sale or other disposition of any
Capital Stock of any Person;
(v) extraordinary gains or losses; and
(vi) the cumulative effect of a change in accounting principles.
Notwithstanding the foregoing, for the purposes of Section 4.04 only, there
shall be excluded from Consolidated Net Income any payments of interest,
dividends, repayments of loans or advances or other transfers of assets from
Unrestricted Subsidiaries to the Company or a Restricted Subsidiary to the
extent such interest, dividends, repayments or transfers increase the amount of
Restricted Payments permitted under Section 4.04(a)(3)(D).
<PAGE>
29
"Consolidated Net Tangible Assets" as of any date of determination,
means the total amount of assets (less accumulated depreciation and
amortization, allowances for doubtful receivables, other applicable reserves and
other properly deductible items) which would appear on a balance sheet of the
Company and its Restricted Subsidiaries, determined on a consolidated basis in
accordance with GAAP, and after giving effect to purchase accounting and after
deducting therefrom Consolidated Current Liabilities and, to the extent
otherwise included, the amounts of: (i) minority interests in consolidated
Subsidiaries held by Persons other than the Company or a Restricted Subsidiary;
(ii) excess of cost over fair value of assets of businesses acquired, as
determined in good faith by the Board of Directors; (iii) any revaluation or
other write-up in book value of assets subsequent to the Issue Date as a result
of a change in the method of valuation in accordance with GAAP consistently
applied; (iv) unamortized debt discount and expenses and other unamortized
deferred charges, goodwill, patents, trademarks, service marks, trade names,
copyrights, licenses, organization or developmental expenses and other
intangible items; (v) treasury stock; (vi) cash set apart and held in a sinking
or other analogous fund established for the purpose of redemption or other
retirement of Capital Stock to the extent such obligation is not reflected in
Consolidated Current Liabilities; and (vii) Investments in and assets of
Unrestricted Subsidiaries.
"Consolidated Net Worth" means, at any date of determination, the
total of the amounts shown on the balance sheet of the Company and its
consolidated Subsidiaries, determined on a consolidated basis in accordance with
GAAP, as of the end of the most recent fiscal quarter of the Company for which
financial statements have been made publicly available but in no event ending
more than 135 days prior to the taking of any action for the purpose of which
the determination is being made, as (i) the par or stated value of all
outstanding Capital Stock of the Company plus (ii) paid-in capital or capital
surplus relating to such
<PAGE>
30
Capital Stock plus (iii) any retained earnings or earned surplus less (A) any
accumulated deficit and (B) any amounts attributable to Disqualified Stock.
"Corporate Trust Office" means the Corporate Trust Office of the
Trustee in The City of New York, New York at which at any particular time its
corporate trust business shall be administered, which at the date of this
instrument is at One State Street, New York, New York 10004.
"Credit Agreement" means one or more term loans or revolving credit or
working capital facilities (including any letter of credit subfacility) with one
or more banks or other institutional lenders in favor of the Company or any
Restricted Subsidiary.
"Currency Agreement" means in respect of a Person any foreign exchange
contract, currency swap agreement or other similar agreement designed to protect
such Person against fluctuations in currency values.
"Default" means any event which is, or after notice or passage of time
or both would be, an Event of Default.
"Designated Senior Indebtedness" means (i) the Senior Discount Notes
and any Indebtedness Incurred pursuant to Section 4.03(b)(1) and (ii) any other
Senior Indebtedness of the Company which, at the date of determination, has an
aggregate amount outstanding of, or under which, at the date of determination,
the holders thereof are committed to lend up to, at least $25 million and is
specifically designated
<PAGE>
31
by the Company in the instrument evidencing or governing such Senior
Indebtedness as "Designated Senior Indebtedness" for purposes of this Indenture.
"Disqualified Stock" means, with respect to any Person, any Capital
Stock which by its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable) or upon the happening of any event
(i) matures or is mandatorily redeemable pursuant to a sinking fund obligation
or otherwise, (ii) is convertible or exchangeable for Indebtedness or
Disqualified Stock or (iii) is redeemable or must be purchased, upon the
occurrence of certain events or otherwise, by such Person at the option of the
holder thereof, in whole or in part, in each case on or prior to the first
anniversary of the Stated Maturity of the Securities; provided, however, that
-------- -------
any Capital Stock that would not constitute Disqualified Stock but for
provisions thereof giving holders thereof the right to require such Person to
purchase or redeem such Capital Stock upon the occurrence of an "asset sale" or
"change of control" occurring prior to the first anniversary of the Stated
Maturity of the Securities shall not constitute Disqualified Stock if (x) the
"asset sale" or "change of control" provisions applicable to such Capital Stock
are not more favorable to the holders of such Capital Stock than those in
Sections 4.06 and 4.09 and (y) any such requirement only becomes operative after
compliance with such Sections, including the purchase of any Securities tendered
pursuant thereto.
"EBITDA" for any period means the sum of Consolidated Net Income, plus
the following to the extent deducted in calculating such Consolidated Net
Income: (a) Consolidated Interest Expense, (b) all income tax expense of the
Company and its consolidated Restricted Subsidiaries, (c) depreciation expense
of the Company and its consolidated Restricted Subsidiaries, (d) amortization
expense of the Company and its consolidated Restricted
<PAGE>
32
Subsidiaries (excluding amortization expense attributable to a prepaid cash item
that was paid in a prior period) and (e) all other non-cash charges of the
Company and its consolidated Restricted Subsidiaries (excluding any such non-
cash charge to the extent that it represents an accrual of or reserve for cash
expenditures in any future period), in each case for such period, all as
determined on a consolidated basis for the Company and its Restricted
Subsidiaries. Notwithstanding the foregoing, the provision for taxes based on
the income or profits of, and the depreciation and amortization and non-cash
charges of, a Restricted Subsidiary shall be added to Consolidated Net Income to
compute EBITDA only to the extent (and in the same proportion) that the net
income of such Restricted Subsidiary was included in calculating Consolidated
Net Income and only if a corresponding amount would be permitted at the date of
determination to be dividended to the Company by such Restricted Subsidiary
without prior approval (that has not been obtained), pursuant to the terms of
its charter and all agreements, instruments, judgments, decrees, orders,
statutes, rules and governmental regulations applicable to such Restricted
Subsidiary or its stockholders.
"Equity Offering" means either (a) an underwritten primary public
offering of common stock of Parent or the Company pursuant to an effective
registration statement under the Securities Act or (b) a primary offering of
Capital Stock (other than Disqualified Stock) of the Company to one or more
Persons primarily engaged in a Related Business.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
<PAGE>
33
"Exchange Date" means the first date on which Securities are
authenticated and issued hereunder in exchange for shares of Exchangeable
Preferred Stock.
"Exchangeable Preferred Stock" means the Company's 13-3/4% Senior
Cumulative Exchangeable Preferred Stock Due 2010.
"Existing Restricted Subsidiary" means any Restricted Subsidiary in
existence on the Issue Date and any Restricted Subsidiary formed after the Issue
Date which thereafter conducts all or any portion of the Company's business
pertaining to its Area 1 Franchise in Chicago, as in effect on the Issue Date.
"GAAP" means generally accepted accounting principles in the United
States of America as in effect as of the Issue Date, including those set forth
in (i) the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants, (ii) statements and
pronouncements of the Financial Accounting Standards Board, (iii) such other
statements by such other entity as approved by a significant segment of the
accounting profession and (iv) the rules and regulations of the SEC governing
the inclusion of financial statements (including pro forma financial statements)
in periodic reports required to be filed pursuant to Section 13 of the Exchange
Act, including opinions and pronouncements in staff accounting bulletins and
similar written statements from the accounting staff of the SEC.
"Guarantee" means any obligation, contingent or otherwise, of any
Person directly or indirectly guaranteeing any Indebtedness of any Person and
any obligation, direct or
<PAGE>
34
indirect, contingent or otherwise, of such Person (i) to purchase or pay (or
advance or supply funds for the purchase or payment of) such Indebtedness or
other obligation of such Person (whether arising by virtue of partnership
arrangements, or by agreements to keep-well, to purchase assets, goods,
securities or services, to take-or-pay or to maintain financial statement
conditions or otherwise) or (ii) entered into for the purpose of assuring in any
other manner the obligee of such Indebtedness of the payment thereof or to
protect such obligee against loss in respect thereof (in whole or in part);
provided, however, that the term "Guarantee" shall not include endorsements for
- -------- -------
collection or deposit in the ordinary course of business. The term "Guarantee"
used as a verb has a corresponding meaning. The term "Guarantor" shall mean any
Person Guaranteeing any obligation.
"Hedging Obligations" of any Person means the obligations of such
Person pursuant to any Interest Rate Agreement or Currency Agreement.
"Holder" or "Securityholder" means the Person in whose name a Security
is registered on the Registrar's books.
"Incur" means issue, assume, Guarantee, incur or otherwise become
liable for; provided, however, that any Indebtedness or Capital Stock of a
-------- -------
Person existing at the time such Person becomes a Subsidiary (whether by merger,
consolidation, acquisition or otherwise) shall be deemed to be Incurred by such
Subsidiary at the time it becomes a Subsidiary. The term "Incurrence" when used
as a noun shall have a correlative meaning. The accretion of principal of a
non-interest bearing or other discount security shall be deemed the Incurrence
of Indebtedness.
<PAGE>
35
"Indebtedness" means, with respect to any Person on any date of
determination (without duplication):
(i) the principal in respect of (A) indebtedness of such Person for money
borrowed and (B) indebtedness evidenced by notes, debentures, bonds or other
similar instruments for the payment of which such Person is responsible or
liable, including, in each case, any premium on such indebtedness to the
extent such premium has become due and payable;
(ii) all Capital Lease Obligations of such Person and all Attributable Debt
in respect of Sale/Leaseback Transactions entered into by such Person;
(iii) all obligations of such Person issued or assumed as the deferred
purchase price of property, all conditional sale obligations of such Person
and all obligations of such Person under any title retention agreement (but
excluding trade accounts payable arising in the ordinary course of business);
(iv) all obligations of such Person for the reimbursement of any obligor on
any letter of credit, banker's acceptance or similar credit transaction (other
than obligations with respect to letters of credit securing obligations (other
than obligations described in clauses (i) through (iii) above) entered into in
the ordinary course of business of such Person to the extent such letters of
credit are not drawn upon or, if and to the extent drawn upon, such drawing is
reimbursed no later
<PAGE>
36
than the tenth Business Day following payment on the letter of credit);
(v) the amount of all obligations of such Person with respect to the
redemption, repayment or other repurchase of any Disqualified Stock or, with
respect to any Subsidiary of such Person (including any Restricted
Subsidiary), the liquidation preference with respect to, any Preferred Stock
(but excluding, in each case, any accrued dividends);
(vi) all obligations of the type referred to in clauses (i) through (v) of
other Persons and all dividends of other Persons for the payment of which, in
either case, such Person is responsible or liable, directly or indirectly, as
obligor, guarantor or otherwise, including by means of any Guarantee;
(vii) all obligations of the type referred to in clauses (i) through (vi) of
other Persons secured by any Lien on any property or asset of such Person
(whether or not such obligation is assumed by such Person), the amount of such
obligation being deemed to be the lesser of the fair value of such property or
assets or the amount of the obligation so secured, in each case as of the date
of determination; and
(viii) to the extent not otherwise included in this definition, Hedging
Obligations of such Person.
The amount of Indebtedness of any Person at any date shall be the outstanding
balance at such date of all unconditional
<PAGE>
37
obligations as described above and the maximum liability, upon the occurrence of
the contingency giving rise to the obligation, of any contingent obligations at
such date.
"Indenture" means this Indenture as amended or supplemented from time
to time.
"Interest Rate Agreement" means in respect of a Person any interest
rate swap agreement, interest rate cap, floor, collar or forward interest rate
agreement or other financial agreement or arrangement designed to protect such
Person against fluctuations in interest rates.
"Investment" in any Person means any direct or indirect advance, loan
(other than advances to customers in the ordinary course of business that are
recorded as accounts receivable on the balance sheet of the lender) or other
extensions of credit (including by way of Guarantee or similar arrangement) or
capital contribution to (by means of any transfer of cash or other property to
others or any payment for property or services for the account or use of
others), or any purchase or acquisition of Capital Stock, Indebtedness or other
similar instruments issued by such Person. For purposes of the definition of
"Unrestricted Subsidiary", the definition of "Restricted Payment" and Section
4.04, (i) "Investment" shall include the portion (proportionate to the Company's
equity interest in such Subsidiary) of the fair market value of the net assets
of any Subsidiary of the Company at the time that such Subsidiary is designated
an Unrestricted Subsidiary; provided, however, that upon a redesignation of such
-------- -------
Subsidiary as a Restricted Subsidiary, the Company shall be deemed to continue
to have a permanent "Investment" in an Unrestricted Subsidiary equal to an
amount (if positive) equal to (x) the Company's "Investment" in such Subsidiary
at the time of such redesignation less (y) the portion
<PAGE>
38
(proportionate to the Company's equity interest in such Subsidiary) of the fair
market value of the net assets of such Subsidiary at the time of such
redesignation; and (ii) any property transferred to or from an Unrestricted
Subsidiary shall be valued at its fair market value at the time of such
transfer, in each case as determined in good faith by the Board of Directors.
"Issue Date" means the first date on which shares of Exchangeable
Preferred Stock were issued pursuant to the Articles of Amendment to the
Articles of Incorporation of the Company.
"Lien" means any mortgage, pledge, security interest, encumbrance,
lien or charge of any kind (including any conditional sale or other title
retention agreement or lease in the nature thereof).
"Market Assets" means assets used or useful in the ownership or
operation of a Related Business, including any and all licenses, franchises and
assets related thereto.
"Market Swap" means the execution of a definitive agreement, subject
only to governmental approval and other customary closing conditions, that the
Company in good faith believes will be satisfied, for a substantially concurrent
purchase and sale, or exchange, of Market Assets between the Company or any of
its Restricted Subsidiaries and another Person or group of Persons; provided
that any amendment to or waiver of any closing condition which individually or
in the aggregate is material to the Market Swap will be deemed to be a new
Market Swap; provided, however, that the Market Assets to be sold by the Company
-------- -------
or its Restricted Subsidiaries in connection with a Market Swap do not include
<PAGE>
39
assets used in or necessary for the ownership or operation of the Company's
business pertaining to its Area 1 Franchise in Chicago; provided further,
----------------
however, that the cash and other assets to be received by the Company or its
- -------
Restricted Subsidiaries which do not constitute Market Assets do not constitute
more than 15% of the total consideration to be received by the Company or its
Restricted Subsidiaries in such Market Swap.
"Net Available Cash" from an Asset Disposition means cash payments
received therefrom (including any cash payments received by way of deferred
payment of principal pursuant to a note or installment receivable or otherwise
and proceeds from the sale or other disposition of any securities received as
consideration, but only as and when received, but excluding any other
consideration received in the form of assumption by the acquiring Person of
Indebtedness or other obligations relating to such properties or assets or
received in any other noncash form), in each case net of (i) all legal, title
and recording tax expenses, commissions and other fees and expenses incurred,
and all Federal, state, provincial, foreign and local taxes required to be
accrued as a liability under GAAP, as a consequence of such Asset Disposition,
(ii) all payments made on any Indebtedness which is secured by any assets
subject to such Asset Disposition, in accordance with the terms of any Lien upon
or other security agreement of any kind with respect to such assets, or which
must by its terms, or in order to obtain a necessary consent to such Asset
Disposition, or by applicable law, be repaid out of the proceeds from such Asset
Disposition, (iii) all distributions and other payments required to be made to
minority interest holders in Restricted Subsidiaries as a result of such Asset
Disposition and (iv) the deduction of appropriate amounts provided by the seller
as a reserve, in accordance with GAAP, against any liabilities associated with
the property or other assets disposed in such Asset Disposition and retained by
the Company or any Restricted Subsidiary after such Asset Disposition.
<PAGE>
40
"Net Cash Proceeds", with respect to any issuance or sale of Capital
Stock, means the proceeds of such issuance or sale in the form of cash or cash
equivalents including payments in respect of deferred payment obligations (to
the extent corresponding to the principal, but not interest, component thereof)
when received in such form of cash or cash equivalents and the conversion of
other property received when converted to such form of cash or cash equivalents,
net of any and all issuance costs, including attorneys' fees, accountants' fees,
underwriters' or placement agents' fees, discounts or commissions and brokerage,
consultant and other fees actually incurred in connection with such issuance or
sale and net of taxes paid or payable as a result thereof.
"Officer" means the Chairman of the Board, the President, the Chief
Financial Officer, any Vice President, the Treasurer or the Secretary of the
Company.
"Officers' Certificate" means a certificate signed by two Officers.
"Opinion of Counsel" means a written opinion from
legal counsel who is acceptable to the Trustee. The counsel may be an employee
of or counsel to the Company or the Trustee.
"Parent" means any Person that owns directly or indirectly all the
Voting Stock of the Company.
<PAGE>
41
"Permitted Holders" means Purnendu Chatterjee, JK&B Capital, L.P.,
JK&B Capital II, L.P., Farley, Inc., Boston Capital Ventures II, L.P., Glenn W.
Milligan, Edward T. Joyce and each of their affiliates.
"Permitted Investment" means an Investment by the Company or any
Restricted Subsidiary in (i) the Company, a Restricted Subsidiary or a Person
that will, upon the making of such Investment, become a Restricted Subsidiary;
provided, however, that the primary business of such Restricted Subsidiary is a
- -------- -------
Related Business; (ii) another Person if as a result of such Investment such
other Person is merged or consolidated with or into, or transfers or conveys all
or substantially all its assets to, the Company or a Restricted Subsidiary;
provided, however, that such Person's primary business is a Related Business;
- -------- -------
(iii) Temporary Cash Investments; (iv) receivables owing to the Company or any
Restricted Subsidiary if created or acquired in the ordinary course of business
and payable or dischargeable in accordance with customary trade terms; provided,
--------
however, that such trade terms may include such concessionary trade terms as the
- -------
Company or any such Restricted Subsidiary deems reasonable under the
circumstances; (v) commissions, payroll, travel and similar advances to cover
matters that are expected at the time of such advances ultimately to be treated
as expenses for accounting purposes and that are made in the ordinary course of
business; (vi) loans or advances to employees made in the ordinary course of
business consistent with past practices of the Company or such Restricted
Subsidiary; (vii) stock, obligations or securities received in settlement of
debts created in the ordinary course of business and owing to the Company or any
Restricted Subsidiary or in satisfaction of judgments; (viii) any Person to the
extent such Investment represents either the non-cash portion of the
consideration received for an Asset Disposition as permitted pursuant to Section
4.06 or the consideration not constituting Market Assets received in a Market
Swap as permitted pursuant to
<PAGE>
42
Section 4.10; and (ix) any Person principally engaged in a Related Business if
(a) the Company or a Restricted Subsidiary, after giving effect to such
Investment, will own at least 20% of the Voting Stock of such Person and (b) the
amount of such Investment, when taken together with the aggregate amount of all
Investments made pursuant to this clause (ix) and then outstanding, does not
exceed $10.0 million.
"Person" means any individual, corporation, partnership, limited
liability company, joint venture, association, joint-stock company, trust,
unincorporated organization, government or any agency or political subdivision
thereof or any other entity.
"Preferred Stock", as applied to the Capital Stock of any Person,
means Capital Stock of any class or classes (however designated, whether voting
or nonvoting) which is preferred as to the payment of dividends or
distributions, or as to the distribution of assets upon any voluntary or
involuntary liquidation or dissolution of such Person, over shares of Capital
Stock of any other class of such Person.
"principal" of a Security means the principal amount of the Security
plus the premium, if any, payable on the Security which is due or overdue or is
to become due at the relevant time.
"Qualified Preferred Stock" of a Restricted Subsidiary means a series
of Preferred Stock of such Restricted Subsidiary which (i) has a fixed
liquidation preference that is no greater in the aggregate than the sum of (x)
the fair market value (as determined in good faith by the Board of Directors at
the time of the issuance of such
<PAGE>
43
series of Preferred Stock) of the consideration received by such Restricted
Subsidiary for the issuance of such series of Preferred Stock and (y) accrued
and unpaid dividends to the date of liquidation, (ii) has a fixed annual
dividend and has no right to share in any dividend or other distributions based
on the financial or other similar performance of such Restricted Subsidiary and
(iii) does not entitle the holders thereof to vote in the election of directors,
managers or trustees of such Restricted Subsidiary unless such Restricted
Subsidiary has failed to pay dividends on such series of Preferred Stock for a
period of at least 12 consecutive calendar months.
"Refinance" means, in respect of any Indebtedness, to refinance,
extend, renew, refund, repay, prepay, redeem, defease or retire, or to issue
other Indebtedness in exchange or replacement for, such indebtedness.
"Refinanced" and "Refinancing" shall have correlative meanings.
"Refinancing Indebtedness" means Indebtedness that Refinances any
Indebtedness of the Company or any Restricted Subsidiary existing on the Issue
Date or Incurred in compliance with Section 4.03, including Indebtedness that
Refinances Refinancing Indebtedness; provided, however, that (i) such
-------- -------
Refinancing Indebtedness has a Stated Maturity no earlier than the Stated
Maturity of the Indebtedness being Refinanced, (ii) such Refinancing
Indebtedness has an Average Life at the time such Refinancing Indebtedness is
Incurred that is equal to or greater than the Average Life of the Indebtedness
being Refinanced and (iii) such Refinancing Indebtedness has an aggregate
principal amount (or if Incurred with original issue discount, an aggregate
issue price) that is equal to or less than the aggregate principal amount (or if
Incurred with original issue discount, the aggregate accreted value) then
outstanding or committed (plus accrued and unpaid interest, fees and expenses,
including any premium and defeasance costs) under the Indebtedness being
Refinanced; provided further,
----------------
<PAGE>
44
however, that Refinancing Indebtedness shall not include (x) Indebtedness of a
- -------
Subsidiary that Refinances Indebtedness of the Company or (y) Indebtedness of
the Company or a Restricted Subsidiary that Refinances Indebtedness of an
Unrestricted Subsidiary.
"Registration Rights Agreement" means the Registration Rights
Agreement dated as of February 2, 1998, among the Company and Credit Suisse
First Boston Corporation, BancBoston Securities Inc. and BancAmerica Robertson
Stephens.
"Related Business" means the businesses of the Company and the
Restricted Subsidiaries on the Issue Date and any business related, ancillary or
complementary to the businesses of the Company and the Restricted Subsidiaries
on the Issue Date.
"Representative" means any trustee, agent or representative (if any)
for an issue of Senior Indebtedness.
"Restricted Payment" with respect to any Person means
(i) the declaration or payment of any dividends or any other distributions
of any sort (including any payment in connection with any merger or
consolidation involving such Person) in respect of its Capital Stock held by
Persons other than the Company or any Restricted Subsidiary or similar payment
to the direct or indirect holders (other than the Company or a Restricted
Subsidiary) of its Capital Stock (other than dividends or
<PAGE>
45
distributions payable solely in its Capital Stock (other than Disqualified
Stock), and other than pro rata dividends or other distributions made by a
Subsidiary that is not a Wholly Owned Subsidiary to minority stockholders (or
owners of an equivalent interest in the case of a Subsidiary that is an entity
other than a corporation)),
(ii) the purchase, redemption or other acquisition or retirement for value
of any Capital Stock of the Company held by any Person or of any Capital Stock
of a Restricted Subsidiary held by any Affiliate of the Company (other than a
Restricted Subsidiary), including the exercise of any option to exchange any
Capital Stock (other than into Capital Stock of the Company that is not
Disqualified Stock),
(iii) the purchase, repurchase, redemption, defeasance or other acquisition
or retirement for value, prior to scheduled maturity, scheduled repayment or
scheduled sinking fund payment of any Subordinated Obligations (other than the
purchase, repurchase, redemption or other acquisition of Subordinated
Obligations purchased in anticipation of satisfying a sinking fund obligation,
principal installment or final maturity, in each case due within one year of
the date of such purchase, repurchase, redemption or acquisition) or
(iv) the making of any Investment (other than a Permitted Investment) in any
Person.
"Restricted Subsidiary" means any Subsidiary of the Company that is
not an Unrestricted Subsidiary.
<PAGE>
46
"Sale/Leaseback Transaction" means an arrangement relating to property
now owned or hereafter acquired whereby the Company or a Restricted Subsidiary
transfers such property to a Person and the Company or a Restricted Subsidiary
leases it from such Person.
"SEC" means the Securities and Exchange Commission.
"Secured Indebtedness" means any Indebtedness of the Company secured
by a Lien.
"Securities" means the Securities issued under this Indenture.
"Senior Discount Notes" means the Company's 12-1/4% Senior Discount
Notes Due 2008.
"Senior Discount Notes Indenture" means that Indenture, dated as of
February 15, 1998, between the Company and State Street Bank and Trust Company,
providing for the issuance of Senior Discount Notes.
"Senior Indebtedness" means (i) Indebtedness of the Company, whether
outstanding on the Issue Date or thereafter Incurred, and (ii) accrued and
unpaid interest (including interest accruing on or after the filing of any
petition in bankruptcy or for reorganization relating to the
<PAGE>
47
Company to the extent post-filing interest is allowed in such proceeding) in
respect of (A) indebtedness of the Company for money borrowed and (B)
indebtedness evidenced by notes, debentures, bonds or other similar instruments
for the payment of which such Person is responsible or liable unless in the
instrument creating or evidencing the same or pursuant to which the same is
outstanding, it is provided that such obligations are not superior in right of
payment to the Securities; provided, however, that Senior Indebtedness shall not
-------- -------
include (1) any obligation of the Company to any Subsidiary, (2) any liability
for Federal, state, local or other taxes owed or owing by the Company, (3) any
accounts payable or other liability to trade creditors arising in the ordinary
course of business (including guarantees thereof or instruments evidencing such
liabilities), or (4) that portion of any Indebtedness which at the time of
Incurrence is Incurred in violation of this Indenture.
"Significant Subsidiary" means any Restricted Subsidiary that would be
a "Significant Subsidiary" of the Company within the meaning of Rule 1-02 under
Regulation S-X promulgated by the SEC.
"Stated Maturity" means, with respect to any security, the date
specified in such security as the fixed date on which the final payment of
principal of such security is due and payable, including pursuant to any
mandatory redemption provision (but excluding any provision providing for the
repurchase of such security at the option of the holder thereof upon the
happening of any contingency unless such contingency has occurred).
"Subordinated Obligation" means any Indebtedness of the Company
(whether outstanding on the Issue Date or thereafter Incurred) which is
expressly subordinate or
<PAGE>
48
junior in right of payment to the Securities pursuant to a written agreement to
that effect.
"Subsidiary" means, in respect of any Person, any corporation,
association, partnership or other business entity of which more than 50% of the
total voting power of shares of Voting Stock is at the time owned or controlled,
directly or indirectly, by (i) such Person, (ii) such Person and one or more
Subsidiaries of such Person or (iii) one or more Subsidiaries of such Person.
"Temporary Cash Investments" means any of the following:
(i) any investment in direct obligations of the United States of America or
any agency thereof or obligations guaranteed by the United States of America
or any agency thereof,
(ii) investments in time deposit accounts, certificates of deposit and money
market deposits maturing within 365 days of the date of acquisition thereof
issued by a bank or trust company which is organized under the laws of the
United States of America, any state thereof or any foreign country recognized
by the United States, and which bank or trust company has capital, surplus and
undivided profits aggregating in excess of $50,000,000 (or the foreign
currency equivalent thereof) and has outstanding debt which is rated "A" (or
such similar equivalent rating) or higher by at least one nationally
recognized statistical rating organization (as defined in Rule 436 under the
Securities Act) or any money-market fund sponsored by a registered broker
dealer or mutual fund distributor,
<PAGE>
49
(iii) repurchase obligations with a term of not more than 30 days for
underlying securities of the types described in clause (i) above entered into
with a bank meeting the qualifications described in clause (ii) above,
(iv) investments in commercial paper, maturing not more than 270 days after
the date of acquisition, issued by a corporation (other than an Affiliate of
the Company) organized and in existence under the laws of the United States of
America or any foreign country recognized by the United States of America with
a rating at the time as of which any investment therein is made of "P-1" (or
higher) according to Moody's Investors Service, Inc. or "A-1" (or higher)
according to Standard and Poor's Ratings Group,
(v) investments in securities with maturities of six months or less from the
date of acquisition issued or fully guaranteed by any state, commonwealth or
territory of the United States of America, or by any political subdivision or
taxing authority thereof, and rated at least "A" by Standard & Poor's Ratings
Group or "A" by Moody's Investors Service, Inc., and
(vi) investments in money-market funds (other than single-state funds) that
make investments in instruments of the type described in clause (i)-(v) above
in accordance with the regulations of the Securities and Exchange Commission
under the Investment Company Act of 1940, as amended.
<PAGE>
50
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. 77aaa-
------
77bbbb) as in effect on the date of this Indenture.
"Trust Officer" means the Chairman of the Board, the President or any
other officer or assistant officer of the Trustee assigned by the Trustee to
administer its corporate trust matters or to whom any corporate trust matter is
referred because of his or her knowledge of and familiarity with the particular
subject.
"Trustee" means the party named as such in this Indenture until a
successor replaces it and, thereafter, means the successor.
"Uniform Commercial Code" means the New York Uniform Commercial Code
as in effect from time to time.
"Units" means 50,000 units, each consisting of one share of the
Company's 13-3/4% Senior Cumulative Exchangeable Preferred Stock Due 2010 and
one warrant to purchase 8.7774 shares of the Company's common stock, no par
value, at an exercise price of $.01 per share.
"Unrestricted Subsidiary" means (i) any Subsidiary of the Company that
at the time of determination shall be designated an Unrestricted Subsidiary by
the Board of Directors in the manner provided below and (ii) any Subsidiary of
an Unrestricted Subsidiary. The Board of Directors may designate any Subsidiary
of the Company (including any newly acquired or newly formed Subsidiary) to be
an Unrestricted Subsidiary unless such Subsidiary or any
<PAGE>
51
of its Subsidiaries owns any Capital Stock or Indebtedness of, or holds any Lien
on any property of, the Company or any other Subsidiary of the Company that is
not a Subsidiary of the Subsidiary to be so designated; provided, however, that
-------- -------
either (A) the Subsidiary to be so designated has total assets of $1,000 or less
or (B) if such Subsidiary has assets greater than $1,000, such designation would
be permitted under Section 4.04. The Board of Directors may designate any
Unrestricted Subsidiary to be a Restricted Subsidiary; provided, however, that
-------- -------
immediately after giving effect to such designation (x) the Company could Incur
$1.00 of additional Indebtedness under Section 4.03(a) and (y) no Default shall
have occurred and be continuing. Any such designation by the Board of Directors
shall be evidenced to the Trustee by promptly filing with the Trustee a copy of
the resolution of the Board of Directors giving effect to such designation and
an Officers' Certificate certifying that such designation complied with the
foregoing provisions.
"U.S. Government Obligations" means direct obligations (or
certificates representing an ownership interest in such obligations) of the
United States of America (including any agency or instrumentality thereof) for
the payment of which the full faith and credit of the United States of America
is pledged and which are not callable at the issuer's option.
"Voting Stock" of a Person means all classes of Capital Stock or other
interests (including partnership interests) of such Person then outstanding and
normally entitled (without regard to the occurrence of any contingency) to vote
in the election of directors, managers or trustees thereof.
<PAGE>
52
"Wholly Owned Subsidiary" means a Restricted Subsidiary all the
Capital Stock of which (other than directors' qualifying shares) is owned by the
Company or one or more Wholly Owned Subsidiaries.
SECTION 1.02. Other Definitions.
------------------
<TABLE>
<CAPTION>
Defined in
Term Section
---- -------
<S> <C>
"Affiliate Transaction" 4.07
"Appendix" 2.01
"Bankruptcy Law" 6.01
"Blockage Notice 10.03
"Change of Control Offer" 4.09(b)
"covenant defeasance option" 8.01(b)
"Custodian" 6.01
"Default Amount" 6.02
"Event of Default" 6.01
"Exchange Securities" recitals
"Initial Securities" recitals
"legal defeasance option" 8.01(b)
</TABLE>
<PAGE>
53
<TABLE>
<S> <C>
"Offer Amount" 4.06(b)
"pay the Securities" 10.03
"Offer Period" 4.06(b)
"Paying Agent" 2.03
"Payment Blockage Period" 10.03
"Private Exchange Securities" recitals
"Purchase Date" 4.06(b)
"Registrar" 2.03
"Registration Default" 2.04
"Successor Company" 5.01
</TABLE>
SECTION 1.03. Incorporation by Reference of Trust Indenture Act.
--------------------------------------------------
This Indenture is subject to the mandatory provisions of the TIA which are
incorporated by reference in and made a part of this Indenture. The following
TIA terms have the following meanings:
"Commission" means the SEC;
"indenture securities" means the Securities;
"indenture security holder" means a Securityholder;
"indenture to be qualified" means this Indenture;
<PAGE>
54
"indenture trustee" or "institutional trustee" means the Trustee; and
"obligor" on the indenture securities means the Company and any other
obligor on the indenture securities.
All other TIA terms used in this Indenture that are defined by the
TIA, defined by TIA reference to another statute or defined by SEC rule have the
meanings assigned to them by such definitions.
SECTION 1.04. Rules of Construction. Unless the context otherwise
----------------------
requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning assigned to it
in accordance with GAAP;
(3) "or" is not exclusive;
(4) "including" means including without limitation;
(5) words in the singular include the plural and words in the plural include
the singular;
<PAGE>
55
(6) unsecured Indebtedness shall not be deemed to be subordinate or junior
to Secured Indebtedness merely by virtue of its nature as unsecured
Indebtedness;
(7) the principal amount of any noninterest bearing or other discount
security at any date shall be the principal amount thereof that would be shown
on a balance sheet of the issuer dated such date prepared in accordance with
GAAP;
(8) the principal amount of any Preferred Stock shall be (i) the maximum
liquidation value of such Preferred Stock or (ii) the maximum mandatory
redemption or mandatory repurchase price with respect to such Preferred Stock,
whichever is greater;
(9) all references to the date the Securities were originally issued shall
refer to the date the Initial Securities were originally issued; and
(10) whenever in this Indenture or the Securities it is provided that the
principal amount or the principal amount at maturity with respect to a
Security shall be paid, such provision shall be deemed to require (whether or
not so expressly stated) the simultaneous payment of any accrued and unpaid
interest to the date of payment on such Security payable pursuant to paragraph
1 of the Securities.
<PAGE>
56
ARTICLE II
The Securities
--------------
SECTION 2.01. Form and Dating. Provisions relating to the Initial
----------------
Securities, the Private Exchange Securities and the Exchange Securities are set
forth in the Rule 144A/Regulation S Appendix attached hereto (the "Appendix")
which is hereby incorporated in and expressly made part of this Indenture. The
Initial Securities and the Trustee's certificate of authentication thereon shall
be substantially in the form of Exhibit 1 to the Appendix which is hereby
incorporated in and expressly made a part of this Indenture. The Exchange
Securities, the Private Exchange Securities and the Trustee's certificate of
authentication thereon shall be substantially in the form of Exhibit A attached
hereto, which is hereby incorporated in and expressly made a part of this
Indenture. The Securities shall be printed, typewritten, lithographed or
engraved or produced by any combination of those methods, all as determined by
the officers of the Company executing the Securities, as evidenced by their
execution thereof. The Securities may have notations, legends or endorsements
required by law, stock exchange rule, agreements to which the Company is
subject, if any, or usage (provided that any such notation, legend or
--------
endorsement is in a form acceptable to the Company). Each Security shall be
dated the date of its authentication. The terms of the Securities set forth in
the Appendix and Exhibit A hereto are part of the terms of this Indenture.
SECTION 2.02. Execution and Authentication. Two Officers shall sign
-----------------------------
the Securities for the Company by manual or facsimile signature. The Company's
seal shall be
<PAGE>
57
impressed, affixed, imprinted or reproduced on the Securities and may be in
facsimile form.
If an Officer whose signature is on a Security no longer holds that
office at the time the Trustee authenticates the Security, the Security shall
be valid nevertheless.
A Security shall not be valid until an authorized signatory of the
Trustee manually signs the certificate of authentication on the Security. The
signature shall be conclusive evidence that the Security has been authenticated
under this Indenture.
The Trustee may appoint an authenticating agent reasonably acceptable
to the Company to authenticate the Securities. Unless limited by the terms of
such appointment, an authenticating agent may authenticate Securities whenever
the Trustee may do so. Each reference in this Indenture to authentication by
the Trustee includes authentication by such agent. An authenticating agent has
the same rights as any Registrar, Paying Agent or agent for service of notices
and demands.
SECTION 2.03. Registrar and Paying Agent. The Company shall maintain
---------------------------
an office or agency where Securities may be presented for registration of
transfer or for exchange (the "Registrar") and an office or agency where
Securities may be presented for payment (the "Paying Agent"). The Registrar
shall keep a register of the Securities and of their transfer and exchange.
The Company may have one or more co-registrars and one or more additional paying
agents. The term "Paying Agent" includes any additional paying agent.
<PAGE>
58
The Company shall enter into an appropriate agency agreement with any
Registrar, Paying Agent or co-registrar not a party to this Indenture, which
shall incorporate the terms of the TIA. The agreement shall implement the
provisions of this Indenture that relate to such agent. The Company shall notify
the Trustee of the name and address of any such agent. If the Company fails to
maintain a Registrar or Paying Agent, the Trustee shall act as such and shall be
entitled to appropriate compensation therefor pursuant to Section 7.07. The
Company or any of its domestically incorporated Wholly Owned Subsidiaries may
act as Paying Agent, Registrar or co-registrar.
The Company initially appoints the Trustee as Registrar and Paying
Agent in connection with the Securities.
SECTION 2.04. Paying Agent To Hold Money in Trust. Prior to each due
------------------------------------
date of the principal and interest on any Security, the Company shall deposit
with the Paying Agent a sum sufficient to pay such principal and interest when
so becoming due. If on any date on which principal of or interest on a Security
is due the Company shall be required to pay additional interest resulting from a
Registration Default (as defined in the Registration Rights Agreement), then the
Company shall certify by an Officers' Certificate delivered to the Trustee as to
the amount of such interest payable on each Security. The Company shall require
each Paying Agent (other than the Trustee) to agree in writing that the Paying
Agent shall hold in trust for the benefit of Securityholders or the Trustee all
money held by the Paying Agent for the payment of principal of or interest on
the Securities and shall notify the Trustee of any default by the Company in
making any such payment. If the Company or a Subsidiary acts as Paying Agent,
it shall segregate the money held by it as Paying Agent and hold it
<PAGE>
59
as a separate trust fund. The Company at any time may require a Paying Agent to
pay all money held by it to the Trustee and to account for any funds disbursed
by the Paying Agent. Upon complying with this Section, the Paying Agent shall
have no further liability for the money delivered to the Trustee.
SECTION 2.05. Securityholder Lists. The Trustee shall preserve in as
---------------------
current a form as is reasonably practicable the most recent list available to it
of the names and addresses of Securityholders. If the Trustee is not the
Registrar, the Company shall furnish to the Trustee, in writing at least five
Business Days before each interest payment date and at such other times as the
Trustee may request in writing, a list in such form and as of such date as the
Trustee may reasonably require of the names and addresses of Securityholders.
SECTION 2.06. Transfer and Exchange. The Securities shall be issued
----------------------
in registered form and shall be transferable only upon the surrender of a
Security for registration of transfer. When a Security is presented to the
Registrar or a co-registrar with a request to register a transfer, the Registrar
shall register the transfer as requested if the Security is duly endorsed or
accompanied by a written instrument of transfer, duly executed by the Holder
thereof and the requirements of Section 8-401(1) of the Uniform Commercial Code
are met. When Securities are presented to the Registrar or a co-registrar with
a request to exchange them for an equal principal amount at maturity of
Securities of other denominations, the Registrar shall make the exchange as
requested if the same requirements are met. To permit registration of transfers
and exchanges, the Company shall execute and the Trustee shall authenticate
Securities at the Registrar's or co-registrar's request. The Company may
require payment of a sum sufficient to pay all taxes, assessments or other
governmental charges in connection with any transfer or exchange pursuant to
this
<PAGE>
60
Section. The Company shall not be required to make and the Registrar need not
register transfers or exchanges of Securities selected for redemption (except,
in the case of Securities to be redeemed in part, the portion thereof not to be
redeemed) or any Securities for a period of 15 days before a selection of
Securities to be redeemed or 15 days before an interest payment date.
Prior to the due presentation for registration of transfer of any
Security, the Company, the Trustee, the Paying Agent, the Registrar or any co-
registrar may deem and treat the person in whose name a Security is registered
as the absolute owner of such Security for the purpose of receiving payment of
principal of and interest on such Security and for all other purposes
whatsoever, whether or not such Security is overdue, and none of the Company,
the Trustee, the Paying Agent, the Registrar or any co-registrar shall be
affected by notice to the contrary.
All Securities issued upon any transfer or exchange pursuant to the
terms of this Indenture will evidence the same debt and will be entitled to the
same benefits under this Indenture as the Securities surrendered upon such
transfer or exchange.
SECTION 2.07. Replacement Securities. If a mutilated Security is
-----------------------
surrendered to the Registrar or if the Holder of a Security claims that the
Security has been lost, destroyed or wrongfully taken, the Company shall issue
and the Trustee shall authenticate a replacement Security if the requirements of
Section 8-405 of the Uniform Commercial Code are met and the Holder satisfies
any other reasonable requirements of the Trustee. If required by the Trustee or
the Company, such Holder shall furnish an indemnity bond sufficient in the
judgment of the Company and the Trustee to protect the Company, the Trustee, the
Paying Agent, the
<PAGE>
61
Registrar and any co-registrar from any loss which any of them may suffer if a
Security is replaced. The Company and the Trustee may charge the Holder for
their expenses in replacing a Security.
Every replacement Security is an additional obligation of the Company.
SECTION 2.08. Outstanding Securities. Securities outstanding at any
-----------------------
time are all Securities authenticated by the Trustee except for those canceled
by it, those delivered to it for cancelation and those described in this Section
as not outstanding. A Security does not cease to be outstanding because the
Company or an Affiliate of the Company holds the Security.
If a Security is replaced pursuant to Section 2.07, it ceases to be
outstanding unless the Trustee and the Company receive proof satisfactory to
them that the replaced Security is held by a bona fide purchaser.
If the Paying Agent segregates and holds in trust, in accordance with
this Indenture, on a redemption date or maturity date money sufficient to pay
all principal and interest payable on that date with respect to the Securities
(or portions thereof) to be redeemed or maturing, as the case may be, and the
Paying Agent is not prohibited from paying such money to the Securityholders on
that date pursuant to the terms of this Indenture, then on and after that date
such Securities (or portions thereof) cease to be outstanding and interest on
them ceases to accrue.
<PAGE>
62
SECTION 2.09. Temporary Securities. Until definitive Securities are
---------------------
ready for delivery, the Company may prepare and the Trustee shall authenticate
temporary Securities. Temporary Securities shall be substantially in the form of
definitive Securities but may have variations that the Company considers
appropriate for temporary Securities. Without unreasonable delay, the Company
shall prepare and the Trustee shall authenticate definitive Securities and
deliver them in exchange for temporary Securities.
SECTION 2.10. Cancelation. The Company at any time may deliver
------------
Securities to the Trustee for cancelation. The Registrar and the Paying Agent
shall forward to the Trustee any Securities surrendered to them for registration
of transfer, exchange or payment. The Trustee and no one else shall cancel and
destroy (subject to the record retention requirements of the Exchange Act) all
Securities surrendered for registration of transfer, exchange, payment or
cancelation and deliver a certificate of such destruction to the Company unless
the Company directs the Trustee to deliver canceled Securities to the Company.
The Company may not issue new Securities to replace Securities it has redeemed,
paid or delivered to the Trustee for cancelation.
SECTION 2.11. Defaulted Interest. If the Company defaults in a
-------------------
payment of interest on the Securities, the Company shall pay defaulted interest
(plus interest on such defaulted interest to the extent lawful) in any lawful
manner. The Company may pay the defaulted interest to the persons who are
Securityholders on a subsequent special record date. The Company shall fix or
cause to be fixed any such special record date and payment date to the
reasonable satisfaction of the Trustee and shall promptly mail to each
Securityholder a notice that states the special record date, the payment date
and the amount of defaulted interest to be paid.
<PAGE>
63
SECTION 2.12. CUSIP Numbers. The Company in issuing the Securities
----------------
may use "CUSIP" numbers (if then generally in use) and, if so, the Trustee shall
use "CUSIP" numbers in notices of redemption as a convenience to Holders;
provided, however, that any such notice may state that no representation is made
- -------- -------
as to the correctness of such numbers either as printed on the Securities or as
contained in any notice of a redemption and that reliance may be placed only on
the other identification numbers printed on the Securities, and any such
redemption shall not be affected by any defect in or omission of such numbers.
ARTICLE III
Redemption
----------
SECTION 3.01. Notices to Trustee. If the Company elects to redeem
-------------------
Securities pursuant to paragraph 5 of the Securities, it shall notify the
Trustee in writing of the redemption date and the principal amount of Securities
to be redeemed.
The Company shall give each notice to the Trustee provided for in this
Section at least 60 days before the redemption date unless the Trustee consents
to a shorter period. Such notice shall be accompanied by an Officers'
Certificate and an Opinion of Counsel from the Company to the effect that such
redemption will comply with the conditions herein.
<PAGE>
64
SECTION 3.02. Selection of Securities To Be Redeemed. If fewer than
---------------------------------------
all the Securities are to be redeemed, the Trustee shall select the Securities
to be redeemed pro rata or by lot or by a method that complies with applicable
legal and securities exchange requirements, if any, and that the Trustee in its
sole discretion shall deem to be fair and appropriate and in accordance with
methods generally used at the time of selection by fiduciaries in similar
circumstances. The Trustee shall make the selection from outstanding Securities
not previously called for redemption. The Trustee may select for redemption
portions of the principal amount of Securities that have denominations larger
than $1,000. Securities and portions of them the Trustee selects shall be in
amounts of principal amount of $1,000 or a whole multiple of $1,000. Provisions
of this Indenture that apply to Securities called for redemption also apply to
portions of Securities called for redemption. The Trustee shall notify the
Company promptly of the Securities or portions of Securities to be redeemed.
SECTION 3.03. Notice of Redemption. At least 30 days but not more
---------------------
than 60 days before a date for redemption of Securities, the Company shall mail
a notice of redemption by first-class mail to each Holder of Securities to be
redeemed at such Holder's registered address.
The notice shall identify the Securities to be redeemed and shall
state:
(1) the redemption date;
(2) the redemption price;
<PAGE>
65
(3) the name and address of the Paying Agent;
(4) that Securities called for redemption must be surrendered to the Paying
Agent to collect the redemption price;
(5) if fewer than all the outstanding Securities are to be redeemed, the
identification and principal amounts of the particular Securities to be
redeemed and if any Security is being redeemed in part, the portion of the
principal amount of such Security to be redeemed and that after the redemption
date and upon surrender of such Security a new Security or Securities will be
issued having a principal amount equal to the principal amount of the Security
surrendered less the principal amount of the portion of the Security redeemed;
(6) that, unless the Company defaults in making such redemption payment or
the Paying Agent is prohibited from making such payment pursuant to the terms
of this Indenture, interest on Securities (or portion thereof) called for
redemption ceases to accrue on and after the redemption date; and
(7) that no representation is made as to the correctness or accuracy of the
CUSIP number, if any, listed in such notice or printed on the Securities.
At the Company's request, the Trustee shall give the notice of
redemption in the Company's name and at the
<PAGE>
66
Company's expense. In such event, the Company shall provide the Trustee with the
information required by this Section.
SECTION 3.04. Effect of Notice of Redemption. Once notice of
-------------------------------
redemption is mailed, Securities called for redemption become due and payable on
the redemption date and at the redemption price stated in the notice. Upon
surrender to the Paying Agent, such Securities shall be paid at the redemption
price stated in the notice, plus accrued interest to the redemption date
(subject to the right of Holders of record on the relevant record date to
receive interest due on the related interest payment date). Failure to give
notice or any defect in the notice to any Holder shall not affect the validity
of the notice to any other Holder.
SECTION 3.05. Deposit of Redemption Price. Prior to the redemption
----------------------------
date, the Company shall deposit with the Paying Agent (or, if the Company or a
Subsidiary is the Paying Agent, shall segregate and hold in trust) money
sufficient to pay the redemption price of and accrued interest on all
Securities to be redeemed on that date other than Securities or portions of
Securities called for redemption which have been delivered by the Company to the
Trustee for cancelation.
SECTION 3.06. Securities Redeemed in Part. Upon surrender of a
----------------------------
Security that is redeemed in part, the Company shall execute and the Trustee
shall authenticate for the Holder (at the Company's expense) a new Security
equal in principal amount to the unredeemed portion of the Security
surrendered.
<PAGE>
67
ARTICLE IV
Covenants
---------
SECTION 4.01. Payment of Securities. The Company shall promptly pay
----------------------
the principal of and interest on the Securities on the dates and in the manner
provided in the Securities and in this Indenture. Principal and interest shall
be considered paid on the date due if on such date the Trustee or the Paying
Agent holds in accordance with this Indenture money sufficient to pay all
principal and interest then due and the Trustee or the Paying Agent, as the case
may be, is not prohibited from paying such money to the Securityholders on such
date pursuant to the terms of this Indenture.
The Company shall pay interest on overdue principal at the rate
specified therefor in the Securities, and it shall pay interest on overdue
installments of interest at the same rate to the extent lawful.
SECTION 4.02. SEC Reports. Notwithstanding that the Company may not
------------
be subject to the reporting requirements of Section 13 or 15(d) of the Exchange
Act, the Company shall file with the SEC and at any time that Securities are
outstanding provide the Trustee and Noteholders with such annual reports and
such information, documents and other reports as are specified in Sections 13
and 15(d) of the Exchange Act and applicable to a U.S. corporation subject to
such Sections, such information, documents and other reports to be so filed and
provided at the times specified for the filing of such information, documents
and reports under such Sections if it were subject thereto (unless the SEC will
not
<PAGE>
68
accept such a filing, in which case the Company shall provide such documents to
the Trustee). In addition, for so long as any of the Initial Securities or
Private Exchange Securities are outstanding, the Company will make available to
any prospective purchaser of the Initial Securities or Private Exchange
Securities or beneficial owner thereof (upon written request to the Company) in
connection with any sales thereof the information required by Rule 144A(d)(4)
under the Securities Act.
SECTION 4.03. Limitation on Indebtedness. (a) The Company shall not
---------------------------
Incur, and shall not permit any of its Restricted Subsidiaries to Incur,
directly or indirectly, any Indebtedness, except that the Company may Incur
Indebtedness if, on the date of such Incurrence and after giving effect thereto,
the Consolidated Leverage Ratio would be less than 6.0 to 1.0, for Indebtedness
Incurred prior to or on December 31, 1999, and less than 5.0 to 1.0 for
Indebtedness Incurred thereafter.
(b) Notwithstanding Section 4.03(a), the Company and (except as
specified below) any Restricted Subsidiary may Incur any or all of the following
Indebtedness:
(1) Indebtedness Incurred pursuant to the Credit Agreement; provided,
--------
however, that the aggregate amount of such Indebtedness, when taken together
-------
with all other Indebtedness Incurred pursuant to this clause (1) and then
outstanding, does not exceed the remainder of (x) $50 million minus (y) the
sum of all principal payments with respect to the permanent retirement of such
Indebtedness pursuant to Section 4.06(a)(ii)(A);
<PAGE>
69
(2) Indebtedness owed to and held by the Company or a Restricted Subsidiary;
provided, however, that any subsequent issuance or transfer of any Capital
-------- -------
Stock which results in any such Restricted Subsidiary ceasing to be a
Restricted Subsidiary or any subsequent transfer of such Indebtedness (other
than to the Company or another Restricted Subsidiary) shall be deemed, in each
case, to constitute the Incurrence of such Indebtedness by the issuer thereof;
(3) the Securities, the Senior Discount Notes issued on the Issue Date and
any Exchange Securities or Private Exchange Securities (as such terms are
defined in the Senior Discount Notes Indenture);
(4) Indebtedness outstanding on the Issue Date (other than Indebtedness
described in clause (1), (2) or (3) of this Section 4.03(b));
(5) Refinancing Indebtedness in respect of Indebtedness Incurred pursuant to
Section 4.03(a) or pursuant to clause (3), (4), (5), (7), (8) or (11) of this
Section 4.03(b); provided, however, that to the extent such Refinancing
-------- -------
Indebtedness directly or indirectly Refinances Indebtedness of a Restricted
Subsidiary described in such clause (11), such Refinancing Indebtedness shall
be Incurred only by such Restricted Subsidiary;
(6) Hedging Obligations consisting of Interest Rate Agreements directly
related to Indebtedness permitted to be Incurred by the Company or any
Restricted Subsidiary pursuant to Section 4.03(a) or (b);
<PAGE>
70
(7) Indebtedness, including Indebtedness of a Restricted Subsidiary Incurred
and outstanding on or prior to the date on which such Subsidiary was acquired
by the Company, Incurred to finance the cost (including the cost of design,
development, acquisition, construction, installation, improvement,
transportation or integration) to acquire equipment, inventory or network
assets (including real estate) (including acquisitions by way of capital lease
and acquisitions of the Capital Stock of a Person that becomes a Restricted
Subsidiary to the extent of the fair market value of the equipment, inventory
or networks assets so acquired) by the Company or a Restricted Subsidiary
after the Issue Date for use in a Related Business;
(8) Indebtedness of the Company in an amount which, when taken together with
the amount of Indebtedness Incurred pursuant to this clause (8) and then
outstanding, does not exceed two times the Net Cash Proceeds received by the
Company after the Issue Date as a capital contribution from, or from the
issuance and sale of its Capital Stock (other than Disqualified Stock) to, a
Person that is not a Subsidiary of the Company, to the extent such Net Cash
Proceeds have not been used pursuant to Section 4.04(a)(3)(B) or Section
4.04(b)(i) to make a Restricted Payment; provided, however, that such
-------- -------
Indebtedness does not mature prior to the Stated Maturity of the Securities
and has an Average Life longer than the Average Life of the Securities;
(9) Indebtedness in respect of performance, surety or appeal bonds or
similar obligations, in each case Incurred in the ordinary course of business
of the Company and its Restricted Subsidiaries and Indebtedness due and owing
to governmental entities in connection with any licenses and franchises issued
by a governmental
<PAGE>
71
entity and necessary or desirable to conduct a Related Business;
(10) Guarantees of the Securities issued by any Restricted Subsidiary;
(11) Indebtedness of a Restricted Subsidiary Incurred and outstanding on or
prior to the date on which such Subsidiary was acquired by the Company (other
than Indebtedness Incurred in connection with, or to provide all or any
portion of the funds or credit support utilized to consummate, the transaction
or series of related transactions pursuant to which such Subsidiary became a
Subsidiary or was acquired by the Company); provided, however, that on the
-------- -------
date of such acquisition and after giving effect thereto, the Company would
have been able to Incur at least $1.00 of additional Indebtedness pursuant to
Section 4.03(a); and
(12) Indebtedness Incurred in an aggregate amount which, when taken together
with the aggregate amount of all other Indebtedness of the Company and its
Restricted Subsidiaries outstanding on the date of such Incurrence (other than
Indebtedness permitted by clauses (1) through (11) of this Section 4.03 or
Section 4.03(a)) does not exceed the greater of (a) $10 million and (b) an
amount equal to 5% of the Company's Consolidated Net Tangible Assets as of
such date.
(c) Notwithstanding the foregoing, the Company shall not Incur any
Indebtedness pursuant to Section 4.03(b) if the proceeds thereof are used,
directly or indirectly, to Refinance any Subordinated Obligations unless such
<PAGE>
72
Indebtedness shall be subordinated to the Securities to at least the same extent
as such Subordinated Obligations.
(d) For purposes of determining compliance with this Section 4.03,
(i) in the event that an item of Indebtedness meets the criteria of more than
one of the types of Indebtedness described in Section 4.03(a) or (b), the
Company, in its sole discretion, will classify such item of Indebtedness and
only be required to include the amount and type of such Indebtedness in one of
the above clauses and (ii) an item of Indebtedness may be divided and classified
in more than one of the types of Indebtedness described in Section 4.03(a) or
(b).
(e) For the purposes of determining the amount of Indebtedness
outstanding at any time, Guarantees with respect to Indebtedness otherwise
included in the determination of such amount shall not be included.
(f) Notwithstanding Section 4.03(a) or 4.03(b), the Company shall not
Incur any Secured Indebtedness that is not Senior Indebtedness unless
contemporaneously therewith effective provision is made to secure the Securities
equally and ratably with such Secured Indebtedness for so long as such Secured
Indebtedness is secured by a Lien.
SECTION 4.04. Limitation on Restricted Payments. (a) The Company
----------------------------------
shall not, and shall not permit any Restricted Subsidiary to, directly or
indirectly, make a Restricted Payment if at the time the Company or such
Restricted Subsidiary makes such Restricted Payment: (1) a Default shall have
occurred and be continuing (or would result therefrom); (2) the Company is not
able to Incur an additional $1.00 of Indebtedness pursuant to
<PAGE>
73
Section 4.03(a); or (3) the aggregate amount of such Restricted Payment and all
other Restricted Payments (the amount of any Restricted Payment, if other than
in cash, to be determined in good faith by the Board of Directors and to be
evidenced by a resolution of such Board set forth in an Officer's Certificate
delivered to the Trustee) since the Issue Date would exceed the sum of, without
duplication:
(A) the remainder of (x) cumulative EBITDA during the period (taken as a
single accounting period) beginning on the first day of the fiscal quarter of
the Company beginning after the Issue Date and ending on the last day of the
most recent fiscal quarter for which financial statements have been made
publicly available but in no event ending more than 135 days prior to the date
of such determination minus (y) the product of 1.5 times cumulative
Consolidated Interest Expense during such period;
(B) the aggregate Net Cash Proceeds received by the Company from the
issuance or sale of its Capital Stock (other than Disqualified Stock)
subsequent to the Issue Date (other than an issuance or sale to a Subsidiary
of the Company and other than an issuance or sale to an employee stock
ownership plan or to a trust established by the Company or any of its
Subsidiaries for the benefit of their employees);
(C) the amount by which Indebtedness of the Company is reduced on the
Company's balance sheet upon the conversion or exchange (other than by a
Subsidiary of the Company) subsequent to the Issue Date of any Indebtedness of
the Company convertible or exchangeable for Capital Stock (other than
Disqualified Stock) of the Company (less the amount of any cash, or the fair
value of any other property, distributed by the Company upon such
<PAGE>
74
conversion or exchange); and
(D) an amount equal to the sum of (i) the net reduction in Investments in
Unrestricted Subsidiaries resulting from payments of interest, dividends,
repayments of loans or advances or other transfers of assets, in each case to
the Company or any Restricted Subsidiary from Unrestricted Subsidiaries, and
(ii) the portion (proportionate to the Company's equity interest in such
Subsidiary) of the fair market value of the net assets of an Unrestricted
Subsidiary at the time such Unrestricted Subsidiary is designated a Restricted
Subsidiary; provided, however, that the foregoing sum shall not exceed, in the
-------- -------
case of any Unrestricted Subsidiary, the amount of Investments previously made
(and treated as a Restricted Payment) by the Company or any Restricted
Subsidiary in such Unrestricted Subsidiary.
(b) The provisions of Section 4.04(a) shall not prohibit:
(i) any acquisition of any Capital Stock of the Company or any Restricted
Subsidiary or any purchase, repurchase, redemption, defeasance or other
acquisition or retirement for value of Subordinated Obligations made out of
the proceeds of the substantially concurrent sale of, or made by exchange for,
Capital Stock of the Company (other than Disqualified Stock and other than
Capital Stock issued or sold to a Subsidiary of the Company or an employee
stock ownership plan or to a trust established by the Company or any of its
Subsidiaries for the benefit of their employees); provided, however, that (A)
-------- -------
such acquisition of Capital Stock or of Subordinated Obligations shall be
excluded in the calculation of the amount of Restricted Payments pursuant to
Section 4.04(a)(3) and (B) the Net
<PAGE>
75
Cash Proceeds from such sale shall be excluded from the calculation of amounts
under Section 4.04(a)(3)(B);
(ii) any purchase, repurchase, redemption, defeasance or other acquisition
or retirement for value of Subordinated Obligations in whole or in part
(including premium, if any, and accrued and unpaid interest) made by exchange
for, or out of the proceeds of the substantially concurrent sale of,
Indebtedness of the Company which is permitted to be Incurred pursuant to
Section 4.03; provided, however, that such purchase, repurchase, redemption,
-------- -------
defeasance or other acquisition or retirement for value shall be excluded in
the calculation of the amount of Restricted Payments pursuant to Section
4.04(a)(3);
(iii) dividends paid within 60 days after the date of declaration thereof if
at such date of declaration such dividend would have complied with this
Section 4.04; provided, however, that at the time of payment of such dividend,
-------- -------
no other Default shall have occurred and be continuing (or result therefrom);
provided further, however, that such dividend shall be included in the
---------------- -------
calculation of the amount of Restricted Payments pursuant to Section
4.04(a)(3);
(iv) the purchase, redemption, retirement, repurchase or other acquisition
of shares of, or options to purchase shares of, Capital Stock (other than
Disqualified Stock) of the Company or Capital Stock (other than Preferred
Stock) of any of its Subsidiaries from employees, former employees, directors
or former directors of the Company or any of its Subsidiaries (or permitted
transferees of such employees, former employees, directors or former directors
including their estates or beneficiaries under their estates), (a) upon their
death, disability,
<PAGE>
76
retirement or termination of employment or (b) otherwise pursuant to the
terms of agreements (including employment agreements) or plans (or
amendments thereto) approved by the Board of Directors under which such
individuals received such Capital Stock; provided, however, that the aggregate
-------- -------
amount of consideration paid for such purchases, redemptions, retirements,
repurchases and other acquisitions made pursuant to this clause (iv) shall not
exceed $500,000 in any calendar year; provided further, however, that such
---------------- -------
purchases, redemptions, retirements, repurchases and other acquisitions
pursuant to this clause (iv) shall be excluded in the calculation of the
amount of Restricted Payments pursuant to Section 4.04(a)(3);
(v) any purchase or redemption of Subordinated Obligations in whole or in
part (including premium, if any, and accrued and unpaid interest) from Net
Available Cash to the extent permitted by Section 4.06; provided, however,
-------- -------
that such purchase or redemption shall be excluded in the calculation of the
amount of Restricted Payments pursuant to Section 4.04(a)(3);
(vi) the purchase, redemption, acquisition, cancelation or other retirement
for value of shares of Capital Stock of the Company or any of its Restricted
Subsidiaries to the extent necessary, as determined in good faith by a
majority of the disinterested members of the Board of Directors, to prevent
the loss or to secure the renewal or reinstatement of any license or franchise
held by the Company or any Restricted Subsidiary from any governmental entity;
provided, however, that such purchase or redemption shall be included in the
-------- -------
calculation of the amount of Restricted Payments pursuant to Section
4.04(a)(3);
<PAGE>
77
(vii) any purchase or redemption of Subordinated Obligations or Preferred
Stock following a Change of Control pursuant to an obligation in the
instruments governing such Subordinated Obligations or Preferred Stock to
purchase or redeem such Subordinated Obligations or Preferred Stock as a
result of such Change of Control; provided, however, that no such purchase or
-------- -------
redemption shall be permitted until the Company has completely discharged its
obligations described under Section 4.09 (including the purchase of all
Securities tendered for purchase by holders) arising as a result of such
Change of Control; provided further, however, that such purchase or redemption
---------------- -------
shall be included in the calculation of the amount of Restricted Payments
pursuant to Section 4.04(a)(3); or
(viii) cash dividends paid after February 15, 2003 in respect of the
Exchangeable Preferred Stock in an aggregate amount in any twelve month period
not to exceed 13-3/4% of the aggregate liquidation preference outstanding at
the beginning of such twelve month period; provided, however, that at the time
-------- -------
of payment of any such dividends, no Default shall have occurred and be
continuing; provided further, however, that all such dividends shall be
---------------- -------
included in the calculation of the amount of Restricted Payments pursuant to
Section 4.04(a)(3).
SECTION 4.05. Limitation on Restrictions on Distributions from
------------------------------------------------
Restricted Subsidiaries. The Company shall not, and shall not permit any
- ------------------------
Restricted Subsidiary to, create or otherwise cause or permit to exist or become
effective any consensual encumbrance or restriction on the ability of any
Restricted Subsidiary to (a) pay dividends or make any other distributions on
its Capital Stock to the Company or a Restricted Subsidiary, (b) pay any
Indebtedness owed to the Company, (c) make any loans or advances to the
<PAGE>
78
Company or (d) transfer any of its property or assets to the Company, except:
(i) any encumbrance or restriction pursuant to the Senior Discount Notes
Indenture, this Indenture, the Exchangeable Preferred Stock or any other
agreement in effect at or entered into on the Issue Date;
(ii) any encumbrance or restriction with respect to a Restricted Subsidiary
pursuant to an agreement relating to any Indebtedness Incurred by such
Restricted Subsidiary on or prior to the date on which such Restricted
Subsidiary was acquired by the Company (other than Indebtedness Incurred as
consideration in, or to provide all or any portion of the funds or credit
support utilized to consummate, the transaction or series of related
transactions pursuant to which such Restricted Subsidiary became a Restricted
Subsidiary or was acquired by the Company) and outstanding on such date;
(iii) any encumbrance or restriction pursuant to an agreement effecting a
Refinancing of Indebtedness Incurred pursuant to an agreement or instrument
referred to in clause (i) or (ii) of this Section 4.05 or this clause (iii) or
contained in any amendment to an agreement or instrument referred to in clause
(i) or (ii) of this Section 4.05 or this clause (iii); provided, however, that
-------- -------
the encumbrances and restrictions with respect to such Restricted Subsidiary
contained in any such refinancing agreement or amendment are no less favorable
to the Securityholders than encumbrances and restrictions with respect to such
Restricted Subsidiary contained in such predecessor agreements;
<PAGE>
79
(iv) any such encumbrance or restriction consisting of customary non-
assignment or anti-alienation provisions in (a) leases governing leasehold
interests to the extent such provisions restrict the transfer of the lease or
the property leased thereunder or subletting and (b) licenses or franchises to
the extent such provisions restrict the transfer of the license or franchise;
(v) in the case of clause (d) above, restrictions contained in security
agreements or mortgages securing Indebtedness of a Restricted Subsidiary to
the extent such restrictions restrict the transfer of the property subject to
such security agreements or mortgages;
(vi) any restriction with respect to a Restricted Subsidiary imposed
pursuant to an agreement entered into for the sale or disposition of all or
substantially all the Capital Stock or assets of such Restricted Subsidiary
pending the closing of such sale or disposition; and
(vii) any encumbrance or restriction contained in the terms of any
Indebtedness or any agreement pursuant to which such Indebtedness was Incurred
if the Board of Directors determines in good faith that any such encumbrance
or restriction will not materially affect the Company's ability to pay
principal or interest on the Securities when due and such encumbrance or
restriction by its terms expressly permits such Restricted Subsidiary, (A) in
the absence of a payment default in respect of such Indebtedness or other
agreement, to make cash payments to the Company (in any form) sufficient to
pay when due all amounts of principal and interest on the Securities and (B)
following the occurrence and during the continuance of a payment default in
respect of such Indebtedness or other agreement, to resume making cash
payments to the Company (in any form) sufficient to pay
<PAGE>
80
when due all amounts of principal and interest on the Securities upon the
earlier of the cure of such payment default and the lapse of 179 consecutive
days following the date when such encumbrance or restriction became operative
to prohibit or limit such Restricted Subsidiary from making such payments to
the Company; provided, however, that no Restricted Subsidiary shall be
-------- -------
affected by the operation of any such encumbrances or restrictions following
the occurrence of a payment default on more than one occasion in any
consecutive 360-day period.
SECTION 4.06. Limitation on Sales of Assets and Subsidiary Stock.
---------------------------------------------------
(a) The Company shall not, and shall not permit any Restricted Subsidiary to,
directly or indirectly, consummate any Asset Disposition unless (i) the Company
or such Restricted Subsidiary receives consideration at the time of such Asset
Disposition at least equal to the fair market value (including the value of all
non-cash consideration), as determined in good faith by the Board of Directors,
of the shares and assets subject to such Asset Disposition and at least 75% of
the consideration thereof received by the Company or such Restricted Subsidiary
is in the form of cash or cash equivalents and (ii) an amount equal to 100% of
the Net Available Cash from such Asset Disposition is applied by the Company (or
such Restricted Subsidiary, as the case may be)
(A) first, to the extent the Company elects in its sole discretion (or is
-----
required by the terms of any Indebtedness), to prepay, repay, redeem or
purchase Indebtedness (other than any Disqualified Stock) of the Company or of
a Restricted Subsidiary (in each case other than Indebtedness owed to the
Company or an Affiliate of the Company) within one year from the later of the
date of such Asset Disposition or the receipt of such Net Available Cash;
<PAGE>
81
(B) second, to the extent of the balance of such Net Available Cash after
------
application in accordance with clause (A) of this Section 4.06(a), to the
extent the Company elects in its sole discretion, to acquire Additional Assets
within one year after the receipt of such Net Available Cash;
(C) third, to the extent of the balance of such Net Available Cash after
-----
application in accordance with clauses (A) and (B) of this Section 4.06(a), to
make an offer to the holders of the Securities to purchase Securities pursuant
to and subject to the conditions contained in Section 4.06(b); and
(D) fourth, to the extent of the balance of such Net Available Cash after
------
application in accordance with clauses (A), (B) and (C) of this Section
4.06(a), for the general corporate and working capital purposes of the Company
and its Restricted Subsidiaries;
provided, however, that in connection with any prepayment, repayment or purchase
- -------- -------
of Indebtedness pursuant to clause (A) or (C) of this Section 4.06(a), the
Company or such Restricted Subsidiary shall permanently retire such Indebtedness
and shall cause the related loan commitment (if any) to be permanently reduced
in an amount equal to the principal amount so prepaid, repaid or purchased.
Notwithstanding the foregoing provisions of this Section 4.06(a), the Company
and the Restricted Subsidiaries shall not be required to apply any Net Available
Cash in accordance with this Section 4.06(a) except to the extent that the
aggregate Net Available Cash from all Asset Dispositions occurring after the
Issue Date which are not applied in accordance with this Section 4.06(a) (or
with Section 11D(a) of the terms of the Exchangeable Preferred
<PAGE>
82
Stock) exceeds $5 million. Pending application of Net Available Cash pursuant to
this Section 4.06, such Net Available Cash shall be invested in Permitted
Investments.
For the purposes of this Section 4.06, the following are deemed to be
cash or cash equivalents: (x) the assumption of Indebtedness of the Company or
any Restricted Subsidiary and the release of the Company or such Restricted
Subsidiary from all liability on such Indebtedness in connection with such Asset
Disposition, (y) securities received by the Company or any Restricted Subsidiary
from the transferee that are promptly converted by the Company or such
Restricted Subsidiary into cash; and (z) Temporary Cash Investments.
(b) In the event of an Asset Disposition that requires the purchase
of the Securities pursuant to Section 4.06(a)(ii)(C), the Company will be
required to purchase Securities tendered pursuant to an offer by the Company for
the Securities at a purchase price of 100% of their principal amount (in the
case of Securities) plus accrued but unpaid interest to the date of purchase in
accordance with the procedures (including prorating in the event of
oversubscription) set forth in Section 4.06(c). If the aggregate purchase price
of Securities tendered pursuant to such offer is less than the Net Available
Cash allotted to the purchase thereof, the Company will be required to apply the
remaining Net Available Cash in accordance with Section 4.06(a)(ii)(D). The
Company shall not be required to make such an offer to purchase Securities
pursuant to this Section 4.06 if the Net Available Cash available therefor is
less than $5.0 million (which lesser amount shall be carried forward for
purposes of determining whether such an offer is required with respect to the
Net Available Cash from any subsequent Asset Disposition).
<PAGE>
83
(c) (1) Promptly, and in any event within 10 days after the Company
becomes obligated to make an Offer, the Company shall be obligated to deliver to
the Trustee and send, by first-class mail to each Holder, a written notice
stating that the Holder may elect to have his Securities purchased by the
Company either in whole or in part (subject to prorating as hereinafter
described in the event the Offer is oversubscribed) in integral multiples of
$1,000 of principal amount, at the applicable purchase price. The notice shall
specify a purchase date not less than 30 days nor more than 60 days after the
date of such notice (the "Purchase Date") and shall contain such information
concerning the business of the Company which the Company in good faith believes
will enable such Holders to make an informed decision (which at a minimum will
include (i) the most recently filed Annual Report on Form 10-K (including
audited consolidated financial statements) of the Company, the most recent
subsequently filed Quarterly Report on Form 10-Q and any Current Report on Form
8-K of the Company filed subsequent to such Quarterly Report, other than Current
Reports describing Asset Dispositions otherwise described in the offering
materials (or corresponding successor reports), (ii) a description of material
developments in the Company's business subsequent to the date of the latest of
such Reports, and (iii) if material, appropriate pro forma financial
information) and all instructions and materials necessary to tender Securities
pursuant to the Offer, together with the information contained in clause (3).
(2) Not later than the date upon which written notice of an Offer is
delivered to the Trustee as provided below, the Company shall deliver to the
Trustee an Officers' Certificate as to (i) the amount of the Offer (the "Offer
Amount"), (ii) the allocation of the Net Available Cash from the Asset
Dispositions pursuant to which such Offer is being made, (iii) the principal
amount of a Security on the Purchase Date and (iv) the compliance of such
allocation with the provisions of Section 4.06(a). On such date, the Company
shall also irrevocably deposit with the Trustee or
<PAGE>
84
with a paying agent (or, if the Company is acting as its own paying agent,
segregate and hold in trust) in Temporary Cash Investments, maturing on the last
day prior to the Purchase Date or on the Purchase Date if funds are immediately
available by open of business, an amount equal to the Offer Amount to be held
for payment in accordance with the provisions of this Section. Upon the
expiration of the period for which the Offer remains open (the "Offer Period"),
the Company shall deliver to the Trustee for cancellation the Securities or
portions thereof which have been properly tendered to and are to be accepted by
the Company. The Trustee shall, on the Purchase Date, mail or deliver payment to
each tendering Holder in the amount of the purchase price. In the event that the
aggregate purchase price of the Securities delivered by the Company to the
Trustee is less than the Offer Amount applicable to the Securities, the Trustee
shall deliver the excess to the Company immediately after the expiration of the
Offer Period for application in accordance with this Section.
(3) Holders electing to have a Security purchased shall be required
to surrender the Security, with an appropriate form duly completed, to the
Company at the address specified in the notice at least three Business Days
prior to the Purchase Date. Holders shall be entitled to withdraw their
election if the Trustee or the Company receives not later than one Business Day
prior to the Purchase Date, a telex, facsimile transmission or letter setting
forth the name of the Holder, the principal amount of the Security which was
delivered for purchase by the Holder and a statement that such Holder is
withdrawing his election to have such Security purchased. If at the expiration
of the Offer Period the aggregate principal amount of Securities surrendered by
holders thereof exceeds the Offer Amount, the Company shall select the
Securities to be purchased on a pro rata basis (with such adjustments as may be
deemed appropriate by the Company so that only Securities in denominations of
$1,000, or integral multiples thereof, shall be purchased). Holders whose
Securities are purchased
<PAGE>
85
only in part shall be issued new Securities equal in principal amount to the
unpurchased portion of the Securities surrendered.
(4) At the time the Company delivers Securities to the Trustee which
are to be accepted for purchase, the Company shall also deliver an Officers'
Certificate stating that such Securities are to be accepted by the Company
pursuant to and in accordance with the terms of this Section. A Security shall
be deemed to have been accepted for purchase at the time the Trustee, directly
or through an agent, mails or delivers payment therefor to the surrendering
Holder.
(d) The Company shall comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other securities laws
or regulations in connection with the repurchase of Securities pursuant to this
Section 4.06. To the extent that the provisions of any securities laws or
regulations conflict with provisions of this Section 4.06, the Company shall
comply with the applicable securities laws and regulations and shall not be
deemed to have breached its obligations under this Section 4.06 by virtue
thereof.
SECTION 4.07. Limitation on Affiliate Transactions. (a) The Company
-------------------------------------
shall not, and shall not permit any Restricted Subsidiary to, enter into or
permit to exist any transaction (including the purchase, sale, license, lease or
exchange of any property, employee compensation arrangements or the rendering of
any service) with any Affiliate of the Company (an "Affiliate Transaction")
unless the terms thereof (1) are no less favorable to the Company or such
Restricted Subsidiary than those that could be obtained at the time of such
transaction in arm's-length dealings with a Person who is not such an
<PAGE>
86
Affiliate, (2) if such Affiliate Transaction involves an amount in excess of
$1.0 million, (i) are set forth in writing and (ii) have been approved by a
majority of the members of the Board of Directors having no personal stake in
such Affiliate Transaction and (3) if such Affiliate Transaction involves an
amount in excess of $5.0 million, have been determined by a nationally
recognized investment banking firm or other qualified appraiser under the
relevant circumstances to be fair, from a financial standpoint, to the Company
and its Restricted Subsidiaries.
(b) The provisions of Section 4.07(a) shall not prohibit (i) any
Permitted Investment or any Restricted Payment permitted to be paid pursuant to
Section 4.04, (ii) any issuance of securities, or other payments, awards or
grants in cash, securities or otherwise pursuant to, or the funding of,
employment arrangements, stock options and stock ownership plans approved by the
Board of Directors, (iii) the grant of stock options or similar rights to
employees and directors of the Company pursuant to plans approved by the Board
of Directors, (iv) loans or advances to employees in the ordinary course of
business in accordance with the past practices of the Company or its Restricted
Subsidiaries, but in any event not to exceed $500,000 in the aggregate
outstanding at any one time, (v) the payment of reasonable fees to directors of
the Company and its Restricted Subsidiaries who are not employees of the Company
or its Restricted Subsidiaries, (vi) any Affiliate Transaction between the
Company and a Restricted Subsidiary or between Restricted Subsidiaries;
provided, however, that no beneficial owner (as defined in Rule 13d-1 and 13d-5
- -------- -------
of the Exchange Act) of 5% or more of the Capital Stock of the Company holds,
directly or indirectly, any Investments in any such Restricted Subsidiary (other
than indirectly through the Company), (vii) the issuance or sale of any Capital
Stock (other than Disqualified Stock) of the Company and (viii) any transaction
pursuant to an agreement or arrangement in effect on the Issue Date.
<PAGE>
87
SECTION 4.08. Limitation on the Sale or Issuance of Capital Stock of
------------------------------------------------------
Certain Restricted Subsidiaries. The Company shall not sell or otherwise
- --------------------------------
dispose of any Capital Stock (other than Qualified Preferred Stock) of an
Existing Restricted Subsidiary, and shall not permit any Existing Restricted
Subsidiary, directly or indirectly, to issue or sell or otherwise dispose of any
of its Capital Stock (other than Qualified Preferred Stock), except (i) to the
Company or a Wholly Owned Subsidiary, (ii) if, immediately after giving effect
to such issuance, sale or other disposition, neither the Company nor any of its
Subsidiaries own any Capital Stock of such Restricted Subsidiary, (iii) if,
immediately after giving effect to such issuance, sale or other disposition,
such Existing Restricted Subsidiary would no longer constitute a Restricted
Subsidiary and any Investment in such Person remaining after giving effect
thereto would have been permitted to be made under Section 4.04 if made on the
date of such issuance, sale or other disposition, (iv) to directors of
directors' qualifying shares of common stock of any Restricted Subsidiary, to
the extent mandated by applicable law, or (v) the issuance or sale of Capital
Stock of a Restricted Subsidiary that has a class of equity security registered
under Section 12 of the Exchange Act pursuant to an employee stock option plan
approved by the Board of Directors.
SECTION 4.09. Change of Control. (a) Upon the occurrence of a
------------------
Change of Control, each Holder shall have the right to require that the Company
repurchase such Holder's Securities at a purchase price in cash equal to 101% of
the principal amount thereof plus accrued and unpaid interest to the date of
purchase (subject to the right of holders of record on the relevant record date
to receive interest on the relevant interest payment date), in accordance with
the terms contemplated in Section 4.09(b).
<PAGE>
88
(b) Within 30 days following any Change of Control, the Company shall
mail a notice to each Holder with a copy to the Trustee (the "Change of Control
Offer") stating:
(1) that a Change of Control has occurred and that such Holder has the right
to require the Company to purchase such Holder's Securities at a purchase
price in cash equal to 101% of the principal amount thereof plus accrued and
unpaid interest to the date of purchase (subject to the right of Holders of
record on the relevant record date to receive interest on the relevant
interest payment date);
(2) the circumstances and relevant facts regarding such Change of Control
(including information with respect to pro forma historical income, cash flow
and capitalization, each after giving effect to such Change of Control);
(3) the repurchase date (which shall be no earlier than 30 days nor later
than 60 days from the date such notice is mailed); and
(4) the instructions determined by the Company, consistent with this
Section, that a Holder must follow in order to have its Securities purchased.
(c) Holders electing to have a Security purchased will be required to
surrender the Security, with an appropriate form duly completed, to the Company
at the address specified in the notice at least three Business Days prior
<PAGE>
89
to the purchase date. Holders will be entitled to withdraw their election if the
Trustee or the Company receives not later than one Business Day prior to the
purchase date, a telegram, telex, facsimile transmission or letter setting forth
the name of the Holder, the principal amount of the Security which was delivered
for purchase by the Holder and a statement that such Holder is withdrawing his
election to have such Security purchased.
(d) On the purchase date, all Securities purchased by the Company
under this Section shall be delivered by the Trustee for cancelation, and the
Company shall pay the purchase price plus accrued and unpaid interest, if any,
to the Holders entitled thereto. Upon surrender of a Security that is
repurchased under this Section in part, the Company shall execute and the
Trustee shall authenticate for the Holder thereof (at the Company's expense) a
new Security having a principal amount equal to the principal amount of the
Security surrendered less the portion of the principal amount of the Security
purchased.
(e) Notwithstanding the foregoing provisions of this Section, the
Company will not be required to make a Change of Control Offer upon a Change of
Control if a third party makes the Change of Control Offer in the manner, at the
times and otherwise in compliance with the requirements set forth in this
Section applicable to a Change of Control Offer made by the Company and
purchases all Securities validly tendered and not withdrawn under such Change of
Control Offer.
(f) The Company shall comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other securities laws
or regulations in connection with the repurchase of Securities pursuant to this
Section. To the extent that the provisions of any
<PAGE>
90
securities laws or regulations conflict with provisions of this Section, the
Company shall comply with the applicable securities laws and regulations and
shall not be deemed to have breached its obligations under this Section by
virtue thereof.
SECTION 4.10. Limitation on Market Swaps. The Company will not, and
---------------------------
will not permit any Restricted Subsidiary to, engage in any Market Swaps,
unless:
(i) at the time of entering into the agreement to swap markets and
immediately after giving effect to the proposed Market Swap, no Default shall
have occurred and be continuing;
(ii) the respective fair market values of the markets and other assets (to
be determined in good faith by the Board of Directors and to be evidenced by a
resolution of such Board set forth in an Officer's Certificate delivered to
the Trustee) being purchased and sold by the Company or any of its Restricted
Subsidiaries are substantially the same at the time of entering into the
agreement to swap markets; and
(iii) the cash payments, if any, received by the Company or such Restricted
Subsidiary in connection with such Market Swap are treated as Net Available
Cash received from an Asset Disposition.
<PAGE>
91
SECTION 4.11. Limitation on Lines of Business. The Company shall
--------------------------------
not, and shall not permit any Restricted Subsidiary to, engage in any trade or
business other than a Related Business.
SECTION 4.12. Compliance Certificate. The Company shall deliver to
-----------------------
the Trustee within 120 days after the end of each fiscal year of the Company in
which Securities are outstanding an Officers' Certificate stating that in the
course of the performance by the signers of their duties as Officers of the
Company they would normally have knowledge of any Default and whether or not the
signers know of any Default that occurred during such period. If they do, the
certificate shall describe the Default, its status and what action the Company
is taking or proposes to take with respect thereto. The Company also shall
comply with TIA . 314(a)(4).
SECTION 4.13. Further Instruments and Acts. Upon request of the
-----------------------------
Trustee, the Company will execute and deliver such further instruments and do
such further acts as may be reasonably necessary or proper to carry out more
effectively the purpose of this Indenture. The right of the Trustee to make any
such request shall be permissive and shall in no event be construed as a duty of
the Trustee.
<PAGE>
92
ARTICLE IV
Successor Company
-----------------
SECTION 5.01. When Company May Merge or Transfer Assets. The Company
------------------------------------------
shall not consolidate with or merge with or into, or convey, transfer or lease,
in one transaction or a series of transactions, all or substantially all its
assets to, any Person, unless:
(i) the resulting, surviving or transferee Person (the "Successor Company")
shall be a Person organized and existing under the laws of the United States
of America, any State thereof or the District of Columbia and the Successor
Company (if not the Company) shall expressly assume, by an indenture
supplemental hereto, executed and delivered to the Trustee, in form
satisfactory to the Trustee, all the obligations of the Company under the
Securities and this Indenture;
(ii) immediately after giving effect to such transaction (and treating any
Indebtedness which becomes an obligation of the Successor Company or any
Subsidiary as a result of such transaction as having been Incurred by such
Successor Company or such Subsidiary at the time of such transaction), no
Default shall have occurred and be continuing,
(iii) immediately after giving effect to such transaction, the Successor
Company would be able to Incur an additional $1.00 of Indebtedness pursuant to
Section 4.03(a);
(iv) immediately after giving effect to such transaction, the Successor
Company shall have Consolidated Net Worth in an amount that is not less than
the Consolidated Net Worth of the Company immediately prior to such
transaction;
<PAGE>
93
(v) the Company shall have delivered to the Trustee an Officers' Certificate
and an Opinion of Counsel, each stating that such consolidation, merger or
transfer and such supplemental indenture (if any) comply with this Indenture;
and
(vi) the Company shall have delivered to the Trustee an Opinion of Counsel
to the effect that the holders of the Securities will not recognize income,
gain or loss for Federal income tax purposes as a result of such transaction
and will be subject to Federal income tax on the same amounts, in the same
manner and at the same times as would have been the case if such transaction
had not occurred.
The Successor Company shall be the successor to the Company and shall
succeed to, and be substituted for, and may exercise every right and power of,
the Company under the Indenture, but the predecessor Company in the case of a
conveyance, transfer or lease shall not be released from the obligation to pay
the principal of and interest on the Securities.
<PAGE>
94
ARTICLE VI
Defaults and Remedies
---------------------
SECTION 6.01. Events of Default. An "Event of Default" occurs if:
------------------
(1) the Company defaults in any payment of interest on any Security when the
same becomes due and payable, whether or not such payment shall be prohibited
by Article X, and such default continues for a period of 30 days;
(2) the Company (i) defaults in the payment of the principal of any Security
when the same becomes due and payable at its Stated Maturity, upon optional
redemption, upon required repurchase, upon declaration or otherwise, whether
or not such payment shall be prohibited by Article X, or (ii) fails to redeem
or purchase Securities when required pursuant to this Indenture or the
Securities, whether or not such redemption or purchase shall be prohibited by
Article X;
(3) the Company fails to comply with Section 5.01;
(4) the Company fails to comply with Section 4.02, 4.03, 4.04, 4.05, 4.06,
4.07, 4.08, 4.09, 4.10 or 4.11, (other than a failure to purchase Securities
when required under Section 4.06 or 4.09) and such failure continues for 30
days after the notice specified below;
(5) the Company fails to comply with any of its agreements in the Securities
or this Indenture (other than those referred to in clause (1), (2), (3) or (4)
above) and such failure continues for 60 days after the notice specified
below;
<PAGE>
95
(6) Indebtedness of the Company or any Significant Subsidiary is not paid
within any applicable grace period after final maturity or is accelerated by
the holders thereof because of a default and the total amount of such
Indebtedness unpaid or accelerated exceeds $10.0 million, or its foreign
currency equivalent at the time and such non-payment continues, or such
acceleration is not rescinded, for 10 days after the notice specified below;
(7) the Company or any Significant Subsidiary pursuant to or within the
meaning of any Bankruptcy Law:
(A) commences a voluntary case;
(B) consents to the entry of an order for relief against it in an
involuntary case;
(C) consents to the appointment of a Custodian of it or for any
substantial part of its property; or
(D) makes a general assignment for the benefit of its creditors;
or takes any comparable action under any foreign laws relating to insolvency;
<PAGE>
96
(8) a court of competent jurisdiction enters an order or decree under any
Bankruptcy Law that:
(A) is for relief against the Company or any Significant Subsidiary in
an involuntary case;
(B) appoints a Custodian of the Company or any Significant Subsidiary
or for any substantial part of its property; or
(C) orders the winding up or liquidation of the Company or any
Significant Subsidiary;
or any similar relief is granted under any foreign laws and the order or
decree remains unstayed and in effect for 60 days; or
(9) any judgment or decree for the payment of money in excess of $10.0
million or its foreign currency equivalent at the time is entered against the
Company or any Significant Subsidiary, remains outstanding for a period of 60
days following the entry of such judgment or decree and is not discharged,
waived or the execution thereof stayed within 10 days after the notice
specified below.
The foregoing will constitute Events of Default what ever the reason
for any such Event of Default and whether it is voluntary or involuntary or is
effected by operation of law or pursuant to any judgment, decree or
<PAGE>
97
order of any court or any order, rule or regulation of any administrative or
governmental body.
The term "Bankruptcy Law" means Title 11, United States Code, or any
------------------
similar Federal or state law for the relief of debtors. The term "Custodian"
means any receiver, trustee, assignee, liquidator, custodian or similar official
under any Bankruptcy Law.
A Default under clauses (4), (5), (6) or (9) is not an Event of
Default until the Trustee or the holders of at least 25% in principal amount of
the outstanding Securities notify the Company of the Default and the Company
does not cure such Default within the time specified after receipt of such
notice. Such notice must specify the Default, demand that it be remedied and
state that such notice is a "Notice of Default".
The Company shall deliver to the Trustee, within 30 days after the
Company becomes aware of the occurrence thereof, written notice in the form of
an Officers' Certificate of any event which with the giving of notice or the
lapse of time would become an Event of Default under clause (4), (5), (6) or
(9), its status and what action the Company is taking or proposes to take with
respect thereto.
The Trustee shall not be deemed to have knowledge of a Default
hereunder unless a Trust Officer administering this Indenture has actual
knowledge thereof or the Company has delivered written notice thereof in
accordance with this Indenture.
<PAGE>
98
SECTION 6.02. Acceleration. If an Event of Default (other than an
-------------
Event of Default specified in Section 6.01(7) or (8) with respect to the
Company) occurs and is continuing, the Trustee by notice to the Company, or the
Holders of at least 25% in principal amount of the Securities by notice to the
Company and the Trustee, may declare the principal amount of and accrued but
unpaid interest (if any) on all the Securities to be due and payable. Upon such
a declaration, such principal and interest shall be due and payable immediately.
If an Event of Default specified in Section 6.01(7) or (8) with respect to the
Company occurs and is continuing, the principal amount and interest on all the
Securities shall ipso facto become and be immediately due and payable without
---- -----
any declaration or other act on the part of the Trustee or any Securityholders.
The Holders of a majority in principal amount of the Securities by notice to the
Trustee may rescind an acceleration and its consequences if the rescission would
not conflict with any judgment or decree and if all existing Events of Default
have been cured or waived except nonpayment of principal or interest that has
become due solely because of acceleration. No such rescission shall affect any
subsequent Default or impair any right consequent thereto.
SECTION 6.03. Other Remedies. If an Event of Default occurs and is
---------------
continuing, the Trustee may pursue any available remedy to collect the payment
of principal of or interest on the Securities or to enforce the performance of
any provision of the Securities or this Indenture.
The Trustee may maintain a proceeding even if it does not possess any
of the Securities or does not produce any of them in the proceeding. A delay or
omission by the Trustee or any Securityholder in exercising any right or remedy
accruing upon an Event of Default shall not impair the right or remedy or
constitute a waiver of or acquiescence
<PAGE>
99
in the Event of Default. No remedy is exclusive of any other remedy. All
available remedies are cumulative.
SECTION 6.04. Waiver of Past Defaults. The Holders of a majority in
------------------------
principal amount of the Securities by notice to the Trustee may waive an
existing Default and its consequences except (i) a Default in the payment of the
principal of or interest on a Security, (ii) a Default arising from the failure
to redeem or purchase any Security when required pursuant to this Indenture or
(iii) a Default in respect of a provision that under Section 9.02 cannot be
amended without the consent of each Securityholder affected. When a Default is
waived, it is deemed cured, but no such waiver shall extend to any subsequent or
other Default or impair any consequent right.
SECTION 6.05. Control by Majority. The Holders of a majority in
--------------------
principal amount of the Securities may direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee or of
exercising any trust or power conferred on the Trustee. However, the Trustee
may refuse to follow any direction that conflicts with law or this Indenture or,
subject to Section 7.01, that the Trustee determines is unduly prejudicial to
the rights of other Securityholders or would involve the Trustee in personal
liability; provided, however, that the Trustee may take any other action deemed
-------- -------
proper by the Trustee that is not inconsistent with such direction. Prior to
taking any action hereunder, the Trustee shall be entitled to indemnification
satisfactory to it in its sole discretion against all losses and expenses caused
by taking or not taking such action.
SECTION 6.06. Limitation on Suits. Except to enforce the right to
--------------------
receive payment of principal, premium (if any) or interest when due, no
Securityholder may pursue
<PAGE>
100
any remedy with respect to this Indenture or the Securities unless:
(1) the Holder gives to the Trustee written notice stating that an Event of
Default is continuing;
(2) the Holders of at least 25% in principal amount of the Securities make a
written request to the Trustee to pursue the remedy;
(3) such Holder or Holders offer to the Trustee reasonable security or
indemnity against any loss, liability or expense;
(4) the Trustee does not comply with the request within 60 days after
receipt of the request and the offer of security or indemnity; and
(5) the Holders of a majority in principal amount of the Securities do not
give the Trustee a direction inconsistent with the request during such 60-day
period.
A Securityholder may not use this Indenture to prejudice the rights of
another Securityholder or to obtain a preference or priority over another
Securityholder.
SECTION 6.07. Rights of Holders to Receive Payment. Notwithstanding
-------------------------------------
any other provision of this Indenture,
<PAGE>
101
the right of any Holder to receive payment of principal of and interest on
the Securities held by such Holder, on or after the respective due dates
expressed in the Securities, or to bring suit for the enforcement of any such
payment on or after such respective dates, shall not be impaired or affected
without the consent of such Holder.
SECTION 6.08. Collection Suit by Trustee. If an Event of Default
---------------------------
specified in Section 6.01(1) or (2) occurs and is continuing, the Trustee may
recover judgment in its own name and as trustee of an express trust against the
Company for the whole amount then due and owing (together with interest on any
unpaid principal and interest to the extent lawful) and the amounts provided for
in Section 7.07.
SECTION 6.09. Trustee May File Proofs of Claim. The Trustee may file
---------------------------------
such proofs of claim and other papers or documents and take such actions as may
be necessary or advisable in order to have the claims of the Trustee and the
Securityholders allowed in any judicial proceedings relative to the Company, its
creditors or its property and, unless prohibited by law or applicable
regulations, may vote on behalf of the Holders in any election of a trustee in
bankruptcy or other Person performing similar functions, and any Custodian in
any such judicial proceeding is hereby authorized by each Holder to make
payments to the Trustee and, in the event that the Trustee shall consent to the
making of such payments directly to the Holders, to pay to the Trustee any
amount due it for the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and its counsel, and any other amounts due
the Trustee under Section 7.07.
SECTION 6.10. Priorities. If the Trustee collects any money or
-----------
property pursuant to this Article VI, it shall pay out the money or property in
the following order:
<PAGE>
102
FIRST: to the Trustee for amounts due under Section 7.07;
SECOND: to holders of Senior Indebtedness of the Company to the extent
required by Article X;
THIRD: to Securityholders for amounts due and unpaid on the Securities for
principal and interest, ratably, without preference or priority of any kind,
according to the amounts due and payable on the Securities for principal and
interest, respectively; and
FOURTH: to the Company.
The Trustee may fix a record date and payment date for any payment to
Securityholders pursuant to this Section. At least 15 days before such record
date, the Company shall mail to each Securityholder and the Trustee a notice
that states the record date, the payment date and amount to be paid.
SECTION 6.11. Undertaking for Costs. In any suit for the enforcement
----------------------
of any right or remedy under this Indenture or in any suit against the Trustee
for any action taken or omitted by it as Trustee, a court in its discretion may
require the filing by any party litigant in the suit of an undertaking to pay
the costs of the suit, and the court in its discretion may assess reasonable
costs, including reasonable attorneys' fees, against any party litigant in the
suit, having due regard to the merits and good faith of the
<PAGE>
103
claims or defenses made by the party litigant. This Section does not apply to a
suit by the Trustee, a suit by a Holder pursuant to Section 6.07 or a suit by
Holders of more than 10% in principal amount of the Securities.
SECTION 6.12. Waiver of Stay or Extension Laws. The Company (to the
---------------------------------
extent it may lawfully do so) shall not at any time insist upon, or plead, or in
any manner whatsoever claim or take the benefit or advantage of, any stay or
extension law wherever enacted, now or at any time hereafter in force, which may
affect the covenants or the performance of this Indenture; and the Company (to
the extent that it may lawfully do so) hereby expressly waives all benefit or
advantage of any such law, and shall not hinder, delay or impede the execution
of any power herein granted to the Trustee, but shall suffer and permit the
execution of every such power as though no such law had been enacted.
ARTICLE VII
Trustee
-------
SECTION 7.01. Duties of Trustee. (a) If an Event of Default has
------------------
occurred and is continuing, the Trustee shall exercise such of the rights and
powers vested in it by this Indenture and use the same degree of care and skill
in their exercise as a prudent Person would exercise or use under the
circumstances in the conduct of such Person's own affairs.
<PAGE>
104
(b) Except during the continuance of an Event of Default:
(1) the Trustee undertakes to perform such duties and only such duties as
are specifically set forth in this Indenture and no implied covenants or
obligations shall be read into this Indenture against the Trustee; and
(2) in the absence of bad faith on its part, the Trustee may conclusively
rely, as to the truth of the statements and the correctness of the opinions
expressed therein, upon certificates or opinions furnished to the Trustee and
conforming to the requirements of this Indenture. However, the Trustee shall
examine the certificates and opinions to determine whether or not they conform
to the requirements of this Indenture.
(c) The Trustee may not be relieved from liability for its own
negligent action, its own negligent failure to act or its own wilful misconduct,
except that:
(1) this paragraph does not limit the effect of paragraph (b) of this
Section;
(2) the Trustee shall not be liable for any error of judgment made in good
faith by a Trust Officer unless it is proved that the Trustee was negligent in
ascertaining the pertinent facts; and
<PAGE>
105
(3) the Trustee shall not be liable with respect to any action it takes or
omits to take in good faith in accordance with a direction received by it
pursuant to Section 6.05.
(d) No provision of this Indenture shall require the Trustee to
expend or risk its own funds or otherwise incur financial liability in the
performance of any of its duties hereunder or in the exercise of any of its
rights or powers, if it shall have reasonable grounds to believe that repayment
of such funds or adequate indemnity against such risk or liability is not
reasonably assured to it.
(e) The Trustee shall not be liable for interest on any money
received by it except as the Trustee may agree in writing with the Company.
(f) Money held in trust by the Trustee need not be segregated from
other funds except to the extent required by law.
(g) Every provision of this Indenture relating to the conduct or
affecting the liability of or affording protection to the Trustee shall be
subject to the provisions of this Section and to the provisions of the TIA.
(h) The Trustee shall have no duty to inquire as to the performance
of any of the covenants of the Company contained in this Indenture. The Trustee
shall not be charged with notice or knowledge of any event or matter the
occurrence of which would require it to take action or omit to take action
hereunder unless such event or matter is
<PAGE>
106
actually known to a Trust Officer of the Trustee or unless written notice
thereof delivered in accordance with this Indenture (making reference to this
Indenture or the Securities) has been received by the Trustee at its Corporate
Trust Office.
(i) Unless otherwise expressly provided herein, the Trustee shall not
have any responsibility with respect to reports, notices, certificates or other
documents filed with it hereunder except to make them available for inspection,
at reasonable times, by the Holders.
SECTION 7.02. Rights of Trustee. (a) The Trustee may rely on any
------------------
document believed by it to be genuine and to have been signed or presented by
the proper Person. The Trustee need not investigate any fact or matter stated
in the document.
(b) Before the Trustee acts or refrains from acting, it may require
an Officers' Certificate or an Opinion of Counsel or both. The Trustee shall
not be liable for any action it takes or omits to take in good faith in reliance
on the Officers' Certificate or Opinion of Counsel.
(c) The Trustee may act through its attorneys and agents and shall
not be responsible for the misconduct or negligence of any attorney agent
appointed with due care.
(d) The Trustee shall not be liable for any action it takes or omits
to take in good faith which it believes to be authorized or within its rights or
powers;
<PAGE>
107
provided, however, that the Trustee's conduct does not constitute wilful
- --------- -------
misconduct or negligence.
(e) The Trustee may consult with counsel, and the advice or opinion
of counsel with respect to legal matters relating to this Indenture and the
Securities shall be full and complete authorization and protection from
liability in respect to any action taken, omitted or suffered by it here under
in good faith and in accordance with the advice or opinion of such counsel.
(f) The Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or direction of
any of the Holders unless such Holders shall have furnished to the Trustee
reasonable security or indemnity against the costs, expenses and liabilities
that might be incurred by it in compliance with such request or direction.
SECTION 7.03. Individual Rights of Trustee. The Trustee in its
-----------------------------
individual or any other capacity may become the owner or pledgee of Securities
and may otherwise deal with the Company or its Affiliates with the same rights
it would have if it were not Trustee. Any Paying Agent, Registrar, co-registrar
or co-paying agent may do the same with like rights. However, the Trustee must
comply with Sections 7.10 and 7.11.
SECTION 7.04. Trustee's Disclaimer. The Trustee shall not be
---------------------
responsible for and makes no representation as to the validity or adequacy of
this Indenture or the Securities, it shall not be accountable for the Company's
use of the proceeds from the Securities, and it shall not be responsible for any
statement of the Company in this Indenture
<PAGE>
108
or in any certificate delivered pursuant thereto or in any document issued
in connection with the sale of the Securities or in the Securities other than
the Trustee's certificate of authentication.
SECTION 7.05. Notice of Defaults. If a Default occurs and is
-------------------
continuing and if it is known to the Trustee, the Trustee shall mail to each
Securityholder notice of the Default within 90 days after it occurs. Except in
the case of a Default in payment of principal of or interest on any Security,
the Trustee may withhold the notice if and so long as a committee of its Trust
Officers in good faith determines that withholding the notice is in the
interests of Securityholders.
SECTION 7.06. Reports by Trustee to Holders. To the extent required
------------------------------
by the TIA as promptly as practicable after each May 15 beginning with the May
15 following the date of this Indenture, and in any event prior to July 15 in
each year, the Trustee shall mail to each Securityholder a brief report dated as
of May 15 that complies with TIA . 313(a). The Trustee also shall comply with
TIA . 313(b).
A copy of each report at the time of its mailing to Securityholders
shall be filed with the SEC and each stock exchange (if any) on which the
Securities are listed. The Company agrees to notify promptly the Trustee
whenever the Securities become listed on any stock exchange and of any delisting
thereof.
SECTION 7.07. Compensation and Indemnity. The Company shall pay to
---------------------------
the Trustee from time to time reasonable compensation for its services. The
Trustee's compensation shall not be limited by any law on compensation
<PAGE>
109
of a trustee of an express trust. The Company shall reimburse the Trustee upon
request for all reasonable out-of-pocket expenses, disbursements and advances
incurred or made by it, including costs of collection, in addition to the
compensation for its services. Such expenses shall include the reasonable
compensation and expenses, disbursements and advances of the Trustee's agents,
counsel, accountants and experts. The Company shall indemnify the Trustee, its
officers, directors and employees against any and all loss, liability or expense
(including attorneys' fees) incurred by it, arising out of or in connection with
the acceptance or administration of this trust and the performance of its duties
hereunder, including the costs and expenses of defending itself against any
claim or liability in respect thereof. The Trustee shall notify the Company
promptly of any claim for which it may seek indemnity. Failure by the Trustee to
so notify the Company shall not relieve the Company of its obligations
hereunder. The Company shall defend the claim and the Trustee may have separate
counsel and the Company shall pay the fees and expenses of such counsel. The
Company need not reimburse any expense or indemnify against any loss, liability
or expense incurred by the Trustee through the Trustee's own wilful misconduct,
negligence or bad faith.
To secure the Company's payment obligations in this Section, the
Trustee shall have a lien prior to the Securities on all money or property held
or collected by the Trustee other than money or property held in trust to pay
principal of and interest on particular Securities.
When the Trustee incurs expenses after the occurrence of a Default
specified in Section 6.01(7) or (8) with respect to the Company, the expenses
are intended to constitute expenses of administration under the Bankruptcy Law.
<PAGE>
110
The Company's obligations pursuant to this Section shall survive the
discharge of this Indenture.
SECTION 7.08. Replacement of Trustee. The Trustee may resign at any
-----------------------
time by so notifying the Company. The Holders of a majority in principal amount
of the Securities may remove the Trustee by so notifying the Trustee and may
appoint a successor Trustee. The Company shall remove the Trustee if:
(1) the Trustee fails to comply with Section 7.10;
(2) the Trustee is adjudged bankrupt or insolvent;
(3) a receiver or other public officer takes charge of the Trustee or its
property; or
(4) the Trustee otherwise becomes incapable of acting.
If the Trustee resigns, is removed by the Company or by the Holders of
a majority in principal amount of the Securities and such Holders do not
reasonably promptly appoint a successor Trustee, or if a vacancy exists in the
office of Trustee for any reason (the Trustee in such event being referred to
herein as the retiring Trustee), the Company shall promptly appoint a successor
Trustee.
<PAGE>
111
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Thereupon the
resignation or removal of the retiring Trustee shall become effective, and the
successor Trustee shall have all the rights, powers and duties of the Trustee
under this Indenture. The successor Trustee shall mail a notice of its
succession to Securityholders. The retiring Trustee shall promptly transfer all
property held by it as Trustee to the successor Trustee, subject to the lien
provided for in Section 7.07.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee or the Holders of
10% in principal amount of the Securities may petition any court of competent
jurisdiction for the appointment of a successor Trustee.
If the Trustee fails to comply with Section 7.10, any Securityholder
may petition any court of competent jurisdiction for the removal of the Trustee
and the appointment of a successor Trustee.
Notwithstanding the replacement of the Trustee pursuant to this
Section, the Company's obligations under Section 7.07 shall continue for the
benefit of the retiring Trustee.
SECTION 7.09. Successor Trustee by Merger. If the Trustee
----------------------------
consolidates with, merges or converts into, or transfers all or substantially
all its corporate trust business or assets to, another corporation or banking
association, the resulting, surviving or transferee corporation without any
further act shall be the successor Trustee.
<PAGE>
112
In case at the time such successor or successors by merger, conversion
or consolidation to the Trustee shall succeed to the trusts created by this
Indenture any of the Securities shall have been authenticated but not delivered,
any such successor to the Trustee may adopt the certificate of authentication of
any predecessor trustee, and deliver such Securities so authenticated; and in
case at that time any of the Securities shall not have been authenticated, any
successor to the Trustee may authenticate such Securities either in the name of
any predecessor hereunder or in the name of the successor to the Trustee; and in
all such cases such certificates shall have the full force which it is anywhere
in the Securities or in this Indenture provided that the certificate of the
Trustee shall have.
SECTION 7.10. Eligibility; Disqualification. The Trustee shall at
------------------------------
all times satisfy the requirements of TIA . 310(a). The Trustee shall have a
combined capital and surplus of at least $50,000,000 as set forth in its most
recent published annual report of condition. The Trustee shall comply with TIA
. 310(b); provided, however, that there shall be excluded from the operation of
-------- -------
TIA . 310(b)(1) any indenture or indentures under which other securities or
certificates of interest or participation in other securities of the Company are
out standing if the requirements for such exclusion set forth in TIA . 310(b)(1)
are met.
SECTION 7.11. Preferential Collection of Claims Against Company. The
--------------------------------------------------
Trustee shall comply with TIA . 311(a), excluding any creditor relationship
listed in TIA . 311(b). A Trustee who has resigned or been removed shall be
subject to TIA . 311(a) to the extent indicated.
<PAGE>
113
ARTICLE VIII
Discharge of Indenture; Defeasance
----------------------------------
SECTION 8.01. Discharge of Liability on Securities; Defeasance. (a)
-------------------------------------------------
When (i) the Company delivers to the Trustee all outstanding Securities (other
than Securities replaced pursuant to Section 2.07) for cancelation or (ii) all
outstanding Securities have become due and payable, whether at maturity or as a
result of the mailing of a notice of redemption pursuant to Article III hereof
and the Company irrevocably deposits with the Trustee funds sufficient to pay
at maturity or upon redemption all outstanding Securities, including interest
thereon to maturity or such redemption date (other than Securities replaced
pursuant to Section 2.07), and if in either case the Company pays all other sums
payable hereunder by the Company, then this Indenture shall, subject to Section
8.01(c), cease to be of further effect. The Trustee shall acknowledge
satisfaction and discharge of this Indenture on demand of the Company
accompanied by an Officers' Certificate and an Opinion of Counsel and at the
cost and expense of the Company.
(b) Subject to Sections 8.01(c) and 8.02, the Company at any time may
terminate (i) all its obligations under the Securities and this Indenture
("legal defeasance option") or (ii) its obligations under Sections 4.02, 4.03,
4.04, 4.05, 4.06, 4.07, 4.08, 4.09, 4.10 and 4.11 and the operation of Sections
6.01(4), 6.01(6), 6.01(7), 6.01(8) and 6.01(9) (but, in the case of Sections
6.01(7) and (8), with respect only to Significant Subsidiaries) and the
limitations contained in Sections 5.01(iii) and (iv) ("covenant defeasance
option"). The Company may exercise
<PAGE>
114
its legal defeasance option notwithstanding its prior exercise of its covenant
defeasance option.
If the Company exercises its legal defeasance option, payment of the
Securities may not be accelerated because of an Event of Default with respect
thereto. If the Company exercises its covenant defeasance option, payment of
the Securities may not be accelerated because of an Event of Default specified
in Sections 6.01(4), 6.01(6), 6.01(7), 6.01(8) and 6.01(9) (but, in the case of
Sections 6.01(7) and (8), with respect only to Significant Subsidiaries) or
because of the failure of the Company to comply with Section 5.01(iii) or (iv).
Upon satisfaction of the conditions set forth herein and upon request
of the Company, the Trustee shall acknowledge in a writing prepared by the
Company and reasonably satisfactory to the Trustee the discharge of those
obligations that the Company terminates.
(c) Notwithstanding clauses (a) and (b) above, the Company's
obligations in Sections 2.03, 2.04, 2.05, 2.06, 2.07, 2.08, 7.07 and 7.08 and in
this Article VIII shall survive until the Securities have been paid in full.
Thereafter, the Company's obligations in Sections 7.07, 8.04 and 8.05 shall
survive.
SECTION 8.02. Conditions to Defeasance. The Company may exercise its
-------------------------
legal defeasance option or its covenant defeasance option only if:
<PAGE>
115
(1) the Company irrevocably deposits in trust with the Trustee money or
U.S. Government Obligations for the payment of principal of and interest on
the Securities to maturity or redemption, as the case may be;
(2) the Company delivers to the Trustee a certificate from a nationally
recognized firm of independent accountants expressing their opinion that the
payments of principal and interest when due and without reinvestment on the
deposited U.S. Government Obligations plus any deposited money without
investment will provide cash at such times and in such amounts as will be
sufficient to pay principal and interest when due on all the Securities to
maturity or redemption, as the case may be;
(3) 123 days pass after the deposit is made and during the 123-day period no
Default specified in Sections 6.01(7) or (8) with respect to the Company
occurs which is continuing at the end of the period;
(4) the deposit does not constitute a default under any other agreement
binding on the Company and is not prohibited by Article X;
(5) the Company delivers to the Trustee an Opinion of Counsel to the effect
that the trust resulting from the deposit does not constitute, or is qualified
as, a regulated investment company under the Investment Company Act of 1940;
(6) in the case of the legal defeasance option, the Company shall have
delivered to the Trustee an Opinion of
<PAGE>
116
Counsel stating that (i) the Company has received from, or there has been
published by, the Internal Revenue Service a ruling, or (ii) since the date of
this Indenture there has been a change in the applicable Federal income tax
law, in either case to the effect that, and based thereon such Opinion of
Counsel shall confirm that, the Securityholders will not recognize income,
gain or loss for Federal income tax purposes as a result of such defeasance
and will be subject to Federal income tax on the same amounts, in the same
manner and at the same times as would have been the case if such defeasance
had not occurred;
(7) in the case of the covenant defeasance option, the Company shall have
delivered to the Trustee an Opinion of Counsel to the effect that the
Securityholders will not recognize income, gain or loss for Federal income tax
purposes as a result of such covenant defeasance and will be subject to
Federal income tax on the same amounts, in the same manner and at the same
times as would have been the case if such covenant defeasance had not
occurred; and
(8) the Company delivers to the Trustee an Officers' Certificate and an
Opinion of Counsel, each stating that all conditions precedent to the
defeasance and discharge of the Securities as contemplated by this Article
VIII have been complied with.
Before or after a deposit, the Company may make arrangements
satisfactory to the Trustee for the redemption of Securities at a future date in
accordance with Article III.
<PAGE>
117
SECTION 8.03. Application of Trust Money. The Trustee shall hold in
---------------------------
trust money or U.S. Government Obligations deposited with it pursuant to this
Article VIII. It shall apply the deposited money and the money from U.S.
Government Obligations through the Paying Agent and in accordance with this
Indenture to the payment of principal of and interest on the Securities. Money
and securities so held in trust are not subject to Article X.
SECTION 8.04. Repayment to Company. The Trustee and the Paying Agent
---------------------
shall promptly turn over to the Company upon request any excess money or
securities held by them at any time.
Subject to any applicable abandoned property law, the Trustee and the
Paying Agent shall pay to the Company upon request any money held by them for
the payment of principal or interest that remains unclaimed for two years, and,
thereafter, Securityholders entitled to the money must look to the Company for
payment as general creditors.
SECTION 8.05. Indemnity for Government Obligations. The Company shall
-------------------------------------
pay and shall indemnify the Trustee against any tax, fee or other charge imposed
on or assessed against deposited U.S. Government Obligations or the principal
and interest received on such U.S. Government Obligations.
SECTION 8.06. Reinstatement. If the Trustee or Paying Agent is
--------------
unable to apply any money or U.S. Government Obligations in accordance with this
Article 8 by reason of any legal proceeding or by reason of any order or
judgment of any court or governmental authority enjoining, restraining or
otherwise prohibiting such application, the Company's
<PAGE>
118
obligations under this Indenture and the Securities shall be revived and
reinstated as though no deposit had occurred pursuant to this Article VIII until
such time as the Trustee or Paying Agent is permitted to apply all such money or
U.S. Government Obligations in accordance with this Article VIII; provided,
---------
however, that, if the Company has made any payment of interest on or principal
- -------
of any Securities because of the reinstatement of its obligations, the Company
shall be subrogated to the rights of the Holders of such Securities to receive
such payment from the money or U.S. Government Obligations held by the Trustee
or Paying Agent.
ARTICLE IX
Amendments
----------
SECTION 9.01. Without Consent of Holders. The Company and the
---------------------------
Trustee may amend this Indenture or the Securities without notice to or consent
of any Securityholder:
(1) to cure any ambiguity, omission, defect or inconsistency;
(2) to comply with Article V;
(3) to provide for uncertificated Securities in addition to or in place of
certificated Securities;
<PAGE>
119
provided, however, that the uncertificated Securities are issued in
-------- -------
registered form for purposes of Section 163(f) of the Code or in a manner such
that the uncertificated Securities are described in Section 163(f)(2)(B) of
the Code;
(4) to add guarantees with respect to the Securities or to secure the
Securities;
(5) to add to the covenants of the Company for the benefit of the Holders or
to surrender any right or power herein conferred upon the Company;
(6) to comply with any requirements of the SEC in connection with
qualifying, or maintaining the qualification of, this Indenture under the TIA;
(7) to make any change in Article X that would limit or terminate the
benefits available to any holder of Senior Indebtedness (or Representatives
therefor) under Article X; or
(8) to make any change that does not adversely affect the rights of any
Securityholder.
An amendment under this Section may not make any change that adversely
affects the rights under Article X of any holder of Senior Indebtedness then
outstanding unless the holders of such Senior Indebtedness (or any group or
<PAGE>
120
Representative thereof authorized to give a consent) consent to such change.
After an amendment under this Section becomes effective, the Company
shall mail to Securityholders a notice briefly describing such amendment. The
failure to give such notice to all Securityholders, or any defect therein, shall
not impair or affect the validity of an amendment under this Section.
SECTION 9.02. With Consent of Holders. The Company and the Trustee
------------------------
may amend this Indenture or the Securities without notice to any Securityholder
but with the written consent of the Holders of at least a majority in principal
amount of the Securities then outstanding (including consents obtained in
connection with a tender offer or exchange for the Securities). However,
without the consent of each Securityholder affected thereby, an amendment may
not:
(1) reduce the principal amount of Securities whose Holders must consent to
an amendment;
(2) reduce the rate of or extend the time for payment of interest on any
Security;
(3) reduce the principal of or extend the Stated Maturity of any Security;
<PAGE>
121
(4) reduce the amount payable upon the redemption of any Security or change
the time at which any Security may be redeemed in accordance with Article III;
(5) make any Security payable in money other than that stated in the
Security;
(6) make any change in Article X that adversely affects the rights of any
Securityholder under Article X; or
(7) make any change in Section 6.04 or 6.07 or the second sentence of this
Section.
It shall not be necessary for the consent of the Holders under this
Section to approve the particular form of any proposed amendment, but it shall
be sufficient if such consent approves the substance thereof.
An amendment under this Section may not make any change that adversely
affects the rights under Article X of any holder of Senior Indebtedness then
outstanding unless the holders of such Senior Indebtedness (or any group or
Representative thereof authorized to give a consent) consent to such change.
After an amendment under this Section becomes effective, the Company
shall mail to Securityholders a notice briefly describing such amendment. The
failure to give such notice to all Securityholders, or any defect
<PAGE>
122
therein, shall not impair or affect the validity of an amendment under this
Section.
SECTION 9.03. Compliance with Trust Indenture Act. Every amendment to
------------------------------------
this Indenture or the Securities shall comply with the TIA as then in effect.
SECTION 9.04. Revocation and Effect of Consents and Waivers. A
----------------------------------------------
consent to an amendment or a waiver by a Holder of a Security shall bind the
Holder and every subsequent Holder of that Security or portion of the Security
that evidences the same debt as the consenting Holder's Security, even if
notation of the consent or waiver is not made on the Security. However, any
such Holder or subsequent Holder may revoke the consent or waiver as to such
Holder's Security or portion of the Security if the Trustee receives the notice
of revocation before the date the amendment or waiver becomes effective. After
an amendment or waiver becomes effective, it shall bind every Securityholder.
An amendment or waiver becomes effective upon the execution of such amendment or
waiver by the Trustee.
The Company may, but shall not be obligated to, fix a record date for
the purpose of determining the Securityholders entitled to give their consent or
take any other action described above or required or permitted to be taken
pursuant to this Indenture. If a record date is fixed, then notwithstanding the
immediately preceding paragraph, those Persons who were Securityholders at such
record date (or their duly designated proxies), and only those Persons, shall be
entitled to give such consent or to revoke any consent previously given or to
take any such action, whether or not such Persons continue to be Holders after
such record date. No such consent shall be valid or effective for more than 120
days after such record date.
<PAGE>
123
SECTION 9.05. Notation on or Exchange of Securities. If an amendment
--------------------------------------
changes the terms of a Security, the Trustee may require the Holder of the
Security to deliver it to the Trustee. The Trustee may place an appropriate
notation on the Security regarding the changed terms and return it to the
Holder. Alternatively, if the Company or the Trustee so determines, the Company
in exchange for the Security shall issue and the Trustee shall authenticate a
new Security that reflects the changed terms. Failure to make the appropriate
notation or to issue a new Security shall not affect the validity of such
amendment.
SECTION 9.06. Trustee To Sign Amendments. The Trustee shall sign any
---------------------------
amendment authorized pursuant to this Article IX if the amendment does not
adversely affect the rights, duties, liabilities or immunities of the Trustee.
If it does, the Trustee may but need not sign it. In signing such amendment
the Trustee shall be entitled to receive indemnity reasonably satisfactory to it
and to receive, and (subject to Section 7.01) shall be fully protected in
relying upon, an Officers' Certificate and an Opinion of Counsel stating that
such amendment is authorized or permit ted by this Indenture.
SECTION 9.07. Payment for Consent. Neither the Company nor any
--------------------
Affiliate of the Company shall, directly or indirectly, pay or cause to be paid
any consideration, whether by way of interest, fee or otherwise, to any Holder
for or as an inducement to any consent, waiver or amendment of any of the terms
or provisions of this Indenture or the Securities unless such consideration is
offered to be paid to all Holders that so consent, waive or agree to amend in
the time frame set forth in solicitation documents relating to such consent,
waiver or agreement.
<PAGE>
124
ARTICLE X
Subordination
-------------
SECTION 10.01. Agreement To Subordinate. The Company agrees, and
-------------------------
each Securityholder by accepting a Security agrees, that the Indebtedness
evidenced by the Securities is subordinated in right of payment, to the extent
and in the manner provided in this Article X, to the prior payment of all Senior
Indebtedness and that the subordination is for the benefit of and enforceable by
the holders of such Senior Indebtedness. All provisions of this Article X shall
be subject to Section 10.12.
SECTION 10.02. Liquidation, Dissolution, Bankruptcy. Upon any payment
-------------------------------------
or distribution of the assets of the Company to creditors upon a total or
partial liquidation or a total or partial dissolution of the Company or in a
bankruptcy, reorganization, insolvency, receivership or similar proceeding
relating to the Company or its property:
(1) holders of Senior Indebtedness shall be entitled to receive payment in
full of such Senior Indebtedness before Securityholders shall be entitled to
receive any payment of principal of or interest on the Securities; and
(2) until such Senior Indebtedness is paid in full, any payment or
distribution to which Securityholders would be
<PAGE>
125
entitled but for this Article X shall be made to holders of such Senior
Indebtedness as their interests may appear, except that Securityholders may
receive shares of stock and any debt securities that are subordinated to such
Senior Indebtedness to at least the same extent as the Securities.
SECTION 10.03. Default on Senior Indebtedness. The Company may not
-------------------------------
pay the principal of or interest on the Securities or make any deposit pursuant
to Section 8.01 and may not repurchase, redeem or otherwise retire any
Securities (collectively, "pay the Securities") if (i) any Designated Senior
Indebtedness is not paid when due or (ii) any other default on Designated Senior
Indebtedness occurs and the maturity of such Designated Senior Indebtedness is
accelerated in accordance with its terms unless, in either case, (x) the default
has been cured or waived and any such acceleration has been rescinded or (y)
such Designated Senior Indebtedness has been paid in full; provided, however,
-------- -------
that the Company may pay the Securities without regard to the foregoing if the
Company and the Trustee receive written notice approving such payment from the
Representative of such Designated Senior Indebtedness. During the continuance of
any default (other than a default described in clause (i) or (ii) of the
preceding sentence) with respect to any Designated Senior Indebtedness pursuant
to which the maturity thereof may be accelerated immediately without further
notice (except such notice as may be required to effect such acceleration) or
the expiration of any applicable grace periods, the Company may not pay the
Securities for a period (a "Payment Blockage Period") commencing upon the
receipt by the Company and the Trustee of written notice (a "Blockage Notice")
of such default from the Representative of such Designated Senior Indebtedness
specifying an election to effect a Payment Blockage Period and ending 179 days
thereafter (or earlier if such Payment Blockage Period is terminated (i) by
written notice to the Trustee and the Company from the Person or Persons who
gave such Blockage Notice, (ii) because the default giving rise
<PAGE>
126
to such Blockage Notice is no longer continuing) or (iii) because such
Designated Senior Indebtedness has been repaid in full. Notwithstanding the
provisions described in the immediately preceding sentence (but subject to the
provisions contained in the first sentence of this Section), unless the holders
of such Designated Senior Indebtedness or the Representative of such holders
shall have accelerated the maturity of such Designated Senior Indebtedness, the
Company may resume payments on the Securities after termination of such Payment
Blockage Period. Not more than one Blockage Notice may be given in any
consecutive 360-day period, irrespective of the number of defaults with respect
to Designated Senior Indebtedness during such period.
SECTION 10.04. Acceleration of Payment of Securities. If payment of
--------------------------------------
the Securities is accelerated because of an Event of Default, the Company or the
Trustee shall promptly notify the holders of the Designated Senior Indebtedness
(or their Representatives) of the acceleration.
SECTION 10.05. When Distribution Must Be Paid Over. If a distribution
------------------------------------
is made to Securityholders that because of this Article X should not have been
made to them, the Securityholders who receive the distribution shall hold it in
trust for holders of Senior Indebtedness and pay it over to them as their
interests may appear.
SECTION 10.06. Subrogation. After all Senior Indebtedness is paid in
------------
full and until the Securities are paid in full, Securityholders shall be
subrogated to the rights of holders of such Senior Indebtedness to receive
distributions applicable to such Senior Indebtedness. A distribution made under
this Article X to holders of such Senior Indebtedness which otherwise would have
been made to Securityholders is not, as between the Company and
<PAGE>
127
Securityholders, a payment by the Company on such Senior Indebtedness.
SECTION 10.07. Relative Rights. This Article X defines the relative
----------------
rights of Securityholders and holders of Senior Indebtedness. Nothing in this
Indenture shall:
(1) impair, as between the Company and Securityholders, the obligation of
the Company, which is absolute and unconditional, to pay principal of and
interest on the Securities in accordance with their terms; or
(2) prevent the Trustee or any Securityholder from exercising its available
remedies upon a Default, subject to the rights of holders of Senior
Indebtedness to receive distributions otherwise payable to Securityholders.
SECTION 10.08. Subordination May Not Be Impaired by Company. No
---------------------------------------------
right of any holder of Senior Indebtedness to enforce the subordination of the
Indebtedness evidenced by the Securities shall be impaired by any act or failure
to act by the Company or by its failure to comply with this Indenture.
SECTION 10.09. Rights of Trustee and Paying Agent. Notwithstanding
-----------------------------------
Section 10.03, the Trustee or Paying Agent may continue to make payments on the
Securities and shall not be charged with knowledge of the existence of facts
that would prohibit the making of any such payments unless, not less than two
Business Days prior to the date of such payment, a Trust Officer of the Trustee
receives notice
<PAGE>
128
satisfactory to it that payments may not be made under this Article X. The
Company, the Registrar or co-registrar, the Paying Agent, a Representative or a
holder of Senior Indebtedness may give the notice; provided, however, that, if
-------- -------
an issue of Senior Indebtedness has a Representative, only the Representative
may give the notice.
The Trustee in its individual or any other capacity may hold Senior
Indebtedness with the same rights it would have if it were not Trustee. The
Registrar and co-registrar and the Paying Agent may do the same with like
rights. The Trustee shall be entitled to all the rights set forth in this
Article X with respect to any Senior Indebtedness which may at any time be held
by it, to the same extent as any other holder of such Senior Indebtedness; and
nothing in Article VII shall deprive the Trustee of any of its rights as such
holder. Nothing in this Article X shall apply to claims of, or payments to, the
Trustee under or pursuant to Section 7.07.
SECTION 10.10. Distribution or Notice to Representative. Whenever a
-----------------------------------------
distribution is to be made or a notice given to holders of Senior Indebtedness,
the distribution may be made and the notice given to their Representative (if
any).
SECTION 10.11. Article X Not To Prevent Events of Default or Limit
---------------------------------------------------
Right To Accelerate. The failure to make a payment pursuant to the Securities
- --------------------
by reason of any provision in this Article X shall not be construed as pre
venting the occurrence of a Default. Nothing in this Article X shall have any
effect on the right of the Securityholders or the Trustee to accelerate the
maturity of the Securities.
<PAGE>
129
SECTION 10.12. Trust Moneys Not Subordinated. Notwithstanding
------------------------------
anything contained herein to the contrary, payments from money or the proceeds
of U.S. Government Obligations held in trust under Article VIII by the Trustee
for the payment of principal of and interest on the Securities shall not be
subordinated to the prior payment of any Senior Indebtedness or subject to the
restrictions set forth in this Article X, and none of the Securityholders shall
be obligated to pay over any such amount to the Company or any holder of Senior
Indebtedness or any other creditor of the Company.
SECTION 10.13. Trustee Entitled To Rely. Upon any payment or
-------------------------
distribution pursuant to this Article X, the Trustee and the Securityholders
shall be entitled to rely (i) upon any order or decree of a court of competent
jurisdiction in which any proceedings of the nature referred to in Section
10.02 are pending, (ii) upon a certificate of the liquidating trustee or agent
or other Person making such payment or distribution to the Trustee or to the
Security holders or (iii) upon the Representatives for the holders of Senior
Indebtedness for the purpose of ascertaining the Persons entitled to participate
in such payment or distribution, the holders of such Senior Indebtedness and
other Indebtedness of the Company, the amount thereof or payable thereon, the
amount or amounts paid or distributed thereon and all other facts pertinent
thereto or to this Article X. In the event that the Trustee determines, in good
faith, that evidence is required with respect to the right of any Person as a
holder of Senior Indebtedness to participate in any payment or distribution
pursuant to this Article X, the Trustee may request such Person to furnish
evidence to the reasonable satisfaction of the Trustee as to the amount of such
Senior Indebtedness held by such Person, the extent to which such Person is
entitled to participate in such payment or distribution and other facts
pertinent to the rights of such Person under this Article X, and, if such
evidence is not furnished, the Trustee may defer any payment
<PAGE>
130
to such Person pending judicial determination as to the right of such Person to
receive such payment. The provisions of Sections 7.01 and 7.02 shall be
applicable to all actions or omissions of actions by the Trustee pursuant to
this Article X.
SECTION 10.14. Trustee To Effectuate Subordination. Each
------------------------------------
Securityholder by accepting a Security authorizes and directs the Trustee on his
behalf to take such action as may be necessary or appropriate to acknowledge or
effectuate the subordination between the Securityholders and the holders of
Senior Indebtedness as provided in this Article X and appoints the Trustee as
attorney-in-fact for any and all such purposes.
SECTION 10.15. Trustee Not Fiduciary for Holders of Senior
--------------------------------------------
Indebtedness. The Trustee shall not be deemed to owe any fiduciary duty to the
- -------------
holders of Senior Indebtedness and shall not be liable to any such holders if it
shall mistakenly pay over or distribute to Securityholders or the Company or any
other Person, money or assets to which any holders of Senior Indebtedness shall
be entitled by virtue of this Article X or otherwise.
SECTION 10.16. Reliance by Holders of Senior Indebtedness on
---------------------------------------------
Subordination Provisions. Each Securityholder by accepting a Security
- -------------------------
acknowledges and agrees that the foregoing subordination provisions are, and are
intended to be, an inducement and a consideration to each holder of any Senior
Indebtedness, whether such Senior Indebtedness was created or acquired before or
after the issuance of the Securities, to acquire and continue to hold, or to
continue to hold, such Senior Indebtedness and such holder of such Senior
Indebtedness shall be deemed conclusively to have relied on such subordination
provisions in
<PAGE>
131
acquiring and continuing to hold, or in continuing to hold, such Senior
Indebtedness.
ARTICLE XI
Miscellaneous
-------------
SECTION 11.01. Trust Indenture Act Controls. If any provision of
-----------------------------
this Indenture limits, qualifies or conflicts with another provision which is
required to be included in this Indenture by the TIA, the required provision
shall control.
SECTION 11.02. Notices. Any notice or communication shall be in
--------
writing and delivered in by hand or overnight courier service, mailed (except as
otherwise provided herein) by certified or registered mail or sent by telecopy,
as follows:
if to the Company:
21st Century Telecom Group, Inc.
350 North Orleans, Suite 600
Chicago, IL 60654
Attention of: Chief Financial Officer
<PAGE>
132
Telecopy: (312) 470-2111
with a copy to:
Piper & Marbury LLP
1200 Nineteenth Street, N.W.
Washington, D.C. 20036-2430
Attention: Edwin M. Martin, Jr.
Telecopy: (202) 223-2085
if to the Trustee:
IBJ Schroder Bank & Trust Company
One State Street
New York, NY 10004
Attention: Corporate Trust Administration
Telecopy: (212) 858-2952
All notices and other communications given to any party hereto in accordance
with the provisions of this Agreement shall be deemed to have been given on the
date of receipt if
<PAGE>
133
delivered by hand or overnight courier service or sent by telecopy or on the
date five Business Days after dispatch by certified or registered mail if
mailed, in each case delivered, sent or mailed (properly addressed) to such
party as provided in this Section 11.02 or in accordance with the latest
unrevoked direction from such party given in accordance with this Section 11.02.
The Company or the Trustee by notice to the other may designate
additional or different addresses for subsequent notices or communications.
Any notice or communication mailed to a Securityholder shall be mailed
to the Securityholder at the Securityholder's address as it appears on the
registration books of the Registrar and shall be sufficiently given if so mailed
within the time prescribed.
Failure to mail a notice or communication to a Securityholder or any
defect in it shall not affect its sufficiency with respect to other
Securityholders. If a notice or communication is mailed in the manner provided
above, it is duly given, whether or not the addressee receives it.
SECTION 11.03. Communication by Holders with Other Holders.
--------------------------------------------
Securityholders may communicate pursuant to TIA . 312(b) with other
Securityholders with respect to their rights under this Indenture or the
Securities. The Company, the Trustee, the Registrar and anyone else shall have
the protection of TIA . 312(c).
<PAGE>
134
SECTION 11.04. Certificate and Opinion as to Conditions Precedent.
---------------------------------------------------
Upon any request or application by the Company to the Trustee to take or refrain
from taking any action under this Indenture, the Company shall furnish to the
Trustee:
(1) an Officers' Certificate in form and substance reasonably satisfactory
to the Trustee stating that, in the opinion of the signers, all conditions
precedent, if any, provided for in this Indenture relating to the proposed
action have been complied with; and
(2) an Opinion of Counsel in form and substance reasonably satisfactory to
the Trustee stating that, in the opinion of such counsel, all such conditions
precedent have been complied with.
SECTION 11.05. Statements Required in Certificate or Opinion. Each
----------------------------------------------
certificate or opinion with respect to compliance with a covenant or condition
provided for in this Indenture shall include:
(1) a statement that the individual making such certificate or opinion has
read such covenant or condition;
(2) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate or opinion are based;
<PAGE>
135
(3) a statement that, in the opinion of such individual, he has made such
examination or investigation as is necessary to enable him to express an
informed opinion as to whether or not such covenant or condition has been
complied with; and
(4) a statement as to whether or not, in the opinion of such individual,
such covenant or condition has been complied with.
SECTION 11.06. When Securities Disregarded. In determining whether
----------------------------
the Holders of the required principal amount of Securities have concurred in any
direction, waiver or consent, Securities owned by the Company or by any Person
directly or indirectly controlling or controlled by or under direct or indirect
common control with the Company shall be disregarded and deemed not to be
outstanding, except that, for the purpose of determining whether the Trustee
shall be protected in relying on any such direction, waiver or consent, only
Securities which the Trustee knows are so owned shall be so disregarded. Also,
subject to the fore going, only Securities outstanding at the time shall be
considered in any such determination.
SECTION 11.07. Rules by Trustee, Paying Agent and Registrar. The
---------------------------------------------
Trustee may make reasonable rules for action by or a meeting of Securityholders.
The Registrar and the Paying Agent may make reasonable rules for their
functions.
SECTION 11.08. Legal Holidays. If a payment date is not a Business
---------------
Day, payment shall be made on the next succeeding day that is a Business Day,
and no interest shall accrue for the intervening period. If a regular record
date
<PAGE>
136
is not a Business Day, the record date shall not be affected.
SECTION 11.09. Governing Law. This Indenture and the Securities
--------------
shall be governed by, and construed in accordance with, the laws of the State of
New York but without giving effect to applicable principles of conflicts of law
to the extent that the application of the laws of another jurisdiction would be
required thereby.
SECTION 11.10. No Recourse Against Others. A director, officer,
---------------------------
employee or stockholder, as such, of the Company shall not have any liability
for any obligations of the Company under the Securities or this Indenture or for
any claim based on, in respect of or by reason of such obligations or their
creation. By accepting a Security, each Securityholder shall waive and release
all such liability. The waiver and release shall be part of the consideration
for the issue of the Securities.
SECTION 11.11. Successors. All agreements of the Company in this
-----------
Indenture and the Securities shall bind its successors. All agreements of the
Trustee in this Indenture shall bind its successors.
SECTION 11.12. Multiple Originals. The parties may sign any number
-------------------
of copies of this Indenture. Each signed copy shall be an original, but all of
them together represent the same agreement. One signed copy is enough to prove
this Indenture.
<PAGE>
137
SECTION 11.13. Table of Contents; Headings. The table of contents,
----------------------------
cross-reference sheet and headings of the Articles and Sections of this
Indenture have been inserted for convenience of reference only, are not intended
to be considered a part hereof and shall not modify or restrict any of the terms
or provisions hereof.
SECTION 11.14. Date of Indenture. The date of this Indenture, as set
------------------
forth on the first page hereof, is for identification purposes only. This
Indenture shall be effective on and as of February 9, 1998.
<PAGE>
138
IN WITNESS WHEREOF, the parties have caused this Indenture to be duly
executed as of the date first written above.
21ST CENTURY TELECOM GROUP, INC.,
by
________________________
Name:
Title:
IBJ SCHRODER BANK & TRUST COMPANY, AS TRUSTEE
by
________________________
Name:
Title:
<PAGE>
139
RULE 144A/REGULATION S APPENDIX
FOR OFFERINGS TO QUALIFIED INSTITUTIONAL BUYERS PURSUANT TO RULE 144A AND TO
CERTAIN PERSONS IN OFFSHORE TRANSACTIONS IN RELIANCE ON REGULATION S.
PROVISIONS RELATING TO INITIAL SECURITIES,
------------------------------------------
PRIVATE EXCHANGE SECURITIES
---------------------------
AND EXCHANGE SECURITIES
-----------------------
1. Definitions
-----------
1.1 Definitions
-----------
For the purposes of this Appendix the following terms shall have the
meanings indicated below:
"Depository" means The Depository Trust Company, its nominees and
their respective successors.
"Exchange Securities" means the 13-3/4% Subordinated Exchange
Debentures Due 2010 to be issued pursuant to this Indenture.
<PAGE>
140
"Initial Purchasers" means Credit Suisse First Boston Corporation,
BancAmerica Robertson Stephens and BancBoston Securities Inc.
"Initial Securities" means the 13-3/4% Subordinated Exchange
Debentures Due 2010, issued from time to time under this Indenture.
"Private Exchange" means the offer by the Company pursuant to the
Registration Rights Agreement to the Initial Purchasers.
"Private Exchange Securities" means the 13-3/4% Subordinated Exchange
Debentures Due 2010 to be issued pursuant to this Indenture.
"Purchase Agreement" means the Purchase Agreement dated February 2,
1998, between the Company and the Initial Purchasers.
"QIB" means a "qualified institutional buyer" as defined in Rule 144A.
"Registered Exchange Offer" means an offer by the Company, pursuant to
the Registration Rights Agreement.
<PAGE>
141
"Registration Rights Agreement" means the Registration Rights
Agreement dated February 2, 1998, between the Company and the Initial
Purchasers.
"Securities" means the Initial Securities, the Exchange Securities and
the Private Exchange Securities, treated as a single class.
"Securities Act" means the Securities Act of 1933.
"Securities Custodian" means the custodian with respect to a Global
Security (as appointed by the Depository), or any successor person thereto and
shall initially be the Trustee.
"Shelf Registration Statement" means the registration statement issued
by the Company, in connection with the offer and sale of Initial Securities or
Private Exchange Securities, pursuant to a Registration Rights Agreement.
"Transfer Restricted Securities" means Securities that bear or are
required to bear the legend set forth in Section 2.3(b)hereto.
<PAGE>
142
1.2 Other Definitions
-----------------
Defined in
Term Section:
---- -------
"Agent Members"2.1(b)
"Global Security"2.1(a)
"Regulation S"2.1(a)
"Rule 144A"2.1(a)
2. The Securities
--------------
2.1 Form; Securities Issued on Exchange Date.
-----------------------------------------
The Securities shall be issued and authenticated initially on the
Exchange Date in exchange for shares of the Company's Exchangeable Preferred
Stock. If, prior to the Exchange Date, the Company has consummated the
Registered Exchange Offer (and, if applicable, a Private Exchange) in respect of
the Exchangeable Preferred Stock, then on the Exchange Date the Company shall
cause to be issued and authenticated under this Indenture (i) Exchange
Securities in exchange for shares of Exchangeable Preferred Stock received in
the Registered Exchange Offer and (ii) Private Exchange Securities in exchange
for shares of Exchangeable Preferred Stock received in the Private Exchange.
If, prior to the Exchange Date, the Company has not consummated the Registered
Exchange Offer, then on the Exchange Date the Company shall cause to be issued
and authenticated under this Indenture Initial Securities in exchange for shares
of Exchangeable Preferred Stock.
<PAGE>
143
(a) Global Securities. Initial Securities issued on the Exchange Date in
------------------
exchange for shares of the Company's Exchangeable Preferred Stock held by a
QIB in reliance on Rule 144A under the Securities Act ("Rule 144A") or in
reliance on Regulation S under the Securities Act ("Regulation S") shall be
issued initially in the form of one or more permanent global Securities in
definitive, fully registered form without interest coupons with the global
securities legend and restricted securities legend set forth in Exhibit 1
hereto (each, a Global Security"), which shall be deposited on behalf of the
holders thereof represented thereby with the Trustee, as custodian for the
Depository (or with such other custodian as the Depository may direct), and
registered in the name of the Depository or a nominee of the Depository, duly
executed by the Company and authenticated by the Trustee as hereinafter
provided. The aggregate principal amount of the Global Securities may from
time to time be increased or decreased by adjustments made on the records of
the Trustee, as such custodian, and the Depository or its nominee as
hereinafter provided.
(b) Book-Entry Provisions. This Section 2.1(b) shall apply only to a
----------------------
Global Security deposited with or on behalf of the Depository.
The Company shall execute and the Trustee shall, in accordance with this
Section 2.1(b), authenticate and deliver initially one or more Global
Securities that (a) shall be registered in the name of the Depository for such
Global Security or Global Securities or the nominee of such Depository and (b)
shall be delivered by the Trustee to such Depository or pursuant to such
Depository's instructions or held by the Trustee as custodian for the
Depository.
<PAGE>
144
Members of, or participants in, the Depository ("Agent Members") shall have
no rights under this Indenture with respect to any Global Security held on
their behalf by the Depository or by the Trustee as the custodian of the
Depository or under such Global Security, and the Depository may be treated by
the Company, the Trustee and any agent of the Company or the Trustee as the
absolute owner of such Global Security for all purposes whatsoever. Notwith
standing the foregoing, nothing herein shall prevent the Company, the Trustee
or any agent of the Company or the Trustee from giving effect to any written
certification, proxy or other authorization furnished by the Depository or
impair, as between the Depository and its Agent Members, the operation of
customary practices of such Depository governing the exercise of the rights
of a holder of a beneficial interest in any Global Security.
(c) Certificated Securities. Except as provided in this Section 2.1 or
------------------------
Section 2.3 or 2.4, owners of beneficial interests in Global Securities will
not be entitled to receive physical delivery of certificated Securities.
2.2 Authentication. (a) At any time and from time to time after the
---------------
execution of this Indenture, the Trustee or an authenticating agent shall upon
receipt of a written order of the Company signed by two Officers or by an
Officer and either an Assistant Secretary or an Assistant Treasurer of the
Company authenticate for original issue Securities in the aggregate principal
amount specified in such order, not to exceed $100,000,000 in aggregate
principal amount outstanding at any time; provided, however, that Securities to
-------- -------
be issued on the Exchange Date shall not exceed the aggregate liquidation
preference, plus accrued and unpaid dividends in respect thereof, of the shares
of Exchangeable Preferred Stock in exchange for which such Securities are being
issued; provided that the Trustee shall be entitled to receive an Officers'
Certificate and an Opinion of Counsel of the Company that it may reasonably
request in connection with such
<PAGE>
145
authentication of Securities. Such order shall specify the principal amount of
Securities to be authenticated, the date on which the original issue of such
Securities is to be authenticated, the aggregate principal amount of Securities
then authorized, whether such Securities are Initial Securities, Exchange
Securities or Private Exchange Securities, and whether such Securities will be
issued as Global Securities or as certificated Securities.
(b) If the Securities authenticated hereunder on the Exchange Date are
Initial Securities, then the Trustee shall authenticate and deliver Exchange
Securities or Private Exchange Securities for issue only in a Registered
Exchange Offer or a Private Exchange, respectively, pursuant to a Registration
Rights Agreement, for a like principal amount of Initial Securities, in each
case upon a written order of the Company signed by two Officers or by an Officer
and either an Assistant Treasurer or an Assistant Secretary of the Company. Such
order shall specify the principal amount of the Exchange Securities or Private
Exchange Securities to be authenticated and the date on which the original issue
of Exchange Securities or Private Exchange Securities is to be authenticated and
whether the Securities are to be Exchange Securities or Private Exchange
Securities. The Trustee shall be entitled to request an Officer's Certificate
and Opinion of Counsel that such issuance is in compliance herewith and all
conditions precedent thereto have been satisfied. In rendering such opinion,
counsel to the Company may rely on an Officer's Certificate prepared by the
Company with respect to any factual matters with respect thereto.
(c) The Securities issued on the Exchange Date and any Securities
issued from time to time after the Exchange Date, will collectively be treated
as a single class of securities for all purposes under this Indenture.
<PAGE>
146
2.3 Transfer and Exchange. (a) Transfer and Exchange of Global
---------------------- -------------------------------
Securities. (i) The transfer and exchange of Global Securities or beneficial
- -----------
interests therein shall be effected through the Depository, in accordance with
this Indenture (including applicable restrictions on transfer set forth herein,
if any) and the procedures of the Depository therefor.
(ii) Notwithstanding any other provisions of this Appendix (other
than the provisions set forth in Section 2.4), a Global Security may not be
transferred as a whole except by the Depository to a nominee of the Depository
or by a nominee of the Depository to the Depository or another nominee of the
Depository or by the Depository or any such nominee to a successor Depository or
a nominee of such successor Depository.
(iii) In the event that a Global Security (or beneficial interests
therein) is exchanged for Initial Securities in definitive registered form
pursuant to Section 2.4 or Section 2.09 of the Indenture, prior to the
consummation of a Registered Exchange Offer or the effectiveness of a Shelf
Registration Statement under the Registration Rights Agreement, such Initial
Securities may be exchanged only in accordance with the certification
requirements set forth on the reverse of the Initial Securities intended to
ensure that such transfers comply with Rule 144A or Regulation S, as the case
may be and such other procedures as may from time to time be adopted by the
Company.
(b) Legend. (i) Except as permitted by the following paragraphs
-------
(ii), (iii) and (iv), each Security certificate evidencing the Global Securities
(and all Securities issued in exchange therefor or in substitution thereof) and
any Private Exchange Security issued on the
<PAGE>
147
Exchange Date shall bear a legend in substantially the following form:
"THIS SECURITY (OR ITS PREDECESSOR) WAS ORIGINALLY ISSUED IN A TRANSACTION
EXEMPT FROM REGISTRATION UNDER THE UNITED STATES SECURITIES ACT OF 1933 (THE
"SECURITIES ACT"), AND THIS SECURITY MAY NOT BE OFFERED, SOLD OR OTHERWISE
TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION
THEREFROM. EACH PURCHASER OF THIS SECURITY IS HEREBY NOTIFIED THAT THE SELLER
OF THIS SECURITY MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF
SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER.
THE HOLDER OF THIS SECURITY AGREES FOR THE BENEFIT OF THE COMPANY THAT (A)
THIS SECURITY AND ANY SECURITY INTO WHICH SUCH SECURITY IS EXCHANGEABLE MAY BE
OFFERED, RESOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY (i) WITHIN THE UNITED
STATES TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A "QUALIFIED
INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) IN A
TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (ii) OUTSIDE THE UNITED
STATES IN A TRANSACTION IN ACCORDANCE WITH RULE 904 UNDER THE SECURITIES ACT,
(iii) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT
PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE), (iv) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR (v) TO THE COMPANY, IN EACH
OF CASES (i) THROUGH (iv) IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF
ANY STATE OF THE UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION, AND (B)
THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY
PURCHASER OF THIS SECURITY FROM IT OF THE RESALE RESTRICTIONS REFERRED TO IN
(A) ABOVE."
(ii) Upon any sale or transfer of a Transfer Restricted Security
(including any Transfer Restricted
<PAGE>
148
Security represented by a Global Security) pursuant to Rule 144 under the
Securities Act, the Registrar shall permit the Holder thereof to exchange such
Transfer Restricted Security for a certificated Security that does not bear the
legend set forth above and rescind any restriction on the transfer of such
Transfer Restricted Security, if the Holder certifies in writing to the
Registrar that its request for such exchange was made in reliance on Rule 144
(such certification to be in the form set forth on the reverse of the Security).
(iii) After a transfer of any Initial Securities or Private Exchange
Securities during the period of the effectiveness of a Shelf Registration
Statement with respect to such Initial Securities or Private Exchange
Securities, as the case may be, all requirements pertaining to legends on such
Initial Security or such Private Exchange Security will cease to apply, the
requirements requiring any such Initial Security or such Private Exchange
Security issued to certain Holders be issued in global form will cease to apply,
and a certificated Initial Security or Private Exchange Security without legends
will be available to the transferee of the Holder of such Initial Securities or
Private Exchange Securities upon exchange of such transferring Holder's
certificated Initial Security or Private Exchange Security or directions to
transfer such Holder's interest in the Global Security, as applicable.
(iv) Upon the consummation of a Registered Exchange Offer with
respect to Initial Securities pursuant to which Holders of such Initial
Securities are offered Exchange Securities in exchange for their Initial
Securities, all requirements pertaining to such Initial Securities that Initial
Securities issued to certain Holders be issued in global form will cease to
apply and certificated Initial Securities with the restricted securities legend
set forth in Exhibit 1 hereto will be available to Holders of such Initial
Securities that do not exchange their Initial Securities, and
<PAGE>
149
Exchange Securities in certificated or global form will be available to Holders
that exchange such Initial Securities in such Registered Exchange Offer.
Exchange Securities in certificated or global form without the Restricted
Securities Legend set forth in Exhibit 1 hereto will be available to Holders
that receive Exchange Securities on the Exchange Date.
(v) Upon the consummation of a Private Exchange with respect to the
Initial Securities pursuant to which Holders of such Initial Securities are
offered Private Exchange Securities in exchange for their Initial Securities,
all requirements pertaining to such Initial Securities that Initial Securities
issued to certain Holders be issued in global form will still apply and will
also apply to such Private Exchange Securities, and Private Exchange Securities
in global form with the Restricted Securities Legend set forth in Exhibit 1
hereto will be available to Holders that exchange such Initial Securities in
such Private Exchange.
(c) Cancellation or Adjustment of Global Security. At such time as
---------------------------------------------
all beneficial interests in a Global Security have been exchanged for
certificated Securities, redeemed, repurchased or canceled, such Global Security
shall be returned to the Depository for cancellation or retained and canceled by
the Trustee. At any time prior to such cancellation, if any beneficial interest
in a Global Security is exchanged for certificated Securities, redeemed,
repurchased or canceled, the principal amount of Securities represented by such
Global Security shall be reduced and an adjustment shall be made on the books
and records of the Trustee (if it is then the Securities Custodian for such
Global Security) with respect to such Global Security, by the Trustee or the
Securities Custodian, to reflect such reduction.
<PAGE>
150
(d) Obligations with Respect to Transfers and Exchanges of
----------------------------------------- ------------
Securities. (i) To permit registrations of transfers and exchanges, the
- -----------
Company shall execute and the Trustee shall authenticate certificated Securities
and Global Securities at the Registrar's or co-registrar's request.
(ii) No service charge shall be made for any registration of transfer
or exchange, but the Company may require payment of a sum sufficient to cover
any transfer tax, assessments, or similar governmental charge payable in
connection therewith (other than any such transfer taxes, assessments or similar
governmental charge payable upon exchange or transfer pursuant to Sections 3.06,
4.06, 4.09 and 9.05).
(iii) The Registrar or co-registrar shall not be required to register
the transfer of or exchange of (a) any certificated Security selected for
redemption in whole or in part pursuant to Article III of this Indenture, except
the unredeemed portion of any certificated Security being redeemed in part, or
(b) any Security for a period beginning 15 Business Days before the mailing of a
notice of an offer to repurchase or redeem Securities or 15 Business Days before
an interest payment date.
(iv) Prior to the due presentation for registration of transfer of
any Security, the Company, the Trustee, the Paying Agent, the Registrar or any
co-registrar may deem and treat the person in whose name a Security is
registered as the abso lute owner of such Security for the purpose of receiving
payment of principal of and interest on such Security and for all other purposes
whatsoever, whether or not such Security is overdue, and none of the Company,
the Trustee, the Paying Agent, the Registrar or any co-registrar shall be
affected by notice to the contrary.
<PAGE>
151
(v) All Securities issued upon any transfer or exchange pursuant to
the terms of this Indenture shall evidence the same debt and shall be entitled
to the same benefits under this Indenture as the Securities surrendered upon
such transfer or exchange.
(e) No Obligation of the Trustee. (i) The Trustee shall have no
-----------------------------
responsibility or obligation to any beneficial owner of a Global Security, a
member of, or a participant in the Depository or other Person with respect to
the accuracy of the records of the Depository or its nominee or of any
participant or member thereof, with respect to any ownership interest in the
Securities or with respect to the delivery to any participant, member,
beneficial owner or other Person (other than the Depository) of any notice
(including any notice of redemption) or the payment of any amount, under or with
respect to such Securities. All notices and communica tions to be given to the
Holders and all payments to be made to Holders under the Securities shall be
given or made only to or upon the order of the registered Holders (which shall
be the Depository or its nominee in the case of a Global Security). The rights
of beneficial owners in any Global Security shall be exercised only through the
Depository subject to the applicable rules and procedures of the Depository.
The Trustee may rely and shall be fully protected in relying upon information
furnished by the Depository with respect to its members, participants and any
beneficial owners.
(ii) The Trustee shall have no obligation or duty to monitor,
determine or inquire as to compliance with any restrictions on transfer imposed
under this Indenture or under applicable law with respect to any transfer of any
interest in any Security (including any transfers between or among Depository
participants, members or beneficial owners in any Global Security) other than to
require delivery of such
<PAGE>
152
certificates and other documentation or evidence as are expressly required by,
and to do so if and when expressly required by, the terms of this Indenture, and
to examine the same to determine substantial compliance as to form with the
express requirements hereof.
2.4 Certificated Securities. (a) A Global Security deposited with
------------------------
the Depository or with the Trustee as custodian for the Depository pursuant to
Section 2.1 shall be transferred to the beneficial owners thereof in the form of
certificated Securities in an aggregate principal amount equal to the principal
amount of such Global Security, in exchange for such Global Security, only if
such transfer complies with Section 2.3 and (i) the Depository notifies the
Company that it is unwilling or unable to continue as Depository for such Global
Security or if at any time such Depository ceases to be a "clearing agency"
registered under the Exchange Act and a successor depositary is not appointed by
the Company within 90 days of such notice, or (ii) an Event of Default has
occurred and is continuing or (iii) the Company, in its sole discretion,
notifies the Trustee in writing that it elects to cause the issuance of
certificated Securities under this Indenture.
(b) Any Global Security that is transferable to the beneficial owners
thereof pursuant to this Section shall be surrendered by the Depository to the
Trustee, to be so transferred, in whole or from time to time in part, without
charge, and the Trustee shall authenticate and deliver, upon such transfer of
each portion of such Global Security, an equal aggregate principal amount of
certificated Initial Securities of authorized denominations. Any portion of a
Global Security transferred pursuant to this Section shall be executed,
authenticated and delivered only in denominations of $1,000 and any integral
multiple thereof and registered in such names as the Depository shall direct.
Any certificated Initial Security delivered in exchange for an interest in the
Global Security shall, except as otherwise provided by
<PAGE>
153
Section 2.3(d), bear the restricted securities legend set forth in Exhibit 1
hereto.
(c) Subject to the provisions of Section 2.4(b), the registered
Holder of a Global Security may grant proxies and otherwise authorize any
Person, including Agent Members and Persons that may hold interests through
Agent Members, to take any action which a Holder is entitled to take under this
Indenture or the Securities.
(d) In the event of the occurrence of any of the events specified in
Section 2.4(a), the Company will promptly make available to the Trustee a
reasonable supply of certificated Securities in definitive, fully registered
form without interest coupons.
<PAGE>
154
EXHIBIT 1
to
RULE 144A/REGULATION S APPENDIX
[FORM OF FACE OF INITIAL SECURITY]
[Global Securities Legend]
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE
OF THE DEPOSITARY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), NEW YORK, NEW
YORK, TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR
PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR
SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY
PAYMENT IS MADE TO CEDE & CO., OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF DTC) ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR
VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED
OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN
WHOLE, BUT NOT IN PART, TO NOMINEES OF DTC OR TO A SUCCESSOR THEREOF OR SUCH
SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY SHALL BE
LIMITED
<PAGE>
155
TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THE INDENTURE
REFERRED TO ON THE REVERSE HEREOF.
[Restricted Securities Legend]
"THIS SECURITY (OR ITS PREDECESSOR) WAS ORIGINALLY ISSUED IN A
TRANSACTION EXEMPT FROM REGISTRATION UNDER THE UNITED STATES SECURITIES ACT OF
1933 (THE "SECURITIES ACT"), AND THIS SECURITY MAY NOT BE OFFERED, SOLD OR
OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE
EXEMPTION THEREFROM. EACH PURCHASER OF THIS SECURITY IS HEREBY NOTIFIED THAT
THE SELLER OF THIS SECURITY MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS
OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER.
THE HOLDER OF THIS SECURITY AGREES FOR THE BENEFIT OF THE COMPANY THAT
(A) THIS SECURITY AND ANY SECURITY INTO WHICH SUCH SECURITY IS EXCHANGEABLE MAY
BE OFFERED, RESOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY (i) WITHIN THE UNITED
STATES TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A "QUALIFIED
INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) IN A
TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (ii) OUTSIDE THE UNITED
STATES IN A TRANSACTION IN ACCORDANCE WITH RULE 904 UNDER THE SECURITIES ACT,
(iii) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT
PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE), (iv) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR (v) TO THE COMPANY, IN EACH
OF CASES (i) THROUGH (iv) IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF
ANY STATE OF THE UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION, AND (B) THE
HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER OF
THIS SECURITY FROM IT OF THE RESALE RESTRICTIONS REFERRED TO IN (A) ABOVE."
<PAGE>
156
No. $
CUSIP No.
13-3/4% Subordinated Exchange Debentures Due 2010
21ST CENTURY TELECOM GROUP, INC., an Illinois corporation, promises to
pay to , or registered assigns, the principal sum of
Dollars on February 15, 2010.
Interest Payment Dates: February 15 and August 15.
Record Dates: February 1 and August 1.
Additional provisions of this Security are set forth on the other side
of this Security.
Dated:
<PAGE>
157
21ST CENTURY TELECOM GROUP, INC.,
by
-------------------------
Name:
Title:
-------------------------
Name:
Title:
TRUSTEE'S CERTIFICATE OF
AUTHENTICATION
IBJ SCHRODER BANK &
TRUST COMPANY, as Trustee,
certifies that this is
one of the Securities
referred to in the Indenture.
<PAGE>
158
by
--------------------------------
Authorized Signatory
<PAGE>
159
[FORM OF REVERSE SIDE OF INITIAL SECURITY]
13-3/4% Subordinated Exchange Debenture Due 2010
1. Interest
--------
21st Century Telecom Group, Inc., an Illinois corporation (such
corporation, and its successors and assigns under the Indenture hereinafter
referred to, being herein called the "Company"), promises to pay to the
registered holder of this Security interest on the principal amount of this
Security at a rate of 13-3/4% per annum. Interest on this Security shall accrue
from and including the most recent date to which interest has been paid, or if
no interest has been paid, from and including the Exchange Date, through but
excluding the date on which interest is paid. Interest shall be payable
semiannually in arrears on each February 15 and August 15, commencing on the
first February 15 or August 15 next following the Exchange Date. Interest will
be computed on the basis of a 360-day year of twelve 30-day months.
Notwithstanding the foregoing, if a Registration Default (as defined in the
Registration Rights Agreement) occurs, interest will accrue on this Security at
a rate of 14-1/4% per annum from and including the date on which any such
Registration Default shall occur to but excluding the date on which all
Registration Defaults have been cured. Such interest will be paid semiannually
on February 15 and August 15 of each year. The Company shall pay interest on
overdue principal at the rate borne by the Securities plus 1% per annum, and it
shall
<PAGE>
160
pay interest on overdue installments of interest at the same rate to the extent
lawful.
On or prior to February 15, 2003, the Company may from time to time
with respect to each interest period, at its option and in its sole discretion,
in lieu of paying interest on the outstanding Securities in cash on an interest
payment date, require the Trustee (upon a written order of the Company signed by
two Officers or by an Officer and an Assistant Treasurer or an Assistant
Secretary of the Company), subject to Section 2.2 of Appendix A of the
Indenture, to authenticate for original issue additional Securities in an
aggregate principal amount equal to the amount of interest payable in respect of
such interest period that the Company elects not to pay in cash on the interest
payment date immediately following such interest period. Such order shall
specify the aggregate principal amount of Securities to be authenticated and the
date on which such Securities are to be authenticated and delivered to Holders.
Each issuance of Securities in lieu of payment of interest in cash shall be made
pro rata with respect to the outstanding Securities; provided, however, that the
-------- -------
Company shall be required to pay cash in lieu of issuing Securities in any
denomination of less than $1,000.
2. Method of Payment
-----------------
The Company will pay interest referred to in paragraph 1 above on the
Securities (except defaulted interest) to the Persons who are registered holders
of Securities at the close of business on the February 1 or August 1 next
preceding the interest payment date even if Securities are canceled after the
record date and on or before the interest payment date. Holders must surrender
Securities to a Paying Agent to collect principal payments. Except as otherwise
set forth in paragraph 1 above, the Company will pay principal and interest in
money of the United States that at the time of payment is legal tender for
payment of public and private debts. Except as
<PAGE>
161
otherwise set forth in paragraph 1 above, payments in respect of the Securities
represented by a Global Security (including principal, premium and interest)
will be made by wire transfer of immediately available funds to the accounts
specified by The Depository Trust Company. Except as otherwise set forth in
paragraph 1 above, the Company will make all payments in respect of a
certificated Security (including principal, premium and interest) by mailing a
check to the registered address of each Holder thereof; provided, however, that
-------- -------
payments on a certificated Security will be made by wire transfer to a U.S.
dollar account maintained by the payee with a bank in the United States if such
Holder elects payment by wire transfer by giving written notice to the Trustee
or the Paying Agent to such effect designating such account no later than 30
days immediately preceding the relevant due date for payment (or such other date
as the Trustee may accept in its discretion).
3. Paying Agent and Registrar
--------------------------
Initially, IBJ Schroder Bank & Trust Company, a New York banking
corporation ("Trustee"), will act as Paying Agent and Registrar. The Company
may appoint and change any Paying Agent, Registrar or co-registrar without
notice. The Company or any of its domestically incorporated Wholly Owned
Subsidiaries may act as Paying Agent, Registrar or co-registrar.
<PAGE>
162
4. Indenture
---------
The Company issued the Securities under an Indenture dated as of
February 15, 1998 ("Indenture"), between the Company and the Trustee. The terms
of the Securities include those stated in the Indenture and those made part of
the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S.C. ..
------
77aaa-77bbbb) as in effect on the date of the Indenture (the "Act"). Terms
defined in the Indenture and not defined herein have the meanings ascribed
thereto in the Indenture. The Securities are subject to all such terms, and
Securityholders are referred to the Indenture and the Act for a statement of
those terms.
The Securities are general unsecured subordinated obligations of the
Company, limited to $100,000,000 aggregate principal amount. All Securities
issued under the Indenture will be treated as a single class of securities for
all purposes under the Indenture. The Indenture contains certain covenants
that, among other things, limit (i) the incurrence of additional Indebtedness by
the Company and its Restricted Subsidiaries (as defined), (ii) the payment of
dividends and other distributions by the Company and its Restricted Subsidiaries
in respect of their capital stock, (iii) investments or other restricted
payments by the Company and its Restricted Subsidiaries, (iv) asset sales, (v)
certain transactions with affiliates, (vi) the sale or issuance of capital stock
of Restricted Subsidiaries, and (vii) mergers and consolidations. The Indenture
also prohibits certain restrictions on distributions from Restricted
Subsidiaries. All these limitations and prohibitions, however, are subject to a
number of important qualifications and exceptions.
<PAGE>
163
5. Optional Redemption
-------------------
Except as set forth in the next paragraph, the Securities may not be
redeemed prior to February 15, 2003. On and after that date, the Company may
redeem the Securities in whole or in part, at any time or from time to time, at
the following redemption prices (expressed in percentages of principal amount),
plus accrued interest to the redemption date (subject to the right of Holders of
record on the relevant record date to receive interest due on the related
interest payment date):
If redeemed during the 12-month period commencing on February 15 of
the years set forth below:
<TABLE>
<CAPTION>
Redemption
Period Price
- ------ ----------
<S> <C>
2003 106.8750%
2004 104.5833
2005 102.2917
2006 and thereafter 100.0000
</TABLE>
In addition, at any time prior to February 15, 2001, the Company may
redeem the Securities in whole but not in part, with the proceeds of an Equity
Offering, at a redemption price (expressed as a percentage of principal amount)
of 113-3/4% plus accrued interest to redemption date (subject to the right of
Holders of record on the relevant record date to receive interest due on the
related interest payment date).
<PAGE>
164
6. Notice of Redemption
--------------------
Notice of redemption will be mailed at least 30 days but not more than
60 days before the redemption date to each Holder of Securities to be redeemed
at his registered address. Securities in denominations of principal amount
larger than $1,000 may be redeemed in part but only in whole multiples of
$1,000. If money sufficient to pay the redemption price of and accrued interest
(if any) on all Securities (or portions thereof) to be redeemed on the
redemption date is deposited with the Paying Agent on or before the redemption
date and certain other conditions are satisfied, on and after such date interest
ceases to accrue on such Securities (or such portions thereof) called for
redemption.
7. Put Provisions
--------------
Upon a Change of Control, any Holder of Securities will have the right
to cause the Company to repurchase all or any part of the Securities of such
Holder at a repurchase price equal to 101% of the principal amount of the
Securities to be repurchased plus accrued interest to the date of repurchase
(subject to the right of holders of record on the relevant record date to
receive interest due on the related interest payment date) as provided in, and
subject to the terms of, the Indenture.
<PAGE>
165
8. Subordination
-------------
The Securities are subordinated to Senior Indebtedness, as defined in
the Indenture. To the extent provided in the Indenture, Senior Indebtedness
must be paid before the Securities may be paid. The Company agrees, and each
Securityholder by accepting a Security agrees, to the subordination provisions
contained in the Indenture and authorizes the Trustee to give them effect and
appoints the Trustee as attorney-in-fact for such purpose.
9. Denominations; Transfer; Exchange
---------------------------------
The Securities are in registered form without coupons in denominations
of principal amount of $1,000 and whole multiples of $1,000. A Holder may
transfer or exchange Securities in accordance with the Indenture. The Registrar
may require a Holder, among other things, to furnish appropriate endorsements or
transfer documents and to pay any taxes and fees required by law or permitted by
the Indenture. The Registrar need not register the transfer of or exchange any
Securities selected for redemption (except, in the case of a Security to be
redeemed in part, the portion of the Security not to be redeemed) or any
Securities for a period of 15 days before a selection of Securities to be
redeemed or 15 days before an interest payment date.
<PAGE>
166
10. Persons Deemed Owners
---------------------
The registered Holder of this Security may be treated as the owner of
it for all purposes.
11. Unclaimed Money
---------------
If money for the payment of principal or interest remains unclaimed
for two years, the Trustee or Paying Agent shall pay the money back to the
Company at its request unless an abandoned property law designates another
Person. After any such payment, Holders entitled to the money must look only to
the Company and not to the Trustee for payment.
12. Discharge and Defeasance
------------------------
Subject to certain conditions, the Company at any time may terminate
some or all of its obligations under the Securities and the Indenture if the
Company deposits with the Trustee money or U.S. Government Obligations for the
payment of principal and interest on the Securities to redemption or maturity,
as the case may be.
<PAGE>
167
13. Amendment, Waiver
-----------------
Subject to certain exceptions set forth in the Indenture, (i) the
Indenture or the Securities may be amended with the written consent of the
Holders of at least a majority in principal amount outstanding of the Securities
and (ii) any default or noncompliance with any provision may be waived with the
written consent of the Holders of a majority in principal amount outstanding of
the Securities. Subject to certain exceptions set forth in the Indenture,
without the consent of any Securityholder, the Company and the Trustee may amend
the Indenture or the Securities to cure any ambiguity, omission, defect or
inconsistency, or to comply with Article V of the Indenture, or to provide for
uncertificated Securities in addition to or in place of certificated Securities,
or to add guarantees with respect to the Securities or to secure the Securities,
or to make any change in Article X of the Indenture that would limit or
terminate the benefits available to any holder of Senior Indebtedness under
Article X of the Indenture, or to add additional covenants or surrender rights
and powers conferred on the Company, or to comply with any request of the SEC in
connection with qualifying the Indenture under the Act, or to make any change
that does not adversely affect the rights of any Securityholder.
14. Defaults and Remedies
---------------------
Under the Indenture, Events of Default include (i) default for 30 days
in payment of interest on the Securities; (ii) default in payment of principal
on the Securities at maturity, upon redemption pursuant to para graph 5 of the
Securities, upon acceleration or otherwise, or failure by the Company to redeem
or purchase Securities when required; (iii) failure by the Company to comply
with other agreements in the Indenture or the Securities, in certain cases
subject to notice and lapse of time; (iv) certain accelerations (including
failure to pay within any grace
<PAGE>
168
period after final maturity) of other Indebtedness of the Company if the amount
accelerated (or so unpaid) exceeds $10 million, subject to notice and lapse of
time; (v) certain events of bankruptcy or insolvency with respect to the Company
and the Significant Subsidiaries; and (vi) certain judgments or decrees for the
payment of money in excess of $10 million. If an Event of Default occurs and is
continuing, the Trustee or the Holders of at least 25% in principal amount of
the Securities may declare all the Securities to be due and payable immediately.
Certain events of bankruptcy or insolvency are Events of Default which will
result in the Securities being due and payable immediately upon the occurrence
of such Events of Default.
Securityholders may not enforce the Indenture or the Securities except
as provided in the Indenture. The Trustee may refuse to enforce the Indenture
or the Securities unless it receives reasonable indemnity or security. Subject
to certain limitations, Holders of a majority in principal amount of the
Securities may direct the Trustee in its exercise of any trust or power. The
Trustee may withhold from Securityholders notice of any continuing Default
(except a Default in payment of principal or interest) if it determines that
withholding notice is in the interest of the Holders.
15. Trustee Dealings with the Company
---------------------------------
Subject to certain limitations imposed by the Act, the Trustee under
the Indenture, in its individual or any other capacity, may become the owner or
pledgee of Securities and may otherwise deal with and collect obligations owed
to it by the Company or its Affiliates and may otherwise deal with the Company
or its Affiliates with the same rights it would have if it were not Trustee.
<PAGE>
169
16. No Recourse Against Others
--------------------------
A director, officer, employee or stockholder, as such, of the Company
or the Trustee shall not have any liability for any obligations of the Company
under the Securities or the Indenture or for any claim based on, in respect of
or by reason of such obligations or their creation. By accepting a Security,
each Securityholder waives and releases all such liability. The waiver and
release are part of the considera tion for the issue of the Securities.
17. Authentication
--------------
This Security shall not be valid until an authorized signatory of the
Trustee (or an authenticating agent) manually signs the certificate of
authentication on the other side of this Security.
18. Abbreviations
-------------
Customary abbreviations may be used in the name of a Securityholder or
an assignee, such as TEN COM (=tenants in common), TEN ENT (=tenants by the
entireties), JT TEN (=joint tenants with rights of survivorship and not as
tenants in
<PAGE>
170
common), CUST (=custodian), and U/G/M/A (=Uniform Gift to Minors Act).
19. CUSIP Numbers
-------------
Pursuant to a recommendation promulgated by the Committee on Uniform
Security Identification Procedures the Company has caused CUSIP numbers to be
printed on the Securities and has directed the Trustee to use CUSIP numbers in
notices of redemption as a convenience to Securityholders. No representation is
made as to the accuracy of such numbers either as printed on the Securities or
as contained in any notice of redemption and reliance may be placed only on the
other identification numbers placed thereon.
20. Holders' Compliance with Registration Rights Agreement.
------------------------------------------------------
Each Holder of a Security, by acceptance hereof, acknowledges and
agrees to the provisions of the Registration Rights Agreement, including the
obligations of the Holders with respect to a registration and the
indemnification of the Company to the extent provided therein.
<PAGE>
171
21. Governing Law.
-------------
THIS SECURITY SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF NEW YORK BUT WITHOUT GIVING EFFECT TO APPLICABLE
PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF
ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY.
The Company will furnish to any securityholder upon written request
and without charge to the securityholder a copy of the indenture which has in it
the text of this security in larger type. Requests may be made to:
21st Century Telecom Group, Inc.
350 North Orleans, Suite 600
Chicago, IL 60654
Telecopy: (312) 470-2111
Attention of: Chief Financial Officer
<PAGE>
172
ASSIGNMENT FORM
To assign this Security, fill in the form below:
I or we assign and transfer this Security to
- --------------------------------------------------------------------------------
(Print or type assignee's name, address and zip code)
- --------------------------------------------------------------------------------
(Insert assignee's soc. sec. or tax I.D. No.)
and irrevocably appoint agent to transfer this
Security on the books of the Company. The agent may substitute another to act
for him.
Date: Your Signature:
------------------ ------------------
(Sign exactly as your name appears on the other side of the Security)
<PAGE>
173
Signature Guarantee:
Date:
------------------------ -----------------------------
Signature must be guaranteed Signature of Signature
by a participant in a Guarantee
recognized signature guaranty
medallion program or other
signature guarantor acceptable
to the Trustee
In connection with any transfer of any of the Securities evidenced by this
certificate occurring prior to the expiration of the period referred to in Rule
144(k) under the Securities Act after the later of the date of original issuance
of such Securities and the last date, if any, on which such Securities were
owned by the Company or any Affiliate of the Company, the undersigned confirms
that such Securities are being transferred in accordance with its terms:
CHECK ONE BOX BELOW
(1) [_] to the Company; or
<PAGE>
174
(2) [-] pursuant to an effective registration statement under the Securities
Act of 1933; or
(3) [_] inside the United States to a "qualified institutional buyer" (as
defined in Rule 144A under the Securities Act of 1933) that purchases
for its own account or for the account of a qualified institutional
buyer to whom notice is given that such transfer is being made in
reliance on Rule 144A, in each case pursuant to and in compliance with
Rule 144A under the Securities Act of 1933; or
(4) [_] outside the United States in an offshore transaction within the
meaning of Regulation S under the Securities Act in compliance with
Rule 904 under the Securities Act of 1933; or
(5) [_] pursuant to another available exemption from registration provided by
Rule 144 under the Securities Act of 1933.
Unless one of the boxes is checked, the Trustee will refuse to register any of
the Securities evidenced by this certificate in the name of any person other
than the registered holder thereof; provided, however, that if box (4) or (5)
-------- -------
is checked, the Trustee may require, prior to registering any such transfer of
the Securities, such legal opinions, certifications and other information as
the Company has reasonably requested to confirm that such transfer is being
made pursuant to an exemption from, or in a transaction not subject to, the
registration requirements
<PAGE>
175
of the Securities Act of 1933, such as the exemption provided by Rule 144
under such Act.
-------------------------
Signature
Date: ------------------------ -----------------------------
Signature must be guaranteed Signature of Signature
by a participant in a Guarantee
recognized signature guaranty
medallion program or other
signature guarantor acceptable
to the Trustee
- --------------------------------------------------------------------------------
TO BE COMPLETED BY PURCHASER IF (3) ABOVE IS CHECKED.
<PAGE>
176
The undersigned represents and warrants that it is purchasing this
Security for its own account or an account with respect to which it exercises
sole investment discretion and that it and any such account is a "qualified
institutional buyer" within the meaning of Rule 144A under the Securities Act of
1933, and is aware that the sale to it is being made in reliance on Rule 144A
and acknowledges that it has received such information regarding the Company as
the undersigned has requested pursuant to Rule 144A or has determined not to
request such information and that it is aware that the transferor is relying
upon the undersigned's foregoing representations in order to claim the exemption
from registration provided by Rule 144A.
Dated: ---------------- ----------------------------
NOTICE: To be executed by
an executive officer
<PAGE>
177
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Security purchased by the Company
pursuant to Section 4.06 or 4.09 of the Indenture, check the box:
UAA
AAAU
If you want to elect to have only part of this Security purchased by
the Company pursuant to Section 4.06 or 4.09 of the Indenture, state the amount
in principal amount: $
----------
Date: Your Signature:
--------------- --------------------
(Sign exactly as your name appears on the other side of this Security.)
Date:
------------------------ -----------------------------
Signature must be guaranteed Signature of Signature
by a participant in a Guarantee
recognized signature guaranty
medallion program or other
signature guarantor acceptable
to the Trustee
<PAGE>
178
EXHIBIT A
[FORM OF FACE OF EXCHANGE SECURITY OR PRIVATE EXCHANGE SECURITY]
[*/]
-
[**/]
--
CUSIP NO.
No. $
13-3/4% Subordinated Exchange Debenture Due 2010
21ST CENTURY TELECOM GROUP, INC., an Illinois corporation, promises to pay to
, or registered assigns, the principal sum of Dollars on
February 15, 2010.
Interest Payment Dates: February 15 and August 15.
Record Dates: February 1 and August 1.
Additional provisions of this Security are set forth on the other side of this
Security.
Dated:
<PAGE>
179
21ST CENTURY TELECOM GROUP, INC.,
by
------------------------
Name:
Title:
------------------------
Name:
Title:
TRUSTEE'S CERTIFICATE OF
AUTHENTICATION
IBJ SCHRODER BANK &
TRUST COMPANY, as Trustee,
certifies that this is one
of the Securities referred
to in the Indenture. [Seal]
by
- -------------------------------
Authorized Signatory
<PAGE>
180
*/ [If the Security is to be issued in global form add the Global Securities
- -
Legend from Exhibit 1 to Appendix A.
**/ [If the Security is a Private Exchange Security issued in a Private Exchange
- --
to an Initial Purchaser holding an unsold portion of its initial allotment, add
the Restricted Securities Legend from Exhibit 1 to Appendix A and replace the
Assignment Form included in this Exhibit A with the Assignment Form included in
such Exhibit 1.]
[FORM OF REVERSE SIDE OF EXCHANGE SECURITY OR PRIVATE EXCHANGE SECURITY]
13-3/4% Subordinated Exchange Debenture Due 2010
1. Interest
--------
21st Century Telecom Group, Inc., an Illinois corporation (such corporation,
and its successors and assigns under the Indenture hereinafter referred to,
being herein called the "Company"), promises to pay to the registered holder of
this Security interest on the principal amount of this Security at
<PAGE>
181
a rate of 13-3/4% per annum. Interest on this Security shall accrue from and
including the most recent date to which interest has been paid, or if no
interest has been paid, from and including the Exchange Date, through but
excluding the date on which interest is paid. Interest shall be payable
semiannually in arrears on each February 15 and August 15, commencing on the
first such date next following the Exchange Date. Interest will be computed on
the basis of a 360-day year of twelve 30-day months. [Notwithstanding the
foregoing, if a Registration Default (as defined in the Registration Rights
Agreement) occurs, interest will accrue on this Security at a rate of 14-1/4%
per annum from and including the date on which any such Registration Default
shall occur to but excluding the date on which all Registration Defaults have
been cured. Such interest will be paid semiannually on February 15 and August 15
of each year.]1 The Company shall pay interest on overdue principal at the rate
borne by the Securities plus 1% per annum, and it shall pay interest on overdue
installments of interest at the same rate to the extent lawful.
On or prior to February 15, 2003, the Company may from time to time with
respect to each interest period, at its option and in its sole discretion, in
lieu of paying interest on the outstanding Securities in cash on an interest
payment date, require the Trustee (upon a written order of the Company signed by
two Officers or by an Officer and an Assistant Treasurer or an Assistant
Secretary of the Company), subject to Section 2.2 of Appendix A of the
Indenture, to authenticate for original issue additional Securities in an
aggregate
- --------------
1. Insert if at the time of issuance of the Exchange Security or Private
Exchange Security (as the case may be) neither the Registered Exchange Offer has
been consummated nor a Shelf Registration Statement has been declared effective
in accordance with the Registration Rights Agreement.
<PAGE>
182
principal amount equal to the amount of interest payable in respect of
such interest period that the Company elects not to pay in cash on the interest
payment date immediately following such interest period. Such order shall
specify the aggregate principal amount of Securities to be authenticated and the
date on which such Securities are to be authenticated and delivered to Holders.
Each issuance of Securities in lieu of payment of interest in cash shall be made
pro rata with respect to the outstanding Securities; provided, however, that the
-------- -------
Company shall be required to pay cash in lieu of issuing Securities in any
denomination of less than $1,000.
2. Method of Payment
-----------------
The Company will pay interest referred to in paragraph 1 above on the
Securities (except defaulted interest) to the Persons who are registered holders
of Securities at the close of business on the February 1 or August 1 next
preceding the interest payment date even if Securities are canceled after the
record date and on or before the interest payment date. Holders must surrender
Securities to a Paying Agent to collect principal payments. Except as otherwise
set forth in paragraph 1 above, the Company will pay principal and interest in
money of the United States that at the time of payment is legal tender for
payment of public and private debts. Except as otherwise set forth in paragraph
1 above, payments in respect of Securities (including principal, premium and
interest) will be made by wire transfer of immediately available funds to the
accounts specified by the holders thereof or, if no U.S. dollar account
maintained by the payee with a bank in the United States is designated by any
holder to the Trustee or the Paying Agent at least 30 days prior to the relevant
due date for payment (or such other date as the Trustee may accept in its
discretion), by mailing a check to the registered address of such holder.
<PAGE>
183
3. Paying Agent and Registrar
--------------------------
Initially, IBJ Schroder Bank & Trust Company, a New York banking corporation
("Trustee"), will act as Paying Agent and Registrar. The Company may appoint and
change any Paying Agent, Registrar or co-registrar without notice. The Company
or any of its domestically incorporated Wholly Owned Subsidiaries may act as
Paying Agent, Registrar or co-registrar.
4. Indenture
---------
The Company issued the Securities under an Indenture dated as of February 15,
1998 ("Indenture"), between the Company and the Trustee. The terms of the
Securities include those stated in the Indenture and those made part of the
Indenture by reference to the Trust Indenture Act of 1939 (15 U.S.C. .. 77aaa-
------
77bbbb) as in effect on the date of the Indenture (the "Act"). Terms defined in
the Indenture and not defined herein have the meanings ascribed thereto in the
Indenture. The Securities are subject to all such terms, and Securityholders
are referred to the Indenture and the Act for a statement of those terms.
The Securities are general unsecured subordinated obligations of the Company
limited to $100,000,000 aggregate principal amount. All Securities issued under
the Indenture
<PAGE>
184
will be treated as a single class of securities for all purposes under the
Indenture. The Indenture contains certain covenants that, among other things,
limit (i) the incurrence of additional Indebtedness by the Company and its
Restricted Subsidiaries (as defined), (ii) the payment of dividends and other
distributions by the Company and its Restricted Subsidiaries in respect of their
capital stock, (iii) investments or other restricted payments by the Company and
its Restricted Subsidiaries, (iv) asset sales, (v) certain transactions with
affiliates, (vi) the sale or issuance of capital stock of Restricted
Subsidiaries, and (vii) mergers and consolidations. The Indenture also prohibits
certain restrictions on distributions from Restricted Subsidiaries. All these
limitations and prohibitions, however, are subject to a number of important
qualifications and exceptions.
5. Optional Redemption
-------------------
Except as set forth in the next paragraph, the Securities may not be redeemed
prior to February 15, 2003. On and after that date, the Company may redeem the
Securities in whole or in part, at any time or from time to time, at the
following redemption prices (expressed in percentages of principal amount), plus
accrued interest to the redemption date (subject to the right of Holders of
record on the relevant record date to receive interest due on the related
interest payment date):
If redeemed during the 12-month period commencing on February 15 of the years
set forth below:
<PAGE>
185
<TABLE>
<CAPTION>
Redemption
Period Price
- ------ -----------------
<S> <C>
2003 106.8750%
2004 104.5833
2005 102.2917
2006 and thereafter 100.0000
</TABLE>
In addition, at any time prior to February 15, 2001, the Company may redeem,
in whole but not in part, Securities with the proceeds of an Equity Offering at
a redemption price (expressed as a percentage of principal amount) of 113-3/4%
plus accrued interest to redemption date (subject to the right of Holders of
record on the relevant record date to receive interest due on the related
interest payment date).
6. Notice of Redemption
--------------------
Notice of redemption will be mailed at least 30 days but not more than 60 days
before the redemption date to each Holder of Securities to be redeemed at his
registered address. Securities in denominations of principal amount larger than
$1,000 may be redeemed in part but only in whole multiples of $1,000. If money
sufficient to pay the redemption price of and accrued interest (if any) on all
Securities (or portions thereof) to be redeemed on the redemption date is
deposited
<PAGE>
186
with the Paying Agent on or before the redemption date and certain other
conditions are satisfied, on and after such date interest ceases to accrue on
such Securities (or such portions thereof) called for redemption.
7. Put Provisions
--------------
Upon a Change of Control, any Holder of Securities will have the right to
cause the Company to repurchase all or any part of the Securities of such Holder
at a repurchase price equal to 101% of the principal amount of the Securities to
be repurchased plus accrued interest to the date of repurchase (subject to the
right of holders of record on the relevant record date to receive interest due
on the related interest payment date) as provided in, and subject to the terms
of, the Indenture.
8. Subordination
-------------
The Securities are subordinated to Senior Indebtedness, as defined in the
Indenture. To the extent provided in the Indenture, Senior Indebtedness must be
paid before the Securities may be paid. The Company agrees, and each
Securityholder by accepting a Security agrees, to the subordination provisions
contained in the Indenture and authorizes the Trustee to give them effect and
appoints the Trustee as attorney-in-fact for such purpose.
<PAGE>
187
9. Denominations; Transfer; Exchange
---------------------------------
The Securities are in registered form without coupons in denominations of
principal amount of $1,000 and whole multiples of $1,000. A Holder may transfer
or exchange Securities in accordance with the Indenture. The Registrar may
require a Holder, among other things, to furnish appropriate endorsements or
transfer documents and to pay any taxes and fees required by law or permitted by
the Indenture. The Registrar need not register the transfer of or exchange any
Securities selected for redemption (except, in the case of a Security to be
redeemed in part, the portion of the Security not to be redeemed) or any
Securities for a period of 15 days before a selection of Securities to be
redeemed or 15 days before an interest payment date.
10. Persons Deemed Owners
---------------------
The registered Holder of this Security may be treated as the owner of it for
all purposes.
11. Unclaimed Money
---------------
If money for the payment of principal or interest remains unclaimed for two
years, the Trustee or Paying Agent shall pay the money back to the Company at
its request unless an abandoned property law designates another Person. After
any
<PAGE>
188
such payment, Holders entitled to the money must look only to the Company and
not to the Trustee for payment.
12. Discharge and Defeasance
------------------------
Subject to certain conditions, the Company at any time may terminate some or
all of its obligations under the Securities and the Indenture if the Company
deposits with the Trustee money or U.S. Government Obligations for the payment
of principal and interest on the Securities to redemption or maturity, as the
case may be.
13. Amendment, Waiver
-----------------
Subject to certain exceptions set forth in the Indenture, (i) the Indenture or
the Securities may be amended with the written consent of the Holders of at
least a majority in principal amount outstanding of the Securities and (ii) any
default or noncompliance with any provision may be waived with the written
consent of the Holders of a majority in principal amount outstanding of the
Securities. Subject to certain exceptions set forth in the Indenture, without
the consent of any Securityholder, the Company and the Trustee may amend the
Indenture or the Securities to cure any ambiguity, omission, defect or
inconsistency, or to comply with Article 5 of the Indenture, or to provide for
uncertificated Securities in addition to or in place of certificated Securities,
or to add guarantees with respect to the Securities or to secure the Securities,
or to make any change in Article 10 of the Indenture that would limit or
terminate the benefits available
<PAGE>
189
to any holder of Senior Indebtedness under Article 10 of the Indenture, or to
add additional covenants or surrender rights and powers conferred on the
Company, or to comply with any request of the SEC in connection with qualifying
the Indenture under the Act, or to make any change that does not adversely
affect the rights of any Securityholder.
14. Defaults and Remedies
---------------------
Under the Indenture, Events of Default include (i) default for 30 days in
payment of interest on the Securities; (ii) default in payment of principal on
the Securities at maturity, upon redemption pursuant to para graph 5 of the
Securities, upon acceleration or otherwise, or failure by the Company to redeem
or purchase Securities when required; (iii) failure by the Company to comply
with other agreements in the Indenture or the Securities, in certain cases
subject to notice and lapse of time; (iv) certain accelerations (including
failure to pay within Indebtedness of the Company if the amount accelerated
(or so unpaid) exceeds $10 million, subject to notice and lapse of time; (v)
certain events of bankruptcy or insolvency with respect to the Company and the
Significant Subsidiaries; and (vi) certain judgments or decrees for the payment
of money in excess of $10 million. If an Event of Default occurs and is
continuing, the Trustee or the Holders of at least 25% in principal amount of
the Securities may declare all the Securities to be due and payable immediately.
Certain events of bankruptcy or insolvency are Events of Default which will
result in the Securities being due and payable immediately upon the occurrence
of such Events of Default.
<PAGE>
190
Securityholders may not enforce the Indenture or the Securities except as
provided in the Indenture. The Trustee may refuse to enforce the Indenture or
the Securities unless it receives reasonable indemnity or security. Subject to
certain limitations, Holders of a majority in principal amount of the Securities
may direct the Trustee in its exercise of any trust or power. The Trustee may
withhold from Securityholders notice of any continuing Default (except a Default
in payment of principal or interest) if it determines that withholding notice is
in the interest of the Holders.
15. Trustee Dealings with the Company
---------------------------------
Subject to certain limitations imposed by the Act, the Trustee under the
Indenture, in its individual or any other capacity, may become the owner or
pledgee of Securities and may otherwise deal with and collect obligations owed
to it by the Company or its Affiliates and may otherwise deal with the Company
or its Affiliates with the same rights it would have if it were not Trustee.
16. No Recourse Against Others
--------------------------
A director, officer, employee or stockholder, as such, of the Company or the
Trustee shall not have any liability for any obligations of the Company under
the Securities or the Indenture or for any claim based on, in respect of or by
reason of such obligations or their creation. By accepting a Security, each
Securityholder waives and releases all such
<PAGE>
191
liability. The waiver and release are part of the consideration for the issue of
the Securities.
17. Authentication
--------------
This Security shall not be valid until an authorized signatory of the Trustee
(or an authenticating agent) manually signs the certificate of authentication on
the other side of this Security.
18. Abbreviations
-------------
Customary abbreviations may be used in the name of a Securityholder or an
assignee, such as TEN COM (=tenants in common), TEN ENT (=tenants by the
entireties), JT TEN (=joint tenants with rights of survivorship and not as
tenants in common), CUST (=custodian), and U/G/M/A (=Uniform Gift to Minors
Act).
<PAGE>
192
19. CUSIP Numbers
-------------
Pursuant to a recommendation promulgated by the Committee on Uniform Security
Identification Procedures the Company has caused CUSIP numbers to be printed on
the Securities and has directed the Trustee to use CUSIP numbers in notices of
redemption as a convenience to Securityholders. No representation is made as to
the accuracy of such numbers either as printed on the Securities or as contained
in any notice of redemption and reliance may be placed only on the other
identification numbers placed thereon.
20. Holders' Compliance with Registration Rights Agreement.
------------------------------------------------------
Each Holder of a Security, by acceptance hereof, acknowledges and agrees to
the provisions of the Registration Rights Agreement, including the obligations
of the Holders with respect to a registration and the indemnification of the
Company to the extent provided therein.
21. Governing Law.
--------------
THIS SECURITY SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS
OF THE STATE OF NEW YORK BUT WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF
CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF ANOTHER
JURISDICTION WOULD BE REQUIRED THEREBY.
THE COMPANY WILL FURNISH TO ANY SECURITYHOLDER UPON WRITTEN REQUEST AND
WITHOUT CHARGE TO THE SECURITYHOLDER A COPY OF THE INDENTURE WHICH HAS IN IT THE
TEXT OF THIS SECURITY IN LARGER TYPE. REQUESTS MAY BE MADE TO:
<PAGE>
193
21st Century Telecom Group, Inc.
350 NORTH ORLEANS, SUITE 600
CHICAGO, IL 60654
TELECOPY: (312) 470-2111
Attention of: Chief Financial Officer
<PAGE>
194
ASSIGNMENT FORM
To assign this Security, fill in the form below:
I or we assign and transfer this Security to
- --------------------------------------------------------------------------------
(Print or type assignee's name, address and zip code)
- --------------------------------------------------------------------------------
(Insert assignee's soc. sec. or tax I.D. No.)
and irrevocably appoint agent to transfer this
Security on the books of the Company. The agent may substitute another to act
for him.
Date: __________________ Your Signature: __________________
(Sign exactly as your name appears on the other side of the Security)
<PAGE>
195
Signature Guarantee:
Date:
------------------------ -----------------------------
Signature must be guaranteed Signature of Signature
by a participant in a Guarantee
recognized signature guaranty
medallion program or other
signature guarantor acceptable
to the Trustee
<PAGE>
196
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Security purchased by the Company pursuant
to Section 4.06 or 4.09 of the Indenture, check the box:
- ----
/ /
- ----
If you want to elect to have only part of this Security purchased by the
Company pursuant to Section 4.06 or 4.09 of the Indenture, state the amount in
principal amount:
$
------------
Date: Your Signature:
------------------ -----------------
(Sign exactly as your name appears on the other side of the Security)
Date:
------------------------ -----------------------------
Signature must be guaranteed Signature of Signature
by a participant in a Guarantee
recognized signature guaranty
medallion program or other
signature guarantor acceptable
to the Trustee
<PAGE>
Exhibit 4.4
FACE OF SECURITY
----------------
THIS SECURITY (OR ITS PREDECESSOR) WAS ORIGINALLY ISSUED IN A
TRANSACTION EXEMPT FROM REGISTRATION UNDER THE UNITED STATES SECURITIES ACT OF
1933 (THE "SECURITIES ACT"), AND THIS SECURITY MAY NOT BE OFFERED, SOLD OR
OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE
EXEMPTION THEREFROM. EACH PURCHASER OF THIS SECURITY IS HEREBY NOTIFIED THAT
THE SELLER OF THIS SECURITY MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS
OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER.
THE HOLDER OF THIS SECURITY AGREES FOR THE BENEFIT OF THE COMPANY THAT
(A) THIS SECURITY AND ANY SECURITY INTO WHICH SUCH SECURITY IS EXCHANGEABLE MAY
BE OFFERED, RESOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY (i) WITHIN THE UNITED
STATES TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A "QUALIFIED
INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) IN A
TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (ii) OUTSIDE THE UNITED
STATES IN A TRANSACTION IN ACCORDANCE WITH RULE 904 UNDER THE SECURITIES ACT,
(iii) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT
PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE), (iv) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR (v) TO THE COMPANY, IN EACH
OF CASES (i) THROUGH (iv) IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF
ANY STATE OF THE UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION, AND (B) THE
HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER OF
THIS SECURITY FROM IT OF THE RESALE RESTRICTIONS REFERRED TO IN (A) ABOVE.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE
OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), NEW YORK, NEW
YORK, TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OF
PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR
SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY
PAYMENT IS MADE TO CEDE & CO., OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF DTC) ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR
VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED
OWNER HEREOF, CEDE & CO. HAS AN INTEREST HEREIN.
<PAGE>
TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN
WHOLE, BUT NOT IN PART, TO NOMINEES OF DTC OR TO A SUCCESSOR THEREOF OR SUCH
SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY SHALL BE
LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THE
CERTIFICATE OF DESIGNATION REFERRED TO BELOW.
Certificate Number Number of Shares of Exchangeable
P-1 Preferred Stock
50,000
CUSIP NO.: 90130P 207
13 3/4% Senior Cumulative Exchangeable
--------------------------------------
Preferred Stock Due 2010
------------------------
(Par Value $0.01) (Initial Liquidation Preference $1,000 per share)
-------------------------------------------------------------------
of
--
21st Century Telecom Group, Inc.
--------------------------------
21st Century Telecom Group, Inc., an Illinois corporation (the
"Company"), hereby certifies that Cede & Co. (the "Holder") is the registered
owner of fully paid and non-assessable preferred securities of the Company
designated the 13 3/4 % Senior Cumulative Exchangeable Preferred Stock Due 2010
($.01) (liquidation preference $1,000 per share) (the "Exchangeable Preferred
Stock"). The shares of Exchangeable Preferred Stock are transferable on the
books and records of the Registrar, in person or by a duly authorized attorney,
upon surrender of this certificate duly endorsed and in proper form for
transfer. The designation, rights, privileges, restrictions, preferences and
other terms and provisions of the Exchangeable Preferred Stock represented
hereby shall in all respects be subject to the provisions of the Articles of
Incorporation as amended by Articles of Amendment as in effect on February 9,
1998, as the same may be amended from time to time (the "Articles of
Incorporation"). Capitalized terms used herein but not defined shall have the
meaning given them in the Articles of Incorporation. The Company will provide a
copy of the Articles of Incorporation to a Holder without charge upon written
request to the Company at its principal place of business.
Reference is hereby made to select provisions of the Exchangeable
Preferred Stock set forth on the reverse hereof, and to the Articles of
Incorporation, which select provisions and the Articles of Incorporation shall
for all purposes have the same effect as if set forth at this place.
<PAGE>
Upon receipt of this certificate, the Holder is bound by the Articles
of Incorporation and is entitled to the benefits thereunder.
Unless the Transfer Agent's Certificate of Authentication hereon has
been properly executed, these shares of Exchangeable Preferred Stock shall not
be entitled to any benefit under the Articles of Incorporation or be valid or
obligatory for any purpose.
<PAGE>
IN WITNESS WHEREOF, the Company has executed this certificate this
9th day of February, 1998.
21ST CENTURY TELECOM GROUP, INC.
By:
Name: Glenn Milligan
Title: President & Chief
[Seal]
By:
Name: Charles E. Kaegi
Title: Secretary
<PAGE>
TRANSFER AGENT'S CERTIFICATE OF AUTHENTICATION
This is one of the Exchangeable Preferred Stock referred to in the within
mentioned Articles of Incorporation.
Dated: February 9, 1998
BOSTON EQUISERVE TRUST COMPANY, N.A.
as Transfer Agent,
By:
----------------------
Authorized Signatory
<PAGE>
REVERSE OF SECURITY
Dividends on each share of Exchangeable Preferred Stock shall accrue
at a rate per annum set forth in the face hereof or as provided in the Articles
of Incorporation. The dividend rate is subject to increase in the event of a
Registration Default, as defined in the Registration Rights Agreement. In
addition, prior to February 15, 2003, dividends can be paid at the option of the
Company, in shares of Exchangeable Preferred Stock.
The shares of Exchangeable Preferred Stock shall be redeemable as
provided in the Articles of Incorporation. The shares of Exchangeable Preferred
Stock shall be exchangeable into the Company's 13 3/4 % Subordinated Exchange
Debentures Due 2010 in the manner and according to the terms set forth in the
Articles of Incorporation.
As required under Illinois law, the Company shall furnish to any
Holder upon request and without charge, a full summary statement of the
designations, voting rights preferences, limitations and special rights of the
shares of each class or series authorized to be issued by the Company so far as
they have been fixed and determined and the authority of the Board of Directors
to fix and determine the designations, voting rights, preferences, limitations
and special rights of the class and series of shares of the Company.
<PAGE>
ASSIGNMENT FORM
FOR VALUE RECEIVED, the undersigned assigns and transfers the shares
of Exchangeable Preferred Stock evidenced hereby to:
- -----------------------------------------------------------
(INSERT ASSIGNEE'S SOCIAL SECURITY OR TAX IDENTIFICATION NUMBER)
- -----------------------------------------------------------
(INSERT ADDRESS AND ZIP CODE OF ASSIGNEE)
and irrevocably appoints: Boston EquiServe Trust Company, N.A., M-S 45-02-62,
1500 Royall Street, Canton, MA 02021, agent to transfer the shares of
Exchangeable Preferred Stock evidenced hereby on the books of the Transfer Agent
and Registrar. The agent may substitute another to act for him or her.
Date:
Signature:
-------------------------------------------------------------
SIGN EXACTLY AS YOUR NAME APPEARS ON THE OTHER SIDE OF THIS EXCHANGEABLE
PREFERRED STOCK CERTIFICATE.)
Signature Guarantee: /1/
In connection with any transfer of any of the Securities evidenced by this
certificate occurring prior to the expiration of the period referred to in Rule
144(k) under the Securities Act after the later of the date of original issuance
of such Securities and the last date, if any, on which such Securities were
owned by the Company or any Affiliate of the Company, the undersigned confirms
that such Securities are being transferred in accordance with its terms:
CHECK ONE BOX BELOW
(1) [_] to the Company; or
- --------------------------
/1/ (Signature must be guaranteed by an "eligible guarantor institution" that
is, a bank, stockbroker, savings and loan association or credit union meeting
the requirements of the Registrar, which requirements include membership or
participation in the Securities Transfer Agents Medallion Program ("STAMP") or
such other "signature guarantee program" as may be determined by the Registrar
in addition to, or in substitution for, STAMP, all in accordance with the
Securities Exchange Act of 1934, as amended.)
<PAGE>
(2) [_] pursuant to an effective registration under the Securities Act of
1933; or
(3) [_] inside the United States to a "qualified institutional buyer" (as
defined in Rule 144A under the Securities Act of 1933) that
purchases for its own account or for the account of qualified
institutional buyer to whom notice is given that such transfer is
being made in reliance on Rule 144A, in each case pursuant to and
in compliance with Rule 144A under the Securities Act of 1933; or
(4) [_] outside the United States in offshore transaction within the
meaning of Regulation S under the Securities Act in compliance
with Rule 904 under the Securities Act of 1933; or
(5) [_] pursuant to another available exemption from registration provided
by Rule 144 under the Securities Act of 1933.
Unless one of the boxes is checked, the Transfer Agent will refuse to register
any of the Securities evidenced by this certificate in the name of any person
other than the registered holder thereof; provided, however, that if box (4) or
-------- -------
(5) is checked, the Transfer Agent may require, prior to registering any such
transfer of the Securities, such legal opinions, certifications and other
information as the Company has reasonably requested to confirm that such
transfer is being made pursuant to an exemption from, or in a transaction not
subject to, the registration requirements of the Securities Act of 1933, such as
the exemption provided by Rule 144 under such Act.
----------------------------
Signature
Signature Guarantee:
- --------------------- ----------------------------
(Signature must be guaranteed by a Signature
Signature member firm of the New York
Stock Exchange or a commercial bank
or trust company)
- --------------------------------------------------------------------------------
TO BE COMPLETED BY PURCHASER IF (3) ABOVE IS CHECKED.
The undersigned represents and warrants that it is purchasing this
Security for its own account or an account with respect to which it exercises
sole investment discretion and that it and any such account is a "qualified
institutional buyer" within the meaning of Rule 144A under the Securities Act of
1933, and is
<PAGE>
aware that the sale to it is being made in reliance on Rule 144A
and acknowledges that it has received such information regarding the Company as
the undersigned has requested pursuant to Rule 144A or has determined not to
request such information and that it is aware that the transferor is relying
upon the undersigned's foregoing representations in order to claim the exemption
from registration provided by Rule 144A.
Dated:
---------------------- ---------------------------------
NOTICE: To be executed by an
executive officer
<PAGE>
1
Exhibit 4.5
21ST CENTURY TELECOM GROUP, INC.
$200,000,000 (Gross Proceeds) 12 1/4% Senior Discount Notes Due 2008
$50,000,000 13 3/4% Senior Cumulative Exchangeable Preferred Stock Due 2010
REGISTRATION RIGHTS AGREEMENT
-----------------------------
February 2, 1998
Credit Suisse First Boston Corporation
BancAmerica Robertson Stephens
BancBoston Securities Inc.
c/o Credit Suisse First Boston Corporation
Eleven Madison Avenue
New York, New York 10010-3629
Dear Sirs:
21st Century Telecom Group, Inc., an Illinois corporation (the "Company"),
proposes to issue and sell to Credit Suisse First Boston Corporation,
BancAmerica Robertson Stephens and BancBoston Securities Inc. (collectively, the
"Initial Purchasers"), upon the terms set forth in a purchase agreement of even
date herewith (the "Purchase Agreement"), $200,000,000 (Gross Proceeds)
aggregate initial principal amount of its 12 1/4% Senior Discount Notes Due
2008 (the "Notes") and $50,000,000 13 3/4% Senior Cumulative Exchangeable
Preferred Stock Due 2010 (the "Exchangeable Preferred Stock"). The Company may,
at its option (on any scheduled dividend payment date) exchange all but not less
than all the shares of Exchangeable Preferred Stock then outstanding for the
Company's 13 3/4% Subordinated Exchange Debentures Due 2010 (the "Exchange
Debentures"). The Notes will be issued pursuant to an Indenture, dated as of
February 1, 1998, (the "Notes Indenture") between the Company and State Street
Bank and Trust Company (the "Notes Trustee"). The Exchangeable Preferred Stock
will be issued pursuant to an amendment to the Articles of Incorporation of the
Company (the "Amended and Restated Charter") to be filed with the Illinois
Secretary of State. The Exchange Debentures, if issued, will be issued under
the Exchange Indenture dated as of February 1, 1998 (the "Exchange Indenture"
and, together with the Notes Indenture, the "Indentures"), between the Company
and State Street Bank and Trust Company, as trustee (the "Exchange Debenture
Trustee" and, together with the Notes Trustee, the "Trustees"). As an
inducement to the Initial Purchasers, the Company agrees with the Initial
Purchasers, for the benefit of the holders of the Initial Securities (as defined
below) (including the Initial Purchasers), the Exchange Securities (as defined
below) and the Private Exchange Securities (as defined below) (collectively the
"Holders"), as follows:
1. Registered Exchange Offer. The Company shall, at its own cost, prepare
and, not later than 45 days after (or if the 45th day is not a business day, the
first business day thereafter) the date of original issue of the Notes and the
Exchangeable Preferred Stock (the "Issue Date"), file with the Securities and
Exchange Commission (the "Commission") a registration statement (the "Exchange
Offer Registration Statement") on an appropriate form under the Securities Act
of 1933 (the "Securities Act"), with respect to a proposed offer (each, a
"Registered Exchange Offer" and, collectively, the "Registered Exchange Offers")
to the Holders of each of the Notes, the Exchangeable Preferred Stock and, if
issued, the Exchange Debentures, who are not prohibited by any law or policy of
the Commission from participating in such a Registered Exchange Offer, to issue
and deliver to such Holders, in exchange for their respective Notes,
<PAGE>
2
shares of Exchangeable Preferred Stock or Exchange Debentures, as the case may
be (the "Initial Securities"), a like aggregate principal amount at maturity of
debt securities or a like aggregate liquidation preference of preferred stock,
as the case may be, of the Company (collectively, the "Exchange Securities")
issued under the relevant Indenture or the Amended and Restated Charter, as the
case may be, and identical in all material respects to the Initial Securities
(except for the transfer restrictions relating to the Initial Securities) that
would be registered under the Securities Act. The Company shall use its best
efforts to cause such Exchange Offer Registration Statement to become effective
under the Securities Act within 150 days (or if the 150th day is not a business
day, the first business day thereafter) after the Issue Date and shall keep the
Exchange Offer Registration Statement effective for not less than 30 days (or
longer, if required by applicable law) after the date notice of the Registered
Exchange Offer is mailed to the Holders (such period being called the "Exchange
Offer Registration Period").
If the Company commences the Registered Exchange Offers, the Company will
be entitled to close the Registered Exchange Offers 30 days after the
commencement thereof provided that the Company has accepted all the Initial
Securities theretofore validly tendered in accordance with the terms of the
relevant Registered Exchange Offer.
Following the declaration of the effectiveness of the Exchange Offer
Registration Statement, the Company shall promptly commence the Registered
Exchange Offers, it being the objective of such Registered Exchange Offers to
enable each Holder of the Initial Securities electing to exchange the Initial
Securities for Exchange Securities (assuming that such Holder is not an
affiliate of the Company within the meaning of the Securities Act, acquires the
Exchange Securities in the ordinary course of such Holder's business and has no
arrangements with any person to participate in the distribution of the Exchange
Securities and is not prohibited by any law or policy of the Commission from
participating in the Registered Exchange Offers) to trade such Exchange
Securities from and after their receipt without any limitations or restrictions
under the Securities Act and without material restrictions under the securities
laws of the several states of the United States.
The Company acknowledges that, pursuant to current interpretations by the
Commission's staff of Section 5 of the Securities Act, in the absence of an
applicable exemption therefrom, (i) each Holder which is a broker-dealer
electing to exchange Initial Securities, acquired for its own account as a
result of market-making activities or other trading activities, for Exchange
Securities (an "Exchanging Dealer"), is required to deliver a prospectus
containing the information set forth in (a) Annex A hereto on the cover, (b)
Annex B hereto in the "Exchange Offer Procedures" section and the "Purpose of
the Exchange Offer" section, and (c) Annex C hereto in the "Plan of
Distribution" section, in each case of such prospectus in connection with a sale
of any such Exchange Securities received by such Exchanging Dealer pursuant to
the Registered Exchange Offers and (ii) an Initial Purchaser that elects to sell
Exchange Securities acquired in exchange for Initial Securities constituting any
portion of an unsold allotment is required to deliver a prospectus containing
the information required by Items 507 or 508 of Regulation S-K under the
Securities Act, as applicable, in connection with such sale.
The Company shall use its best efforts to keep the Exchange Offer
Registration Statement effective and to amend and supplement the prospectus
contained therein, in order to permit such prospectus to be lawfully delivered
by all persons subject to the prospectus delivery requirements of the Securities
Act for such period of time as such persons must comply with such requirements
in order to resell the Exchange Securities; provided, however, that (i) in the
case where such prospectus and any amendment or supplement thereto must be
delivered by an Exchanging Dealer or an Initial Purchaser, such period shall be
the earlier of the 180th day after the consummation of the applicable Registered
Exchange Offer and the date on which all Exchanging Dealers and the Initial
Purchasers have sold all Exchange Securities held by them (unless such period is
extended pursuant to Section 3(j) below) and (ii) the Company shall make such
prospectus and any amendment or supplement thereto, available to any broker-
dealer for use in connection
<PAGE>
3
with any resale of any Exchange Securities for a period of not less than 90 days
after the consummation of the Registered Exchange Offers.
If, upon consummation of the Registered Exchange Offers, any Initial
Purchaser holds Notes, Exchangeable Preferred Stock or Exchange Debentures
acquired by it as part of its initial distribution, the Company, simultaneously
with the delivery of the Exchange Securities pursuant to the relevant Registered
Exchange Offer, shall issue and deliver to such Initial Purchaser upon the
written request of such Initial Purchaser, in exchange (each, a "Private
Exchange" and collectively, the "Private Exchanges") for the respective Notes,
Exchangeable Preferred Stock or Exchange Debentures held by such Initial
Purchaser, a like principal amount at maturity of debt securities or a like
liquidation preference of preferred stock, as the case may be, issued under the
relevant Indenture or the Amended and Restated Charter, as the case may be, and
identical in all material respects (including the existence of restrictions on
transfer under the Securities Act and the securities laws of the several states
of the United States) to the Notes, the Exchangeable Preferred Stock or the
Exchange Debentures, as the case may be (collectively, the "Private Exchange
Securities"). The Initial Securities, the Exchange Securities and the Private
Exchange Securities are herein collectively called the "Securities".
In connection with each Registered Exchange Offer, the Company shall:
(a) mail to each Holder a copy of the prospectus forming part of the
Exchange Offer Registration Statement, together with an appropriate letter
of transmittal and related documents;
(b) keep the Registered Exchange Offer open for not less than 30 days
(or longer, if required by applicable law) after the date notice thereof is
mailed to the Holders;
(c) utilize the services of a depositary for the Registered Exchange
Offer with an address in the Borough of Manhattan, The City of New York,
which may be one of the Trustees or an affiliate of one of the Trustees;
(d) permit Holders to withdraw tendered Securities at any time prior
to the close of business, New York time, on the last business day on which
the Registered Exchange Offer shall remain open; and
(e) otherwise comply with all applicable laws.
As soon as practicable after the close of a Registered Exchange Offer or a
Private Exchange, as the case may be, the Company shall:
(x) accept for exchange all the Securities validly tendered and not
withdrawn pursuant to such Registered Exchange Offer and such Private
Exchange, as the case may be;
(y) deliver to the Company's transfer agent for the Exchangeable
Preferred Stock (the "Transfer Agent"), in the case of Exchangeable
Preferred Stock, or to the relevant Trustee, in the case of the Notes and
the Exchange Debentures, for cancelation all the Initial Securities so
accepted for exchange; and
(z) cause the relevant Trustee or the Transfer Agent, as the case may
be, to authenticate and deliver promptly to each Holder that validly
tendered Initial Securities, Exchange Securities or Private Exchange
Securities, as the case may be, equal in principal amount at maturity or
liquidation preference, as applicable, to the Initial Securities of such
Holder so accepted for exchange.
<PAGE>
4
Each Indenture will provide that the Exchange Securities subject to such
Indenture will not be subject to the transfer restrictions set forth in such
Indenture and that all the Notes or Exchange Debentures, as the case may be, and
the relevant Exchange Securities and the Private Exchange Securities subject to
such Indenture will vote and consent together on all matters as one class and
that none of the Notes or Exchange Debentures, as the case may be, or the
relevant Exchange Securities or Private Exchange Securities subject to such
Indenture will have the right to vote or consent as a class separate from one
another on any matter.
The Amended and Restated Charter will provide that the Exchange Securities
subject to such Amended and Restated Charter will not be subject to the transfer
restrictions set forth in such Amended and Restated Charter and that all the
Exchangeable Preferred Stock, the Exchange Securities and the Private Exchange
Securities subject to such Amended and Restated Charter will vote and consent
together on all matters as one class and that none of the Exchangeable Preferred
Stock, the Exchange Securities or Private Exchange Securities subject to such
Amended and Restated Charter will have the right to vote or consent as a class
separate from one another on any matter.
Interest or dividends, as the case may be, on each Exchange Security and
Private Exchange Security issued pursuant to a Registered Exchange Offer or
Private Exchange will accrue from the last interest payment date or dividend
payment date, as applicable, on which interest or a dividend, as the case may
be, was paid on the Initial Security surrendered in exchange therefor or, if no
interest or dividend, as the case may be, has been paid on such Initial
Security, from the date of original issue of such Initial Security.
Each Holder tendering Initial Securities in a Registered Exchange Offer
shall be required to represent to the Company that at the time of the
consummation of such Registered Exchange Offer (i) any Exchange Securities
received by such Holder will be acquired in the ordinary course of business,
(ii) such Holder will have no arrangements or understanding with any person to
participate in the distribution of the Initial Securities or the Exchange
Securities within the meaning of the Securities Act, (iii) such Holder is not an
"affiliate," as defined in Rule 405 of the Securities Act, of the Company or if
it is an affiliate, such Holder will comply with the registration and prospectus
delivery requirements of the Securities Act to the extent applicable, (iv) if
such Holder is not a broker-dealer, that it is not engaged in, and does not
intend to engage in, the distribution of the Exchange Securities and (v) if such
Holder is a broker-dealer, that it will receive Exchange Securities for its own
account in exchange for Initial Securities that were acquired as a result of
market-making activities or other trading activities and that it will be
required to acknowledge that it will deliver a prospectus in connection with any
resale of such Exchange Securities.
Notwithstanding any other provisions hereof, the Company will ensure that
(i) any Exchange Offer Registration Statement and any amendment thereto and any
prospectus forming part thereof and any supplement thereto complies in all
material respects with the Securities Act and the rules and regulations
thereunder, (ii) any Exchange Offer Registration Statement and any amendment
thereto does not, when it becomes effective, contain an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading and (iii) any prospectus
forming part of any Exchange Offer Registration Statement, and any supplement to
such prospectus, does not include an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary in order to
make the statements therein, in the light of the circumstances under which they
were made, not misleading.
2. Shelf Registration. If, (i) because of any change in law or in
applicable interpretations thereof by the staff of the Commission, the Company
is not permitted to effect the Registered Exchange Offers, as contemplated by
Section 1 hereof, (ii) the Registered Exchange Offers are not consummated within
<PAGE>
5
180 days of the date hereof, (iii) any Initial Purchaser so requests with
respect to the Initial Securities (or the Private Exchange Securities) not
eligible to be exchanged for Exchange Securities in a Registered Exchange Offer
and held by it following consummation of the Registered Exchange Offers or (iv)
any Holder of Initial Securities (other than an Initial Purchaser) is not
eligible to participate in the applicable Registered Exchange Offer or, in the
case of any Holder (other than an Exchanging Dealer) that participates in a
Registered Exchange Offer, such Holder does not receive freely tradeable
Exchange Securities on the date of the exchange, the Company shall take the
following actions:
(a) The Company shall, at its cost, as promptly as practicable (but
in no event more than 30 days after so required or requested pursuant to
this Section 2) file with the Commission and thereafter shall use its best
efforts to cause to be declared effective a registration statement or
statements (a "Shelf Registration Statement" and, together with the
Exchange Offer Registration Statement, a "Registration Statement") on an
appropriate form under the Securities Act relating to the offer and sale of
the Transfer Restricted Securities (as defined in Section 6(d) hereof) by
the Holders thereof from time to time in accordance with the methods of
distribution set forth in the Shelf Registration Statement and Rule 415
under the Securities Act (hereinafter, the "Shelf Registration"); provided,
however, that no Holder (other than an Initial Purchaser) shall be entitled
to have the Securities held by it covered by such Shelf Registration
Statement unless such Holder agrees in writing to be bound by all the
provisions of this Agreement applicable to such Holder.
(b) The Company shall use its best efforts to keep the Shelf
Registration Statement continuously effective in order to permit the
prospectus included therein to be lawfully delivered by the Holders of the
relevant Securities, for a period of two years (or for such longer period
if extended pursuant to Section 3(j) below) from the date of its
effectiveness or such shorter period that will terminate when all the
Securities covered by the Shelf Registration Statement (i) have been sold
pursuant thereto or (ii) are eligible for sale under Rule 144(k) under the
Securities Act. The Company shall be deemed not to have used its best
efforts to keep the Shelf Registration Statement effective during the
requisite period if it voluntarily takes any action that would result in
Holders of Securities covered thereby not being able to offer and sell such
Securities during that period, unless such action is required by applicable
law; provided, however, that this sentence shall not apply if a
-------- -------
Registration Default shall be deemed not to have occurred pursuant to
Section 6(b).
(c) Notwithstanding any other provisions of this Agreement to the
contrary, the Company shall cause the Shelf Registration Statement and the
related prospectus and any amendment or supplement thereto, as of the
effective date of the Shelf Registration Statement, amendment or
supplement, (i) to comply in all material respects with the applicable
requirements of the Securities Act and the rules and regulations of the
Commission and (ii) not to contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary
in order to make the statements therein, in the light of the circumstances
under which they were made, not misleading.
3. Registration Procedures. In connection with any Shelf Registration
contemplated by Section 2 hereof and, to the extent applicable, any Registered
Exchange Offer contemplated by Section 1 hereof, the following provisions shall
apply:
(a) The Company shall (i) furnish to each Initial Purchaser, prior to
the filing thereof with the Commission, a copy of the Registration
Statement and each amendment thereof and each supplement, if any, to the
prospectus included therein and the Company shall use its best efforts to
reflect in each such document, when so filed with the Commission, such
comments as such Initial Purchaser reasonably may propose; (ii) include the
information set forth in Annex A hereto on the
<PAGE>
6
cover, in Annex B hereto in the "Exchange Offer Procedures" section and the
"Purpose of the Exchange Offer" section and in Annex C hereto in the "Plan
of Distribution" section of the prospectus forming a part of the Exchange
Offer Registration Statement and include the information set forth in Annex
D hereto in the Letter of Transmittal delivered pursuant to such Registered
Exchange Offer; (iii) if requested by an Initial Purchaser, include the
information required by Items 507 or 508 of Regulation S-K under the
Securities Act, as applicable, in the prospectus forming a part of the
Exchange Offer Registration Statement; (iv) include within the prospectus
contained in the Exchange Offer Registration Statement a section entitled
"Plan of Distribution," reasonably acceptable to the Initial Purchasers,
which shall contain a summary statement of the positions taken or policies
made by the staff of the Commission with respect to the potential
"underwriter" status of any broker-dealer that is the beneficial owner (as
defined in Rule 13d-3 under the Securities Exchange Act of 1934, as amended
(the "Exchange Act")) of Exchange Securities received by such broker-dealer
in such Registered Exchange Offer (a "Participating Broker-Dealer"),
whether such positions or policies have been publicly disseminated by the
staff of the Commission or such positions or policies, in the reasonable
judgment of the Initial Purchasers based upon advice of counsel (which may
be in-house counsel), represent the prevailing views of the staff of the
Commission; and (v) in the case of a Shelf Registration, include the names
of the Holders who propose to sell Securities pursuant to the Shelf
Registration Statement as selling securityholders.
(b) The Company shall give written notice to the Initial Purchasers,
the Holders of the Securities and any Participating Broker-Dealer from whom
the Company has received prior written notice that it will be a
Participating Broker-Dealer in a Registered Exchange Offer (which notice
pursuant to clauses (ii)-(v) hereof shall be accompanied by an instruction
to suspend the use of the prospectus until the requisite changes have been
made):
(i) when the Registration Statement or any amendment thereto
has been filed with the Commission and when the Registration Statement
or any post-effective amendment thereto has become effective;
(ii) of any request by the Commission after the date such
Registration Statement has become effective for amendments or
supplements to the Registration Statement or the prospectus included
therein or for additional information;
(iii) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or the
initiation of any proceedings for that purpose;
(iv) of the receipt by the Company or its legal counsel of any
notification with respect to the suspension of the qualification of
the Securities for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose; and
(v) of the happening of any event that requires the Company to
make changes in the Registration Statement or the prospectus in order
that the Registration Statement or the prospectus does not contain an
untrue statement of a material fact and does not omit to state a
material fact required to be stated therein or necessary to make the
statements therein (in the case of the prospectus, in light of the
circumstances under which they were made) not misleading.
(c) The Company shall use its best efforts to obtain the withdrawal
at the earliest possible time of any order suspending the effectiveness of
the Registration Statement.
<PAGE>
7
(d) The Company shall furnish to each Holder of Securities included
within the coverage of the Shelf Registration, without charge, at least one
copy of the Shelf Registration Statement and any post-effective amendment
thereto, including financial statements and schedules, and, if the Holder
so requests in writing, all exhibits thereto (including those, if any,
incorporated by reference).
(e) The Company shall deliver to each Exchanging Dealer and each
Initial Purchaser, and to any other Holder who so requests, without charge,
at least one copy of the Exchange Offer Registration Statement and any
post-effective amendment thereto, including financial statements and
schedules, and, if any Initial Purchaser or any such Holder requests, all
exhibits thereto (including those incorporated by reference).
(f) The Company shall, during the Shelf Registration Period, deliver
to each Holder of Securities included within the coverage of the Shelf
Registration, without charge, as many copies of the prospectus (including
each preliminary prospectus) included in the Shelf Registration Statement
and any amendment or supplement thereto as such person may reasonably
request. The Company consents, subject to the provisions of this Agreement,
to the use of the prospectus or any amendment or supplement thereto by each
of the selling Holders of the Securities in connection with the offering
and sale of the Securities covered by the prospectus, or any amendment or
supplement thereto, included in the Shelf Registration Statement.
(g) The Company shall deliver to each Initial Purchaser, any
Exchanging Dealer, any Participating Broker-Dealer and such other persons
required to deliver a prospectus following the Registered Exchange Offers,
without charge, as many copies of the final prospectus included in the
Exchange Offer Registration Statement and any amendment or supplement
thereto as such persons may reasonably request. The Company consents,
subject to the provisions of this Agreement, to the use of the prospectus
or any amendment or supplement thereto by any Initial Purchaser, if
necessary, any Participating Broker-Dealer and such other persons required
to deliver a prospectus following the Registered Exchange Offers in
connection with the offering and sale of the Exchange Securities covered by
the prospectus, or any amendment or supplement thereto, included in such
Exchange Offer Registration Statement.
(h) Prior to any public offering of the Securities pursuant to any
Registration Statement, the Company shall register or qualify or cooperate
with the Holders of the Securities included therein and their respective
counsel in connection with the registration or qualification of the
Securities for offer and sale under the securities or "blue sky" laws of
such states of the United States as any Holder of the Securities reasonably
requests in writing and do any and all other acts or things necessary or
advisable to enable the offer and sale in such jurisdictions of the
Securities covered by such Registration Statement; provided, however, that
the Company shall not be required to (i) qualify generally to do business
in any jurisdiction where it is not then so qualified or (ii) take any
action which would subject it to general service of process or to taxation
in any jurisdiction where it is not then so subject.
(i) The Company shall cooperate with the Holders of the Securities to
facilitate the timely preparation and delivery of certificates representing
the Securities to be sold pursuant to any Registration Statement free of
any restrictive legends and in such denominations and registered in such
names as the Holders may request a reasonable period of time prior to sales
of the Securities pursuant to such Registration Statement.
<PAGE>
8
(j) Upon the occurrence of any event contemplated by paragraphs (ii)
through (v) of Section 3(b) above during the period for which the Company
is required to maintain an effective Registration Statement, the Company
shall promptly prepare and file a post-effective amendment to the
Registration Statement or a supplement to the related prospectus and any
other required document so that, as thereafter delivered to Holders of the
Initial Securities or purchasers of Securities, the prospectus will not
contain an untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading. If the Company notifies the Initial Purchasers, the
Holders of the Securities and any known Participating Broker-Dealer in
accordance with paragraphs (ii) through (v) of Section 3(b) above to
suspend the use of the prospectus until the requisite changes to the
prospectus have been made, then the Initial Purchasers, the Holders of the
Securities and any such Participating Broker-Dealers shall suspend use of
such prospectus, and the period of effectiveness of the Shelf Registration
Statement provided for in Section 2(b) above or of the Exchange Offer
Registration Statement provided for in Section 1 above, as the case may be,
shall be extended by the number of days from and including the date of the
giving of such notice to and including the date when the Initial
Purchasers, the Holders of the Securities and any known Participating
Broker-Dealer shall have received such amended or supplemented prospectus
pursuant to this Section 3(j).
(k) Not later than the effective date of the applicable Registration
Statement, the Company will provide CUSIP numbers for the Initial
Securities, the Exchange Securities or the Private Exchange Securities, as
the case may be, and provide the Transfer Agent or the relevant Trustee, as
applicable, with printed certificates for the Initial Securities, the
Exchange Securities or the Private Exchange Securities, as the case may be,
in a form eligible for deposit with The Depository Trust Company.
(l) The Company will comply with all rules and regulations of the
Commission to the extent and so long as they are applicable to the
Registered Exchange Offer or the Shelf Registration, and will make
generally available to its security holders (or otherwise provide in
accordance with Section 11(a) of the Securities Act) an earnings statement
satisfying the provisions of Section 11(a) of the Securities Act, no later
than 45 days after the end of a 12-month period (or 90 days, if such period
is a fiscal year) beginning with the first month of the Company's first
fiscal quarter commencing after the effective date of the Registration
Statement, which statement shall cover such 12-month period.
(m) The Company shall cause the Indentures to be qualified under the
Trust Indenture Act of 1939, as amended, in a timely manner and containing
such changes, if any, as shall be necessary for such qualification. In the
event that such qualification would require the appointment of a new
trustee under any of the Indentures, the Company shall appoint a new
trustee thereunder pursuant to the applicable provisions of such Indenture.
(n) The Company may require each Holder of Securities to be sold
pursuant to the Shelf Registration Statement to furnish to the Company such
information regarding the Holder and the distribution of the Securities as
the Company may from time to time reasonably require for inclusion in the
Shelf Registration Statement, and the Company may exclude from such
registration the Securities of any Holder that unreasonably fails to
furnish such information within a reasonable time after receiving such
request.
(o) The Company shall enter into such customary agreements
(including, if requested, an underwriting agreement in customary form) and
take all such other action, if any, as any Holder of
<PAGE>
9
the Securities shall reasonably request in order to facilitate the
disposition of the Securities pursuant to any Shelf Registration.
(p) In the case of any Shelf Registration, the Company shall (i) make
reasonably available for inspection by the Holders of the Securities, any
underwriter participating in any disposition pursuant to the Shelf
Registration Statement and any attorney, accountant or other agent retained
by the Holders of the Securities or any such underwriter all relevant
financial and other records, pertinent corporate documents and properties
of the Company and (ii) cause the Company's officers, directors, employees,
accountants and auditors to supply all relevant information reasonably
requested by the Holders of the Securities or any such underwriter,
attorney, accountant or agent in connection with the Shelf Registration
Statement, in each case, as shall be reasonably necessary to enable such
persons to conduct a reasonable investigation within the meaning of Section
11 of the Securities Act; provided, however, that the foregoing inspection
and information gathering shall be coordinated on behalf of the Initial
Purchasers by you and on behalf of the other parties, by one counsel
designated by and on behalf of such other parties as described in Section 4
hereof.
(q) In the case of any Shelf Registration, the Company, if requested
by any Holder of Securities covered thereby, shall cause (i) its counsel to
deliver an opinion and updates thereof relating to the Securities in
customary form addressed to such Holders and the managing underwriters, if
any, thereof and dated, in the case of the initial opinion, the effective
date of such Shelf Registration Statement (it being agreed that the matters
to be covered by such opinion shall include the due incorporation and good
standing of the Company and its subsidiaries; the qualification of the
Company and its subsidiaries to transact business as foreign corporations;
the due authorization, execution and delivery of the relevant agreement of
the type referred to in Section 3(o) hereof; the due authorization,
execution, authentication and issuance, and the validity and
enforceability, of the applicable Securities; the absence of material legal
or governmental proceedings involving the Company and its subsidiaries; the
absence of governmental approvals required to be obtained in connection
with the Shelf Registration Statement, the offering and sale of the
applicable Securities, or any agreement of the type referred to in Section
3(o) hereof; and the compliance as to form of such Shelf Registration
Statement and any documents incorporated by reference therein and of the
Indentures with the requirements of the Securities Act and the Trust
Indenture Act, respectively. Such counsel's opinion shall also state that
no facts have come to its attention which lead such counsel to believe that
as of the date of the opinion and as of the effective date of such Shelf
Registration Statement or most recent post-effective amendment thereto, as
the case may be, such Shelf Registration Statement and the prospectus
included therein, as then amended or supplemented, and any documents
incorporated by reference therein contain any untrue statement of a
material fact or omit to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading
in the light of the circumstances existing at the time that such documents
were filed with the Commission under the Exchange Act (it being understood
that such counsel shall not be required to express any opinion as to the
financial statements and related notes, the financial projections and other
financial statistical and accounting data included therein or appended
thereto); (ii) its officers to execute and deliver all customary documents
and certificates and updates thereof requested by any underwriters of the
applicable Securities and (iii) its independent public accountants to
provide to the selling Holders of the applicable Securities and any
underwriter therefor a comfort letter in customary form and covering
matters of the type customarily covered in comfort letters in connection
with primary underwritten offerings, subject to receipt of appropriate
documentation as contemplated, and only if permitted, by Statement of
Auditing Standards No. 72.
<PAGE>
10
(r) In the case of the Registered Exchange Offers, if requested by
any Initial Purchaser or any known Participating Broker-Dealer, the Company
shall cause (i) its counsel to deliver to such Initial Purchaser or such
Participating Broker-Dealer a signed opinion in the form set forth in
Section 6(c) of the Purchase Agreement with such changes as are customary
in connection with the preparation of a Registration Statement and (ii) its
independent public accountants to deliver to such Initial Purchaser or such
Participating Broker-Dealer a comfort letter, in customary form, meeting
the requirements as to the substance thereof as set forth in Sections 6(a)
and (g) of the Purchase Agreement, with appropriate date changes.
(s) If a Registered Exchange Offer or a Private Exchange is to be
consummated, upon delivery of the Initial Securities by Holders to the
Company (or to such other Person as directed by the Company) in exchange
for the Exchange Securities or the Private Exchange Securities, as the case
may be, the Company shall mark, or caused to be marked, on the Initial
Securities so exchanged that such Initial Securities are being canceled in
exchange for the Exchange Securities or the Private Exchange Securities, as
the case may be; in no event shall the Initial Securities be marked as paid
or otherwise satisfied.
(t) The Company shall use its best efforts to (a) if the Initial
Securities have been rated prior to the initial sale of such Initial
Securities, confirm such ratings will apply to the Securities covered by a
Registration Statement, or (b) if the Initial Securities were not
previously rated, cause the Securities covered by a Registration Statement
to be rated with the appropriate rating agencies, if so requested by
Holders of a majority in aggregate principal amount at maturity or
liquidation preference, as applicable, of Securities covered by such
Registration Statement, or by the managing underwriters, if any.
(u) In the event that any broker-dealer registered under the Exchange
Act shall underwrite any Securities or participate as a member of an
underwriting syndicate or selling group or "assist in the distribution"
(within the meaning of the Conduct Rules (the "Rules") of the National
Association of Securities Dealers, Inc. ("NASD")) thereof, whether as a
Holder of such Securities or as an underwriter, a placement or sales agent
or a broker or dealer in respect thereof, or otherwise, the Company shall
assist such broker-dealer in complying with the requirements of such Rules,
including by (i) if such Rules, including Rule 2720 thereto, shall so
require, engaging a "qualified independent underwriter" (as defined in Rule
2720) to participate in the preparation of the Registration Statement
relating to such Securities, to exercise usual standards of due diligence
in respect thereto and, if any portion of the offering contemplated by such
Registration Statement is an underwritten offering or is made through a
placement or sales agent, to recommend the yield of such Securities, (ii)
indemnifying any such qualified independent underwriter to the extent of
the indemnification of underwriters provided in Section 5 hereof and (iii)
providing such information to such broker-dealer as may be required in
order for such broker-dealer to comply with the requirements of the Rules.
(v) The Company shall use its best efforts to take all other steps
necessary to effect the registration of the Securities covered by a
Registration Statement contemplated hereby.
4. Registration Expenses. The Company shall bear all fees and expenses
incurred in connection with the performance of its obligations under Sections 1
through 3 hereof (including the reasonable fees and expenses, if any, of
Cravath, Swaine & Moore, counsel for the Initial Purchasers, incurred in
connection with the Registered Exchange Offers), whether or not a Registered
Exchange Offer or a Shelf Registration is filed or becomes effective, and, in
the event of a Shelf Registration, shall bear or reimburse the Holders of the
Securities covered thereby for the reasonable fees and disbursements of one firm
of counsel designated by the Holders of a majority in aggregate principal amount
at maturity or liquidation
<PAGE>
11
preference, as applicable, of the Initial Securities covered thereby to act as
counsel for the Holders of the Initial Securities in connection therewith.
5. Indemnification. (a) The Company agrees to indemnify and hold
harmless each Holder of the Securities, any Participating Broker-Dealer and each
person, if any, who controls such Holder or such Participating Broker-Dealer
within the meaning of Section 15 of the Securities Act or Section 20(a) of the
Exchange Act from and against any losses, claims, damages or liabilities, joint
or several, or any actions in respect thereof (including any losses, claims,
damages, liabilities or actions relating to purchases and sales of the
Securities) to which each such indemnified party may become subject under the
Securities Act, the Exchange Act or otherwise, insofar as such losses, claims,
damages, liabilities or actions arise out of or are based upon any untrue
statement or alleged untrue statement of a material fact contained in a
Registration Statement or prospectus or in any amendment or supplement thereto
or in any preliminary prospectus relating to a Shelf Registration, or arise out
of, or are based upon, the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, and shall reimburse, as incurred, such indemnified
parties for any legal or other expenses reasonably incurred by them in
connection with investigating or defending any such loss, claim, damage,
liability or action in respect thereof; provided, however, that (i) the Company
shall not be liable in any such case to the extent that such loss, claim, damage
or liability arises out of or is based upon any untrue statement or alleged
untrue statement or omission or alleged omission made in a Registration
Statement or prospectus or in any amendment or supplement thereto or in any
preliminary prospectus relating to a Shelf Registration in reliance upon and in
conformity with written information pertaining to such Holder and furnished to
the Company by or on behalf of such Holder specifically for inclusion therein
and (ii) with respect to any untrue statement or omission or alleged untrue
statement or omission made in any preliminary prospectus relating to a Shelf
Registration, the indemnity agreement contained in this subsection (a) shall not
enure to the benefit of any Holder or Participating Broker-Dealer from whom the
person asserting any such losses, claims, damages or liabilities purchased the
Securities concerned, to the extent that a prospectus relating to such
Securities was required to be delivered by such Holder or Participating Broker-
Dealer under the Securities Act in connection with such purchase and any such
loss, claim, damage or liability of such Holder or Participating Broker-Dealer
results from the fact that there was not sent or given to such person, at or
prior to the written confirmation of the sale of such Securities to such person,
a copy of the final prospectus, as amended or supplemented, if the Company had
previously furnished copies thereof to such Holder or Participating Broker-
Dealer; provided further, however, that this indemnity agreement will be in
addition to any liability which the Company may otherwise have to such
indemnified party. The Company shall also indemnify underwriters, their
officers and directors and each person who controls such underwriters within the
meaning of Section 15 of the Securities Act or Section 20(a) of the Exchange Act
to the same extent as provided above with respect to the indemnification of the
Holders of the Securities if requested by such Holders.
(b) Each Holder of the Securities, severally and not jointly, will
indemnify and hold harmless the Company and each person, if any, who controls
the Company within the meaning of Section 15 of the Securities Act or Section
20(a) of the Exchange Act from and against any losses, claims, damages or
liabilities or any actions in respect thereof, to which the Company or any such
controlling person may become subject under the Securities Act, the Exchange Act
or otherwise, insofar as such losses, claims, damages, liabilities or actions
arise out of or are based upon any untrue statement or alleged untrue statement
of a material fact contained in a Registration Statement or prospectus or in any
amendment or supplement thereto or in any preliminary prospectus relating to a
Shelf Registration, or arise out of or are based upon the omission or alleged
omission to state therein a material fact necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading, but in each case only to the extent that the untrue statement or
omission or alleged untrue statement or omission was made in reliance upon and
in conformity with written information pertaining to such Holder and furnished
to the Company by or on behalf of such Holder specifically for inclusion
therein; and, subject to
<PAGE>
12
the limitation set forth immediately preceding this clause, shall reimburse, as
incurred, the Company for any legal or other expenses reasonably incurred by the
Company or any such controlling person in connection with investigating or
defending any loss, claim, damage, liability or action in respect thereof. This
indemnity agreement will be in addition to any liability which such Holder may
otherwise have to the Company or any of its controlling persons.
(c) Promptly after receipt by an indemnified party under this Section 5 of
notice of the commencement of any action or proceeding (including a governmental
investigation), such indemnified party will, if a claim in respect thereof is to
be made against the indemnifying party under this Section 5, notify the
indemnifying party of the commencement thereof; but the omission so to notify
the indemnifying party will not, in any event, relieve the indemnifying party
from any obligations to any indemnified party other than the indemnification
obligation provided in paragraphs (a) or (b) above. In case any such action is
brought against any indemnified party, and it notifies the indemnifying party of
the commencement thereof, the indemnifying party will be entitled to participate
therein and, to the extent that it may wish, jointly with any other indemnifying
party similarly notified, to assume the defense thereof, with counsel reasonably
satisfactory to such indemnified party (who shall not, except with the consent
of the indemnified party, be counsel to the indemnifying party), and after
notice from the indemnifying party to such indemnified party of its election so
to assume the defense thereof the indemnifying party will not be liable to such
indemnified party under this Section 5 for any legal or other expenses, other
than reasonable costs of investigation, subsequently incurred by such
indemnified party in connection with the defense thereof. No indemnifying party
shall, without the prior written consent of the indemnified party, effect any
settlement of any pending or threatened action in respect of which any
indemnified party is or could have been a party and indemnity could have been
sought hereunder by such indemnified party unless such settlement includes an
unconditional release of such indemnified party from all liability on any claims
that are the subject matter of such action.
(d) If the indemnification provided for in this Section 5 is unavailable
or insufficient to hold harmless an indemnified party under subsections (a) or
(b) above, then each indemnifying party shall contribute to the amount paid or
payable by such indemnified party as a result of the losses, claims, damages or
liabilities (or actions in respect thereof) referred to in subsections (a) or
(b) above (i) in such proportion as is appropriate to reflect the relative
benefits received by the indemnifying party or parties on the one hand and the
indemnified party on the other from the exchange of the relevant Initial
Securities, pursuant to the relevant Registered Exchange Offer, or (ii) if the
allocation provided by the foregoing clause (i) is not permitted by applicable
law or is otherwise not applicable, in such proportion as is appropriate to
reflect not only the relative benefits referred to in clause (i) above but also
the relative fault of the indemnifying party or parties on the one hand and the
indemnified party on the other in connection with the statements or omissions
that resulted in such losses, claims, damages or liabilities (or actions in
respect thereof) as well as any other relevant equitable considerations. The
relative fault of the parties shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company on the one hand or such Holder or such other indemnified
party, as the case may be, on the other, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The amount paid by an indemnified party as a result of
the losses, claims, damages or liabilities referred to in the first sentence of
this subsection (d) shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any action or claim which is the subject of this subsection (d).
Notwithstanding any other provision of this Section 5(d), the Holders of the
Securities shall not be required to contribute any amount in excess of the
amount by which the net proceeds received by such Holders from the sale of the
Securities pursuant to a Registration Statement exceeds the amount of damages
which such Holders have otherwise been required to pay by reason of such untrue
or alleged untrue statement or omission or alleged omission. No person guilty
of fraudulent misrepresentation (within the meaning of Section 11(f) of
<PAGE>
13
the Securities Act) shall be entitled to contribution from any person who was
not guilty of such fraudulent misrepresentation. For purposes of this paragraph
(d), each person, if any, who controls such indemnified party within the meaning
of Section 15 of the Securities Act or Section 20(a) of the Exchange Act shall
have the same rights to contribution as such indemnified party and each person,
if any, who controls the Company within the meaning of Section 15 of the
Securities Act or Section 20(a) of the Exchange Act shall have the same rights
to contribution as the Company.
(e) The agreements contained in this Section 5 shall survive the sale of
the Securities pursuant to a Registration Statement and shall remain in full
force and effect, regardless of any termination or cancelation of this Agreement
or any investigation made by or on behalf of any indemnified party.
6. Additional Amounts Under Certain Circumstances. (a) Additional
interest or dividends, as the case may be, (the "Additional Amounts") with
respect to a series of Securities shall be assessed as follows if any of the
following events occur (each such event in clauses (i) through (iii) below a
"Registration Default"):
(i) If by March 26, 1998, neither the Exchange Offer Registration
Statement nor a Shelf Registration Statement relating to such series of
Securities has been filed with the Commission;
(ii) If by August 8, 1998, the Registered Exchange Offer relating to
such series of Securities is not consummated and, if required, the Shelf
Registration Statement relating to such series of Securities is not
declared effective by the Commission; or
(iii) If after either the Exchange Offer Registration Statement or
the Shelf Registration Statement relating to such series of Securities is
declared effective (A) such Registration Statement thereafter ceases to be
effective (except as permitted in paragraph (b)); or (B) such Registration
Statement or the related prospectus ceases to be usable (except as
permitted in paragraph (b)) in connection with resales of Transfer
Restricted Securities during the periods specified herein because either
(1) any event occurs as a result of which the related prospectus forming
part of such Registration Statement would include any untrue statement of a
material fact or omit to state any material fact necessary to make the
statements therein in the light of the circumstances under which they were
made not misleading, or (2) it shall be necessary to amend such
Registration Statement or supplement the related prospectus, to comply with
the Securities Act or the Exchange Act or the respective rules thereunder;
then Additional Amounts shall accrue or accumulate on the affected Securities,
at a rate of 0.50% per annum (the "Additional Amounts Rate") over and above the
dividend or interest rate set forth in the title of the Initial Securities, in
each case, from and including the date on which any such Registration Default
shall occur to but excluding the date on which all such Registration Defaults
relating to the relevant Securities have been cured.
(b) A Registration Default referred to in Section 6(a)(iii) hereof shall
be deemed not to have occurred and be continuing in relation to a Registration
Statement or the related prospectus if (i) such purported Registration Default
has occurred solely as a result of (x) the filing of a post-effective amendment
to such Registration Statement to incorporate annual audited financial
information with respect to the Company where such post-effective amendment is
not yet effective and needs to be declared effective to permit Holders to use
the related prospectus or (y) the occurrence of other material events with
respect to the Company that would need to be described in such Registration
Statement or the related prospectus and (ii) in the case of clause (y), the
Company is proceeding promptly and in good faith to amend or supplement such
Registration Statement and related prospectus to describe such events; provided,
however, that in any case if such purported Registration Default occurs for a
continuous period in excess of
<PAGE>
14
30 days, Additional Amounts shall be payable in accordance with the above
paragraph from the day such Registration Default occurs until such Registration
Default is cured.
(c) Any Additional Amounts due pursuant to clause (i), (ii) or (iii) of
Section 6(a) above will be payable in cash on each Semi-Annual Accrual Date (as
defined in the Notes Indenture) scheduled dividend or interest payment date, as
the case may be, commencing with the first such date following the applicable
Registration Default. Additional Amounts will be determined by multiplying the
applicable Additional Amounts Rate by the Accreted Value (as defined in the
Notes Indenture) as of the then most recent Semi-Annual Accrual Date (in the
case of the Notes), the liquidation preference (in the case of Exchangeable
Preferred Stock) or the principal amount (in the case of Exchange Debentures),
as the case may be, of such affected Securities, in each case, multiplied by a
fraction, the numerator of which is the number of days such Additional Amounts
Rate was applicable during such period (determined on the basis of a 360-day
year comprised of twelve 30-day months), and the denominator of which is 360.
(d) "Transfer Restricted Securities" means each Security until (i) in the
case of an Initial Security, the date on which such Initial Security has been
exchanged by a person other than a broker-dealer for a freely transferable
Exchange Security in a Registered Exchange Offer, (ii) in the case of an
Exchange Security received by a broker-dealer in a Registered Exchange Offer,
the date on which such Exchange Security is sold to a purchaser who receives
from such broker-dealer on or prior to the date of such sale a copy of the
prospectus contained in the Exchange Offer Registration Statement, (iii) in the
case of any Security, the date on which such Security has been effectively
registered under the Securities Act and disposed of in accordance with a Shelf
Registration Statement or (iv) in the case of any Security, the date on which
such Security is distributed to the public pursuant to Rule 144 under the
Securities Act or is saleable pursuant to Rule 144(k) under the Securities Act.
7. Rules 144 and 144A. The Company shall use its best efforts to file the
reports required to be filed by it under the Securities Act and the Exchange Act
in a timely manner and, if at any time the Company is not required to file such
reports, it will, upon the request of any Holder of Transfer Restricted
Securities, make publicly available other information so long as necessary to
permit sales of its securities pursuant to Rules 144 and 144A. The Company
covenants that it will take such further action as any Holder of Transfer
Restricted Securities may reasonably request, all to the extent required from
time to time to enable such Holder to sell Transfer Restricted Securities
without registration under the Securities Act within the limitation of the
exemptions provided by Rules 144 and 144A (including the requirements of Rule
144A(d)(4)). The Company will provide a copy of this Agreement to Holders of
and prospective purchasers of Transfer Restricted Securities upon request. Upon
the request of any Holder of Transfer Restricted Securities, the Company shall
deliver to such Holder a written statement as to whether it has complied with
such requirements. Notwithstanding the foregoing, nothing in this Section 7
shall be deemed to require the Company to register any of its securities
pursuant to the Exchange Act.
8. Underwritten Registrations. If any of the Transfer Restricted
Securities covered by any Shelf Registration are to be sold in an underwritten
offering, the investment banker or investment bankers and manager or managers
that will administer the offering (the "Managing Underwriters") will be selected
by the Holders of a majority in aggregate principal amount at maturity or
liquidation preference, as applicable, of such Transfer Restricted Securities to
be included in such offering; provided, however, that the Managing Underwriters
must be reasonably satisfactory to the Company.
No person may participate in any underwritten registration hereunder unless
such person (i) agrees to sell such person's Transfer Restricted Securities on
the basis reasonably provided in any underwriting arrangements approved by the
persons entitled hereunder to approve such arrangements and (ii) completes and
executes all questionnaires, powers of attorney, indemnities, underwriting
agreements, lock-up letters and other documents reasonably required under the
terms of such underwriting arrangements.
<PAGE>
15
9. Miscellaneous.
(a) Amendments and Waivers. The provisions of this Agreement may not be
amended, modified or supplemented, and waivers or consents to departures from
the provisions hereof may not be given, except by the Company and the written
consent of the Holders of a majority in principal amount at maturity or
liquidation preference, as applicable, of the Securities affected by such
amendment, modification, supplement, waiver or consents, with holders of Notes
(or Exchange Securities or Private Securities in respect thereof), holders of
Exchangeable Preferred Stock (or Exchange Securities or Private Securities in
respect thereof) and holders of Exchange Debentures (or Exchange Securities or
Private Securities in respect thereof) voting as three separate classes.
(b) Notices. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand delivery, first-class mail,
facsimile transmission, or air courier which guarantees overnight delivery:
(1) if to a Holder of the Securities, at the most current address
given by such Holder to the Company in accordance with the provisions of this
Section 9(b).
(2) if to the Initial Purchasers, at the following address;
Credit Suisse First Boston Corporation
Eleven Madison Avenue
New York, NY 10010-3629
Telephone: (212) 325-2107
Telecopy: (212) 325-8278
Attention: Transactions Advisory Group
with a copy to:
Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Avenue
New York, NY 10019-7475
Telephone: (212) 474-1000
Telecopy: (212) 474-3700
Attention: Kris F. Heinzelman, Esq.
(3) if to the Company, at its address as follows:
21st Century Telecom Group, Inc.
World Trade Center-Chicago
350 N. Orleans, Suite 600
Chicago, IL 60654
Telephone: (312) 470-2100
Telecopy: (312) 470-2111
Attention: Chief Financial Officer
with a copy to:
Piper & Marbury LLP
<PAGE>
16
1200 Nineteenth Street, N.W.
Washington, DC 20036-2430
Attention: Edward M. Martin, Jr.
Telephone: (202) 861-6315
Telecopy: (202) 223-2085
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; three business
days after being deposited in the mail, postage prepaid, if mailed; when receipt
is acknowledged by recipient's facsimile machine operator, if sent by facsimile
transmission; and on the day delivered, if sent by overnight air courier
guaranteeing next day delivery.
(c) No Inconsistent Agreements. The Company has not, as of the date
hereof, entered into, nor shall it, on or after the date hereof, enter into, any
agreement with respect to its securities that is inconsistent with the rights
granted to the Holders herein or otherwise conflicts with the provisions hereof.
(d) Successors and Assigns. This Agreement shall be binding upon the
Company and its successors and assigns.
(e) Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(f) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(g) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO PRINCIPLES
OF CONFLICTS OF LAWS.
(h) Severability. If any one or more of the provisions contained herein,
or the application thereof in any circumstance, is held invalid, illegal or
unenforceable, the validity, legality and enforceability of any such provision
in every other respect and of the remaining provisions contained herein shall
not be affected or impaired thereby.
(i) Securities Held by the Company. Whenever the consent or approval of
Holders of a specified percentage of principal amount at maturity or liquidation
preference, as applicable, of Securities is required hereunder, Securities held
by the Company or its affiliates (other than subsequent Holders of Securities if
such subsequent Holders are deemed to be affiliates solely by reason of their
holdings of such Securities) shall not be counted in determining whether such
consent or approval was given by the Holders of such required percentage.
<PAGE>
17
If the foregoing is in accordance with your understanding of our agreement,
please sign and return to the Company a counterpart hereof, whereupon this
instrument, along with all counterparts, will become a binding agreement among
the several Initial Purchasers and the Company in accordance with its terms.
Very truly yours,
21st Century Telecom Group, Inc.
by /s/ Ronald D. Webster
Name: Ronald D. Webster
Title: Chief Financial Officer
The foregoing Registration
Rights Agreement is hereby confirmed
and accepted as of the date first
above written.
CREDIT SUISSE FIRST BOSTON CORPORATION
BANCAMERICA ROBERTSON STEPHENS
BANCBOSTON SECURITIES INC.
by: CREDIT SUISSE FIRST BOSTON CORPORATION
by /s/ Kaukab Chaundry
------------------------------
Name: Kaukab Chaundry
Title: Director
<PAGE>
18
ANNEX A
Each broker-dealer that receives Exchange Securities for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Securities. The
Letter of Transmittal states that by so acknowledging and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. This Prospectus, as it
may be amended or supplemented from time to time, may be used by a broker-dealer
in connection with resales of Exchange Securities received in exchange for
Initial Securities where such Initial Securities were acquired by such broker-
dealer as a result of market-making activities or other trading activities. The
Company has agreed that, for a period of 180 days after the Expiration Date (as
defined herein), it will make this Prospectus available to any broker-dealer for
use in connection with any such resale. See "Plan of Distribution."
<PAGE>
19
ANNEX B
Each broker-dealer that receives Exchange Securities for its own account in
exchange for Initial Securities, where such Initial Securities were acquired by
such broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such Exchange Securities. See "Plan of Distribution."
<PAGE>
ANNEX C
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Securities for its own account
pursuant to an Exchange Offer must acknowledge that it will deliver a prospectus
in connection with any resale of such Exchange Securities. This Prospectus, as
it may be amended or supplemented from time to time, may be used by a broker-
dealer in connection with resales of Exchange Securities received in exchange
for Initial Securities where such Initial Securities were acquired as a result
of market-making activities or other trading activities. The Company has agreed
that, for a period of 180 days after the Expiration Date, it will make this
prospectus, as amended or supplemented, available to any broker-dealer for use
in connection with any such resale. In addition, until , 199 ,
all dealers effecting transactions in the Exchange Securities may be required
to deliver a prospectus./1/
The Company will not receive any proceeds from any sale of Exchange
Securities by broker-dealers. Exchange Securities received by broker-dealers for
their own account pursuant to an Exchange Offer may be sold from time to time in
one or more transactions in the over-the-counter market, in negotiated
transactions, through the writing of options on the Exchange Securities or a
combination of such methods of resale, at market prices prevailing at the time
of resale, at prices related to such prevailing market prices or negotiated
prices. Any such resale may be made directly to purchasers or to or through
brokers or dealers who may receive compensation in the form of commissions or
concessions from any such broker-dealer or the purchasers of any such Exchange
Securities. Any broker-dealer that resells Exchange Securities that were
received by it for its own account pursuant to an Exchange Offer and any broker
or dealer that participates in a distribution of such Exchange Securities may be
deemed to be an "underwriter" within the meaning of the Securities Act and any
profit on any such resale of Exchange Securities and any commission or
concessions received by any such persons may be deemed to be underwriting
compensation under the Securities Act. The Letter of Transmittal states that, by
acknowledging that it will deliver and by delivering a prospectus, a broker-
dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act.
For a period of 180 days after the Expiration Date the Company will promptly
send additional copies of this Prospectus and any amendment or supplement to
this Prospectus to any broker-dealer that requests such documents in the Letter
of Transmittal. The Company has agreed to pay all expenses incident to the
Exchange Offers (including the expenses of one counsel for the Holders of the
Securities) other than commissions or concessions of any brokers or dealers and
will indemnify the Holders of the Securities (including any broker-dealers)
against certain liabilities, including liabilities under the Securities Act.
- ----------------------------------
/1/ In addition, the legend required by Item 502(e) of
Regulation S-K will appear on the back cover page of the
Exchange Offer prospectus.
<PAGE>
ANNEX D
CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS THERETO.
Name:
---------------------------------
Address:
---------------------------------
---------------------------------
If the undersigned is not a broker-dealer, the undersigned represents that it is
not engaged in, and does not intend to engage in, a distribution of Exchange
Securities. If the undersigned is a broker-dealer that will receive Exchange
Securities for its own account in exchange for Initial Securities that were
acquired as a result of market-making activities or other trading activities, it
acknowledges that it will deliver a prospectus in connection with any resale of
such Exchange Securities; however, by so acknowledging and by delivering a
prospectus, the undersigned will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
<PAGE>
February 9, 1998
Page 1
Exhibit 5.1
February 9, 1998
Credit Suisse First Boston Corporation
BancAmerica Robertson Stephens
BancBoston Securities, Inc.
c/o Credit Suisse First Boston Corporation
Eleven Madison Avenue
New York, New York 10010-3629
Dear Sirs:
We have served as special Illinois counsel for 21st Century Telecom Group,
Inc. (the "Company") in connection with the issuance and sale by the Company to
Credit Suisse First Boston ("CSFB"), BancAmerica Robertson Stephens
("BancAmerica"), BancBoston Securities, Inc. ("BancBoston"), (together with CSFB
and BancAmerica, the "Initial Purchasers"), of $200,000,000 in aggregate initial
principal amount of its 12-1/4% Senior Discount Notes Due 2008 (the "Notes")
with a principal amount at maturity of $363,135,000 and 50,000 Units (the
"Units"), each consisting of one share of its 13-3/4% Senior Cumulative
Exchangeable Preferred Stock due 2010 (the "Exchangeable Preferred Stock") and
one Warrant (each, a "Warrant") to purchase 8.7774 shares of common stock, no
par value (the "Common Stock") of the Company at an exercise price of $.01 per
share. The Company may, at its option (on any scheduled dividend payment date),
exchange all but not less than all the shares of Exchangeable Preferred Stock
then outstanding for the Company's 13-3/4% Subordinated Exchange Debentures Due
2010 (the "Exchange Debentures"). The Notes and the Units are collectively
referred to herein as the "Offered Securities" and are offered pursuant to (i) a
Purchase Agreement dated February 2, 1998 by and among the Company and the
Initial Purchasers (the "Purchase Agreement"), (ii) an Indenture (the "Note
Indenture") dated as of February 15, 1998 by and between the Company and State
Street Bank and Trust Company, as trustee
<PAGE>
February 9, 1998
Page 2
(the "Trustee"), (iii) an Indenture (the "Exchange Indenture") dated as of
February 15, 1998 by and between the Company and IBJ Schroder Bank & Trust
Company, as Trustee, (iv) a Warrant Agreement (the "Warrant Agreement") dated as
of February 15, 1998 by and between the Company and Boston Equiserve Trust
Company, N.A., and (v) a Registration Rights Agreement dated as of February 15,
1998 by and among the Company and the Initial Purchasers (the "Registration
Rights Agreement"). This opinion is being rendered at the request of the Company
and pursuant to Section 6(c) of the Purchase Agreement. Terms defined in the
Purchase Agreement and not otherwise defined herein are used herein as so
defined.
As such counsel, we have examined originals or copies of (i) the Articles
of Incorporation, as amended, of the Company, including the Articles of
Amendment filed with the of Office of the Secretary of State of the State of
Illinois on the date hereof, (ii) the By-laws, as amended, of the Company, (iii)
certain resolutions of the Board of Directors and shareholders of the Company,
(iv) copies, represented to us as true, accurate and complete of the Note
Indenture and Exchange Indenture (the "Indentures"), the Purchase Agreement, the
Warrant Agreement, and the Registration Rights Agreement (collectively, the
"Operative Documents"), and (v) such other documents and records as we have
deemed necessary and relevant for the purposes hereof. In addition, we have
relied on certificates of public officials and of officers of the Company as to
certain matters of fact relating to this opinion and have made such
investigations of the law as we have deemed necessary and relevant as a basis
hereof.
We have assumed the genuineness of all signatures, the authenticity of all
documents and records submitted to us as originals, and the conformity to
original documents and records of all documents and records submitted to us as
copies.
For purposes of this letter and our opinions set forth below, the word
"knowledge" refers only to the actual knowledge of attorneys in this firm who
performed services in connection with the transactions contemplated by the
Operative Documents without any investigation other than those investigations
specifically referenced above.
We are members of the bar of the State of Illinois, and do not express any
opinion with respect to the laws or regulations
<PAGE>
February 9, 1998
Page 3
of any jurisdiction other than the laws and regulations of the State of
Illinois, all as in effect on the date hereof.
Based on the foregoing and subject to the limitations and assumptions set
forth herein, it is our opinion that:
1. The Company has been duly incorporated and is an existing corporation in
good standing under the laws of the State of Illinois, with corporate power
and authority to own its properties and conduct its business as described
in the Offering Document and the Company is duly qualified to do business
as a foreign corporation in good standing in all other jurisdictions in
which its ownership or lease of property or the conduct of its business
requires such qualifications.
2. Each of the Indentures, the Warrant Agreement and the Registration Rights
Agreement has been duly authorized, executed and delivered by the Company.
The Notes and the Warrants have been duly authorized, executed,
authenticated, issued and delivered.
3. The Warrants are exercisable for shares of Common Stock of the Company in
accordance with the terms of the Warrant Agreement, the shares of such
Common Stock initially issuable upon exercise of the Warrants have been
duly authorized and reserved for issuance upon such exercise and, when
issued upon such exercise, will be validly issued, fully paid and
nonassessable. The Capital Stock of the Company conforms to the
description thereof contained in the Offering Document. The holders of
capital stock of the Company or instruments convertible into or exercisable
for shares of capital stock of the Company have no preemptive rights or
rights to have "anti-dilution" or similar adjustments made in connection
with the issuance of the Warrants or the Common Stock.
4. The Exchangeable Preferred Stock has been duly authorized and upon issuance
thereof in accordance with the Offering Document will be validly issued,
fully paid and nonassessable and the stockholders of the Company have no
preemptive rights with respect to the Exchange Preferred Stock.
<PAGE>
February 9, 1998
Page 4
5. No consent, approval, authorization or order of, or filing with, any
Illinois governmental agency or body or any court is required for the
execution, delivery and performance of the Operative Documents by the
Company for the consummation of the transactions contemplated by the
Operative Documents by the Company, or for the issuance by the Company of
the Exchangeable Preferred Stock except those that have been obtained and
except such as may be required under state securities laws and other than
as may be required under the Securities Act and the Rules and Regulations
of the Commission thereunder with respect to the Registration Rights
Agreement.
6. The execution, delivery and performance of the Operative Documents and the
issuance and sale of the Offered Securities and compliance with the terms
and provisions thereof will not result in a breach or violation of any of
the terms and provisions of, or constitute a default under, any statute,
any rule, regulation or, to our knowledge, any order of any Illinois
governmental agency or body or any court having jurisdiction over the
Company or any subsidiary of the Company or any of their properties, or any
agreement or instrument to which the Company or any subsidiary is, to our
knowledge, a party or by which the Company or any such subsidiary is, to
our knowledge, bound or, to our knowledge, to which any of the properties
of the Company or any such subsidiary is subject, or the charter or by-laws
(or other organizational documents) of the Company or any such subsidiary,
and the Company has full power and authority to authorize, issue and sell
the Offered Securities as contemplated by the Purchase Agreement.
7. The Purchase Agreement has been duly authorized, executed and delivered by
the Company.
8. During the course of our representation of the Company, nothing has come to
our attention which would lead us to believe that:
(i) The Company or any of its subsidiaries are not in compliance in any
material respect with the material terms and conditions of each license,
franchise or other governmental authorization;
<PAGE>
February 9, 1998
Page 5
(ii) The license, franchises and other governmental authorization of the
Company and its subsidiaries are not currently valid or not in full force and
effect, or that there is any investigation, notice or apparent liability,
violation, forfeiture or other order or complaint issued by or before any court
or registration body, or of any other proceedings (other than proceedings
relating to the telecommunications industry generally) which could in any manner
materially threaten or adversely affect the validity or continued effectiveness
of any of the licenses, franchises or other governmental authorizations; or
(iii) Any event has occurred which (x) results in, or after notice or
lapse of time, or both, would result in, revocation, suspension, adverse
modification, non-renewal, impairment, restriction or termination of, or of the
forfeiture with respect to, any license, franchise or other governmental
authorization, or (y) materially and adversely affects or could reasonably be
expected in the future to materially adversely affect any of the rights of the
Company or any of its subsidiaries thereunder.
This opinion speaks strictly as of its date and we undertake no
obligation to update it or to advise you of any changes in our opinions in
the event of changes in applicable law or facts or if additional or newly
discovered information is brought to our attention. This opinion may not be
used or relied upon by any person other than you without our prior written
consent. This opinion is limited to the matters stated herein, and no
opinion may be inferred or implied beyond the matters expressly stated
herein.
Very truly yours,
Neal Gerber & Eisenberg
<PAGE>
Exhibit 5.2
PIPER & MARBURY
L.L.P.
1200 NINETEENTH STREET, N.W. BALTIMORE
Washington, D.C. 20036-2430 NEW YORK
202-861-3900 PHILADELPHIA
FAX: 202-223-2085 EASTON
February 9, 1998
Credit Suisse First Boston
BancAmerica Robertson Stephens
BancBoston Securities, Inc.
c/o Credit Suisse First Boston Corporation
Eleven Madison Avenue
New York, NY 10010-3629
Dear Sirs:
We have served as counsel for 21st Century Telecom Group, Inc. (the
"Company") in connection with the issuance and sale by the Company to Credit
Suisse First Boston Corporation ("CSFB"), BancAmerica Robertson Stephens
("BancAmerica") and BancBoston Securities, Inc. ("BancBoston" and together with
CSFB and BancAmerica, the "Initial Purchasers"), of $200,000,000 (Gross
Proceeds) in aggregate initial principal amount of its 12-1/4% Senior Discount
Notes Due 2008 (the "Notes") with a principal amount at maturity of $363,135,000
and 50,000 Units (the "Units"), each consisting of one share of its 13-3/4%
Senior Cumulative Exchangeable Preferred Stock Due 2010 (the "Exchangeable
Preferred Stock") and one Warrant (each, a "Warrant") to purchase 8.7774 shares
of voting common stock, no par value (the "Common Stock") of the Company at an
exercise price of $.01 per share. The Company may, at its option (on any
scheduled dividend payment date), exchange all but not less than all shares of
Exchangeable Preferred Stock then outstanding for the Company's 13-3/4 %
Subordinated Exchange Debentures Due 2010 (the "Exchange Debentures"). The
Notes and the Units are collectively referred to herein as the "Offered
Securities" and are offered pursuant to (i) a Purchase Agreement dated February
2, 1998 by and among the Company and the Initial Purchasers (the "Purchase
Agreement"), (ii) an Indenture (the "Note Indenture") dated as of February 15,
1998 by and between the Company and State Street Bank and Trust Company, as
trustee (the "Trustee"), (iii) an Indenture (the "Exchange Indenture") dated as
of February 15, 1998 by and between the Company and IBJ Schroder Bank & Trust
Company, as Trustee and (iv) a Registration Rights Agreement dated as of
February 2, 1998 by and among the Company and the Initial Purchasers (the
"Registration Rights Agreement", (v) a Warrant Agreement dated as of February
15, 1998 by and among the Company and BankBoston, N.A., as Warrant Agent (the
"Warrant Agreement") and (vi) the Amended Articles of Incorporation dated as of
February 9, 1998. This opinion is being rendered at the request of the Company
and
<PAGE>
Piper & Marbury
L.L.P.
Credit Suisse First Boston
BancAmerica Robertson Stephens
BancBoston Securities, Inc.
c/o Credit Suisse First Boston
February 9, 1988
Page 2
pursuant to Section 6(c) of the Purchase Agreement. Terms defined in the
Purchase Agreement and not otherwise defined herein are used herein as so
defined.
As counsel to the Company, we have participated in the preparation and have
examined a copy of the Offering Circular dated February 2, 1998 setting forth
information regarding the Company and the Offered Securities (the "Offering
Circular"). We have participated in the preparation and have examined a signed
copy of the Purchase Agreement, the Note Indenture, the Exchange Indenture, the
Purchase Agreement, the Warrant Agreement and the Registration Rights Agreement
(collectively, the "Operative Documents") and we have examined the Certificate
of Incorporation and all amendments thereto and By-laws of the Company and
reviewed the corporate proceedings and such other documents as we deemed
relevant and necessary as a basis for the opinions herein expressed.
In connection with the opinions expressed herein, we have also examined
such certificates of public officials, corporate documents and records and other
certificates, opinions, documents and instruments as we have deemed necessary to
form a basis for the opinions and statements hereinafter expressed. In making
such examinations, we have assumed the genuineness of all signatures, the
authenticity of all documents submitted to us as originals, and the conformity
to original documents of all documents submitted to us as photostatic or
certified copies. As to certain issues of fact material to the opinions
expressed herein and as to the materiality of certain facts, we have relied, to
the extent we deemed appropriate, upon representations and warranties of the
Company contained in Section 2 of the Purchase Agreement and representations
made to us by one or more officers or employees of the Company, and nothing has
come to our attention leading us to question the accuracy of such information.
We have assumed that each of the Operative Documents has been duly
authorized, executed and delivered by each party thereto other than the Company
and that each such party has all requisite power and authority to effect the
transactions contemplated by such documents. We have also assumed that each of
such documents is a valid and binding obligation of each such party, enforceable
against each such party in accordance with its terms. We do not render any
opinion as to the application of any federal or state law or regulation to any
such party's power, authority or competence.
For purposes of the opinions and statements expressed herein, the phrase
"to the best of our knowledge" or words of similar import means the actual
knowledge of the
<PAGE>
Piper & Marbury
L.L.P.
Credit Suisse First Boston
BancAmerica Robertson Stephens
BancBoston Securities, Inc.
c/o Credit Suisse First Boston
February 9, 1998
Page 3
individual attorneys of this firm who have provided substantive attention to the
matters in which we have been engaged by the Company as counsel. In addition,
for purposes of the opinions and statements expressed herein, the phrase "after
due inquiry" means the review of the subject matter of the opinions so qualified
with appropriate officers of the Company. Except as otherwise stated herein, we
have undertaken no independent investigation or verification of such matters,
except for inquiry of officers of the Company.
The opinions hereinafter expressed are qualified to the extent that the
validity or enforceability of any of the agreements, documents or obligations
referred to herein may be subject to or affected by bankruptcy, insolvency,
reorganization, moratorium or other laws relating to or affecting the rights of
creditors in general. We do not express any opinion herein as to the
availability of any equitable or other specific remedy upon breach of any of the
agreements, documents or obligations referred to herein.
Our opinions herein are subject to the effect of applicable law that may
limit the enforceability or render ineffective certain of the remedial
provisions of the liquidated damages provisions of the Registration Rights
Agreement; although the inclusion of such a provision does not affect the
validity of such agreements, as a whole, and there exist legally adequate
remedies for a realization of the principal benefits afforded thereby.
Our opinion is based upon the current interpretation of applicable law and
facts existing on the date hereof. We disclaim any obligation to advise you of
any developments or changes either in the applicable law or facts which may
occur after the date of this opinion. This opinion is limited to the federal
laws of the United States, and with respect only to numbered paragraphs 1, 2, 3
and 4 hereof, the laws of the State of New York.
Based upon, and as limited in accordance with, the foregoing, we are of the
opinion that:
1. Each of the Operative Documents conforms in all material respects
to the description thereof contained in the Offering Circular and constitute
valid and legally binding obligations of the Company enforceable in accordance
with their terms, subject to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar laws of general applicability relating to
or affecting creditors' rights and to general equity principles;
2. The Notes, the Exchangeable Preferred Stock, the Exchange
Debentures and the Warrants conform to the description thereof contained in the
Offering
<PAGE>
Piper & Marbury
L.L.P.
Credit Suisse First Boston
BancAmerica Robertson Stephens
BancBoston Securities, Inc.
c/o Credit Suisse First Boston
February 9, 1998
Page 4
Circular and constitute valid and legally binding obligations of the
Company enforceable in accordance with their terms, subject to bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium and similar laws of
general applicability relating to or affecting creditors' rights and to general
equity principles;
3. No consent, approval, authorization or order of, or filing with,
any United States Federal or New York court or governmental body or agency is
required for the execution, delivery, and performance of the Operative
Documents, Notes and Warrants by the respective parties thereto or for the
consummation of the transactions contemplated by the Operative Documents by the
Company, except those that have been obtained and except such as may be required
under state securities laws and other than as may be required under the
Securities Act and the Rules and Regulations of the Commission thereunder with
respect to the Registration Rights Agreement;
4. The execution, performance and delivery of the Operative
Documents and the issuance and sale of the Offered Securities and compliance
with the terms of and provisions thereof will not result in a breach or
violation of, or constitute a default under, any statute, any rule, regulation,
or order of any United States. Federal or New York governmental agency or body
or any court having jurisdiction over the Company or any subsidiary of the
Company or any of their properties, or to the best of our knowledge, after due
inquiry any agreement or instrument to which the Company or any such subsidiary
is a party or by which the Company or any such subsidiary is bound or to which
any of the properties of the Company or any such subsidiary is subject;
5. Assuming the accuracy of the representations and warranties of
the Initial Purchasers in Section 4 of the Purchase Agreement and of the Company
in Section 2 of the Purchase Agreement, it is not necessary in connection with
(A) the offer, sale and delivery of the Offered Securities by the Company to the
several Purchasers pursuant to the Purchase Agreement or (B) the initial resales
of the Offered Securities by the several Purchasers in the manner contemplated
by the Purchase Agreement to register the Offered Securities under the
Securities Act or to qualify an indenture in respect thereof under the Trust
Indenture Act;
6. The descriptions under the headings "Legislation and Regulation"
and under "Description of Certain Indebtedness" in the Offering Circular
constitutes a fair summary of the information contained therein;
7. To the best of our knowledge, after due inquiry, the Company is
in
<PAGE>
Piper & Marbury
L.L.P.
Credit Suisse First Boston
BancAmerica Robertson Stephens
BancBoston Securities, Inc.
c/o Credit Suisse First Boston
February 9, 1998
Page 5
compliance with its obligations under the pole attachment agreements with
Commonwealth Edison Company and a subsidiary of Ameritech Corporation and the
attachment agreement with the Chicago Transit Authority;
8. To the best of our knowledge, after due inquiry, the Company and
its subsidiaries are in compliance in all material respects with the
Communications Act, with all applicable rules, regulations and policies of the
FCC and with all other applicable United States Federal and state laws and
regulations;
9. To the best of our knowledge, after due inquiry, the Company and
its subsidiaries are in compliance in all material respects with all the
material terms and conditions of each license, franchise and other governmental
authorization of the Company and its subsidiaries;
10. To the best of our knowledge, after due inquiry, the licenses,
franchises and other governmental authorizations of the Company and its
subsidiaries are currently valid and in full force and effect, and there is no
investigation, notice of apparent liability, violation, forfeiture or other
order or complaint issued by or before any court or regulatory body, or any
other proceeding (other than proceedings relating to the telecommunications
industry generally) which could in any manner materially threaten or adversely
affect the validity or continued effectiveness of any of such licenses,
franchises or other governmental authorizations;
11. To the best of our knowledge, after due inquiry, no event has
occurred which (i) results in, or after notice or lapse of time or both would
result in, revocation, suspension, adverse modification, non-renewal,
impairment, restriction or termination of, or order of forfeiture with respect
to, any license, franchise or other governmental authorization or (ii)
materially and adversely affects or could reasonably be expected in the future
to materially adversely affect any of the rights of the Company or any of its
subsidiaries thereunder; and
12. To the best of our knowledge, after due inquiry, the Company and
its subsidiaries have duly filed in a timely manner all material filings,
reports, applications, documents, instruments and information required to be
filed by them under the Communications Act pertaining to the licenses,
franchises and other governmental authorizations.
In the course of the preparation by the Company of the Offering Circular,
we have participated in discussions with your representatives and those of the
Company and its
<PAGE>
Piper & Marbury
L.L.P.
Credit Suisse First Boston
BancAmerica Robertson Stephens
BancBoston Securities, Inc.
c/o Credit Suisse First Boston
February 9, 1998
Page 6
independent accountants in which the business and affairs of the Company and the
contents of the Offering Circular were discussed. We have not independently
verified the accuracy, completeness or fairness of the statements made or the
information contained in the Offering Circular, and except with respect to the
descriptions referred to in paragraphs 1, 2, and 6 above, we are not passing
upon and do not assume any responsibility therefor. Furthermore, we have relied
upon the truth, accuracy and completeness of the statements made or furnished to
us.
On the basis of the information that we have gained in the course of our
representation of the Company in connection with its preparation of the Offering
Circular and our participation in the discussions referred to above, nothing has
come to our attention that leads us to believe that the Offering Circular, as of
its date and as of the Closing Date, contained or contains any untrue statement
of a material fact or omitted or omits to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; provided, however,
that we express no view with respect to (x) financial statements and notes
contained in the Offering Circular, (y) the statements in the Offering Circular
relating to patents and/or patent applications and (z) any information furnished
in writing by the Initial Purchasers for use in the Offering Circular as
described in Section 7(b) of the Purchase Agreement.
<PAGE>
Piper & Marbury
L.L.P.
Credit Suisse First Boston
BancAmerica Robertson Stephens
BancBoston Securities, Inc.
c/o Credit Suisse First Boston
February 9, 1998
Page 7
The foregoing opinion is intended solely for your benefit and is not to be
relied upon by any other person, firm or entity or for any other purpose without
our express prior written consent.
Very truly yours,
<PAGE>
Exhibit 10.1
FRANCHISE AGREEMENT
Area 1
Following is the cable television Franchise Agreement entered into
between the City of Chicago and 21st Century Cable TV, Inc. pursuant to the
Chicago Cable Communications Ordinance. The effective date of this Agreement is
__________________.
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<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<S> <C> <C>
Preamble Recitals.................................................1
Section 1. Definitions..............................................3
Section 2. Grant of Authority.......................................4
2.1 Grant of Franchise..................................4
2.2 Term and Effective Date of This Agreement...........4
2.3 Territorial Extent of Franchise.....................5
2.4 Proof of Financing..................................5
2.5 Acts or Omissions...................................5
Section 3. Incorporation of Other Documents and Laws by Reference...6
Section 4 Franchise Fee and Other Fees.............................6
4.1 Franchise Fee.......................................6
4.2 Subsequent Action Affecting Franchise Fee...........6
4.3 Prepayment of Franchise Fee.........................7
4.4 Incidental Fees.....................................8
4.5 Other Fees..........................................8
4.6 Not a Tax...........................................9
4.7 Recomputation.......................................9
4.8 Interest............................................9
Section 5. Insurance and Bonds.....................................10
5.1 Types and Amounts of Insurance.....................10
5.2 General Requirements Applicable to All Types and
Amounts of Insurance...............................12
5.3 Performance Bonds..................................15
5.4 Right to Require Replacement of Insurance or Bonds.16
5.5 Insurance for Contractors and Subcontractors.......17
5.6 Alterations........................................17
5.7 The City's Right to Increase Minimum Amounts.......18
5.8 No Excuse from Performance.........................18
5.9 Endorsement........................................18
Section 6. Letter of Credit........................................19
6.1 Form and Amount....................................19
6.2 Endorsement........................................19
Section 7. Programming Services and Fees...........................20
7.1 Subscriber Services and Fees.......................20
</TABLE>
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<TABLE>
<S> <C>
7.2 User Services and Fees.............................20
7.3 New Subscriber Services............................20
7.4 Promotions and Discounts...........................21
7.5 Extra-Long Drops...................................21
7.6 Non-Standard Installations...........................
Section 8. System Design...........................................22
8.1 Subscriber Network System..........................22
8.2 Additional Channels/Institutional Network System...22
8.3 Twenty-Four Hour Operation.........................23
8.4 Transmissions Between the Subscriber and
Institutional Network Systems......................23
8.5 Alternative Design.................................23
8.6 Interference.......................................24
8.7 Reliability and Safety.............................24
8.8 Satellite Earth Stations...........................24
8.9 Standby Power......................................24
8.10 Standby Capability.................................25
8.11 Status/Performance Monitoring......................25
8.12 Equipment..........................................25
8.13 Satellite Uplink...................................26
8.14 Applicability of Sections 9, 10, 11 and 12 of
This Agreement.....................................26
Section 9. Technical Standards.....................................26
9.1 Performance Requirements...........................27
9.2 Subscriber Network System..........................27
9.3 Institutional Network System.......................27
9.4 Performance Measurement Standards..................28
9.5 Data Transmissions.................................28
9.6 Interference.......................................28
2.7 Test Procedures....................................28
Section 10. Maintenance of System...................................29
Section 11. Construction Schedule and Other Reports.................29
11.1 Construction Timetable............................29
11.2 Construction Schedule and Map.....................29
11.3 "As Built" Maps...................................30
11.4 Third Party Litigation............................31
Section 12. Construction Requirements and Standards.................31
12.1 General...........................................31
</TABLE>
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<PAGE>
<TABLE>
<S> <C> <C>
12.2 Compliance Standards..............................31
12.3 Construction and Installation Manual..............32
12.4 The Grantee's Construction and Inspection Manual..32
12.5 Engineering Site Survey...........................33
12.6 Restoration.......................................33
12.7 Tree Trimming on Public Property..................34
12.8 Tree Trimming on Private Property.................34
12.9 New Technologies..................................34
12.10 Contracts and Subcontractors......................35
Section 13. Extension of Service....................................35
13.1 New Developments..................................35
13.2 Annexation........................................35
Section 14. Removal of System.......................................36
14.1 Removal By The Grantee............................36
14.2 Removal by the City...............................36
Section 15. Intra-City Interconnection..............................37
15.1 Purpose...........................................37
15.2 Capacity and Timetable............................37
15.3 Plan of Interconnection...........................38
15.4 Interconnection Responsibilities..................38
15.5 Construction and Technical Standards..............39
15.6 Fees, Rules, Etc..................................39
Section 16. Channel Allocation......................................39
16.1 Standard Allocation...............................39
16.2 Aeronautical Frequencies..........................40
Section 17. Universal Subscriber Service............................40
Section 18. Local Origination.......................................40
Section 19. Chicago Access Corporation..............................41
19.1 Channel Commitments...............................41
19.2 Payments and Contributions........................42
19.3 Equipment.........................................43
19.4 Programming Authority.............................43
19.5 CAC/The Grantee Policies and Procedures...........43
Section 20. Leased Access...........................................44
</TABLE>
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<PAGE>
<TABLE>
<S> <C> <C>
Section 21. Municipal Utilization...................................44
21.1 Description.......................................44
21.2 Additional Channel Capacity.......................45
Section 22. Enhanced/Developmental Services.........................45
Section 23. Employment Requirements.................................45
23.1 Affirmative Action................................46
23.2 Equal Employment Opportunity/Affirmative Action
Plan............................................46
23.3 Pass-Through Requirements.........................46
23.4 Local Resident....................................47
23.5 Unions............................................47
23.6 Training..........................................48
23.7 Records...........................................48
23.8 Reporting Requirements............................48
23.9 Compliance........................................49
Section 24. Contractors and Subcontractors..........................50
24.1 Local Businesses..................................50
24.2 Minority Business Enterprises (MBEs)..............50
24.3 Women's Business Enterprises (WBEs)...............51
24.4 Business Enterprise Plans.........................51
24.5 Reporting Requirements............................51
24.6 Compliance........................................52
Section 25. Consumer Services.......................................53
25.1 Consumer Services Plan............................53
25.2 Business Offices and Personal.....................54
25.3 Subscriber Complaints.............................54
25.4 Major Outages.....................................55
25.5 Pre-Construction Information......................55
25.6 The Grantee Solicitation..........................55
25.7 Requests for Installation.........................56
25.8 Translated Information............................56
25.9 Program Guides....................................57
25.10 Information Filed With The Cable Commission.......57
25.11 Employee Identification...........................57
25.12 Nondiscrimination.................................57
Section 26. Users...................................................57
Section 27. Privacy.................................................58
27.1 Requirements......................................58
</TABLE>
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<PAGE>
<TABLE>
<S> <C> <C>
27.2 Monitoring Collection, Use or Release.............58
27.3 Privacy Information...............................59
27.4 Ownership of Data.................................59
27.5 Court-Ordered Disclosure..........................60
27.6 Destruction of Information........................60
27.7 Request for Information...........................60
Section 28. Enforcement.............................................61
28.1 Sanctions.........................................61
28.2 Notice of Violation...............................61
28.3 Notice of Assessment..............................62
28.4 Withdrawal from Letter of Credit..................62
28.5 Substituted Damages...............................63
28.6 Monetary Penalties, Fines and Other Monetary
Sanctions.......................................64
28.7 Act of Omission Beyond The Grantee's Control......65
28.8 Other Rights of The City..........................65
28.9 No Waiver of Rights...............................65
Section 29. Miscellaneous Provisions................................66
29.1 Governing Law.....................................66
29.2 Descriptive Headings..............................66
29.3 Employees and Agents..............................66
29.4 Rights Reserved to The City.......................66
29.5 Compliance with The Cable Ethics Ordinance........66
29.6 No Inducement.....................................67
29.7 No FCC Waivers Without Notice to The City.........67
29.8 No Excuse from Compliance.........................67
29.9 Transfer of Franchise.............................67
29.10 Cable Commission Action...........................68
29.11 Force Majeure.....................................68
29.12 Severability......................................69
29.13 Notices...........................................69
</TABLE>
<TABLE>
EXHIBITS
<S> <C> <C>
A. FORM OF ACCEPTANCE................................................A-1
B. DESCRIPTION OF FRANCHISE AREA 1...................................B-1
C. SUBSCRIBER SERVICES...............................................C-1
D. USER DISCOUNTS....................................................D-1
E-1. CONSTRUCTION SCHEDULE FORMS.....................................E-1-1
E-2. CONSTRUCTION SCHEDULE AND MAP...................................E-2-1
E-3. CONSTRUCTION TIMETABLE..........................................E-3-1
E-4. STANDARD CHANNEL ALLOCATION.......................................F-1
</TABLE>
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<PAGE>
<TABLE>
<S> <C> <C>
G. LOCAL ORIGINATION.................................................G-1
H. CHICAGO ACCESS CORPORATION/PEG CAPITAL............................H-1
I. MUNICIPAL UTILIZATION.............................................I-1
J. EQUAL EMPLOYMENT OPPORTUNITY/AFFIRMATIVE ACTION PLAN..............J-1
K. MBE AND WBE PLANS.................................................K-1
L. PLAN OF INTERCONNECTION...........................................L-2
</TABLE>
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<PAGE>
This Agreement, made and executed this ___ day of _________ 1996, by and
between the City of Chicago (the "City") and 21st Century Cable TV, Inc. ("the
Grantee"):
WITNESSETH
WHEREAS, Section 6(a) of Article VII of the Illinois Constitution provides
in relevant part that a home rule unit "may exercise any power and perform any
function pertaining to its government and affairs including but not limited to,
the power to regulate for the protection of the public health, safety, morals
and welfare; to license; to tax;..."; and
WHEREAS, Section 5/11-42-11 of the Illinois Municipal Code, 65 ILCS 5/11-
42-11, provides in relevant part that "[T]he corporate authorities of each
municipality may license, franchise and tax the business of operating a
community antenna television system..."; and
WHEREAS, the City Council of the City of Chicago (the "City Council")
adopted Chapter 4-280 of the Municipal Code of Chicago, "Chicago Cable
Communications Ordinance" (the "Cable Ordinance"), on February 10, 1982, to
provide for the non-exclusive franchising and regulation of cable television
systems within the City, and
WHEREAS, the City Council adopted Chapter 4-284 of the Municipal Code of
Chicago, "Chicago Cable Ethics Ordinance - Franchising or Transfer Process" (the
"Cable Ethics Ordinance"), on April 21, 1982, to ensure that the awarding of
franchises for and operation of cable television systems within the City be
conducted free of conflict of interest or the appearance of conflict of interest
and with maximum protection to enhance public confidence in the cable television
services franchise award process and the operations of all franchised cable
television services within the City; and
WHEREAS, the City desires the establishment of competitive cable television
systems within the City for the benefit of the City and all persons located
therein; and
WHEREAS, the City Council desires to introduce competition in the provision
of cable television services into Franchise Area I because the City Council has
determined that such action will be in the public interest and will comport with
the Communications Act of 1934, as amended, 47 U.S. C. Sections 521 et seq. (the
"Communications Act") and the rules and regulations promulgated by the Federal
Communications Commission (the "FCC") thereunder; and
WHEREAS, on November 9, 1992, the Grantee submitted an application to
provide cable television services within Franchise Area 1 of the City; and
WHEREAS, the Cable Administrator of the City of Chicago (the "Cable
Administrator") has distributed copies of the immediately above referenced
franchise application, as well as the
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<PAGE>
clarifying materials (the "Grantee's Application"), to libraries throughout the
City so that the public would have the opportunity to be informed regarding the
Grantee's Application; and
WHEREAS, after reviewing the Grantees Application and after considering the
comments made thereon, the legal financial technical and character
qualifications of the Grantee, and the public interest, the City Council has
determined that it is in the best interests of the City and all persons located
therein to grant a non-exclusive franchise to 21st Century Cable TV, Inc., to
construct, install, maintain and operate a cable television system within
Franchise Area I of the City, and
WHEREAS, The Grantee has voluntarily agreed to various terms in this
Agreement that the City could not have legally required as conditions precedent
to a cable television services franchise grant, and each party recognizes that
such agreement was voluntary on the part of the Grantee.
NOW THEREFORE, it is hereby agreed as follows:
Section 1. Definitions
-----------
Unless the context clearly indicates that a different meaning is intended,
for purposes of this Agreement all terms, phrases, words or their derivations
shall be defined as set forth in Section 4-280-b3O of the Cable Ordinance, or as
follows; provided, however, that terms, phrases, words or their derivations not
defined in the Cable Order or in this Agreement shall be given their common and
o meanings:
(1) "Activation" means that sufficient facilities have been
constructed and installed by -the Grantee in accordance with applicable federal
state and local laws and regulations or other standards so as to permit a person
with proper terminal equipment to receive the services offered by the Grantee.
(2) "Affiliates" means any person or entity that directly or
indirectly controls or is controlled by or is under common control with the
Grantee.
(3) "Completion of Construction" means the date when the Grantee's
cable television system is constructed and activated pursuant to the
construction schedule set forth in Exhibit E-2 referenced in Section I I of this
Agreement.
(4) "Fiber Optic Node Section" means a portion of Franchise Area I
consisting of approximately 500 occupied dwelling units, all of which are able
to receive the Grantees cable service from the same optical to radio frequency
signal conversion device.
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<PAGE>
(5) "Franchise Area I" means that portion of the City set forth in
Exhibit B referenced in Section 2.3 of this Agreement and any subsequent
annexations to Franchise Area I by the City during the term of this Agreement.
(6) "Major Outage" means the simultaneous loss of service (i.e. total
loss of signals on any cable of the Grantees subscriber network system) to five
hundred (500) or more subscribers.
Section 2. Grant off Authority
-------------------
2.1 Grant of Franchise
------------------
Pursuant to the Communications Act and Section 4-280-040 of the
Cable Ordinance, which together with the Cable Ethics Ordinance, provide dw
regulatory framework for all cable television systems within the City, the City
hereby grants to the Grantee a nonexclusive franchise to construct, install,
maintain and operate a cable television system within Franchise Area I on the
terms and conditions set forth in this Agreement, in the Communications Act, in
the Cable Ordinance, and in the Cable Ethics Ordinance.
2.2 Term and Effective Date of This Agreement
-----------------------------------------
Pursuant to Section 4-280-060(A) of the Cable Ordinance, the term of this
Agreement and the franchise granted hereunder shall be fifteen (15) years from
the date that this Agreement and the franchise granted hereunder are accepted by
the Grantee pursuant to Section 4-280-550(A) of the Cable Ordinance in a form
set forth in Exhibit A attached to this Agreement and made apart hereof
Notwithstanding the time for acceptance set forth in Section 4-280-550 of the
Cable Ordinance, such acceptance by the Grantee shall occur no later than ninety
(90) days subsequent to the date of passage by the City Council of an ordinance
approving and adopting this Agreement and the franchise granted hereunder. For
purposes of this Agreement, the date of such acceptance (the "Acceptance Date"
or "Date of Acceptance") shall be deemed the effective date of this Agreement.
2.3 Territorial Extent of Franchise
-------------------------------
The territorial extent of Franchise Area I is as defined in Section I.(5)
of this Agreement and currently as set forth in Exhibit B attached to this
Agreement and made part hereof.
2.4 Proof of Financing
------------------
In addition to other conditions precedent as set forth in this Agreement,
as a condition precedent to the commencement of construction of the Grantees
cable. television services system pursuant to this Agreement, the Grantee shall
provide the Cable Administrator with written
-10-
<PAGE>
evidence of financing, including identification of any and all sources for such
financing as set forth in the Grantee's Application ("Proof of Financing").
Construction of the Grantee's cable television services system shall not
commence until such time as the Cable Administrator has reviewed and approved
the Grantee's Proof of Financing. Approval by the Cable strator of the
Grantee's Proof of-Financing shaft be within ten (10) business days of receipt
by the Cable Administrator of the Grantees Proof of Financing and shall not be
unreasonably withheld.
2.5 Acts or Omissions of Affiliates
-------------------------------
During the term of this Agreement, the Grantee shall be liable for the acts
or omissions of its affiliates while such affiliates are involved directly or
indirectly in the construction, installation, maintenance or operation of the
Grantees cable television system as if the acts or omissions of such affiliates
were the acts or omissions of the Grantee.
Section 3. Incorporation of Other Documents and Laws by Reference
------------------------------------------------------
This Agreement incorporates by reference the Grantee's Application. The
Grantee agrees that in the case of conflict or ambiguity between the Grantee's
Application and this Agreement, this Agreement shall control. In the event of a
conflict or ambiguity between the Grantee's Application and the Cable Ordinance,
the Cable Ordinance shall prevail. This Agreement and the ordinance adopting
this Agreement supplement and harmonize the regulatory framework set forth in
the Cable Ordinance and the Communications Act; and this Agreement and the
ordinance adopting this Agreement shall at all times be read and construed for
consistency and compatibility with the provisions of the Cable Ordinance and the
Communications Act as read and interpreted in concert each with the other.
Section 4. Franchise Fee and Other Fees
----------------------------
The terms and conditions set forth in this Section 4 are pursuant to the
terms and conditions set forth in Sections 4-280-050(C) and 4-280-170 of the
Cable Ordinance as interpreted and applied in accordance with Section 542 of the
Communications Act.
4.1 Franchise Fee
-------------
Pursuant to Sections 4-280-170(A) and (B) of the Cable Ordinance, the
Grantee shall pay to the City a franchise fee of five percent (5%) of the annual
gross revenues received by the Grantee during the period of its operation under
this Agreement.
4.2 Subsequent Action Affecting Franchise Fee
-----------------------------------------
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<PAGE>
If, during the term of this Agreement, any court, agency or other entity of
competent jurisdiction takes any action or makes any declaration that adversely
affects the amount or method of payment of the franchise fee set forth in
Sections 4.1 and 4.3 of this Agreement, the City and the Grantee shall promptly
enter into negotiations to amend this Agreement to make the City whole in a
manner consistent with said action or declaration by restoring the City to a
position equivalent to that which the City held prior to said action or
declaration.
4.3 Prepayment of Franchise Fee
---------------------------
The Grantee shall pay to the City three million dollars ($3,000,000) as
prepayment of its franchise fee required pursuant to Section 4.1 of this
Agreement. Such prepayment shall be made in two equal installments, the first
of which is due on the Acceptance Date pursuant to Section 2.2 of this Agreement
and the second of which will be due within thirty (30) days thereafter. The
amount of such prepayment shall be credited against the amount determined to be
payable in franchise fees for any twelve month period until the amount
determined to be payable in franchise fees equals the amount of such prepayment;
provided, however, that the Grantee shall comply with the filing requirements
set forth in Section 4-280-170(B) of the Cable Ordinance during the period in
which such prepayment is being credited (the "Prepayment Period"). The Grantee
shall receive an additional credit against the amount determined to be payable
in franchise fees during the Prepayment Period equal to the time value of its
prepayment. The additional credit shall reflect the actual annual interest rate
of the cost of the Grantee's borrowed funds (the "Grantee's Time Value Rate")
and shall be determined for any twelve month period by multiplying the
prepayment balance by the Grantees Time Value Rate, adding that amount to the
prepayment balance and then subtracting from the prepayment balance the amount
of franchise fees determined to be payable for the particular twelve month
period in question.
4.4 Incidental Fees
---------------
Upon the Acceptance Date and pursuant to Section 4-280-050(C) of the Cable
Ordinance, the Grantee has voluntarily agreed to pay to the City in addition to
the franchise fee and other fees or forms of compensation set forth in this
Agreement, an amount to be determined by the Cable Administrator, to be used to
off-set all costs incurred by the City incidental to the grant of the franchise
that are not defrayed by the application fee required pursuant to Section 4280-
050(B) of the Cable Ordinance.
4.5 Other Fees
----------
Pursuant and in addition to Section 4-280-310(A) of the Cable Ordinance,
the Grantee shall pay all fees necessary to obtain all federal, state and local
licenses, permits and authorizations required for the construction,
installation, maintenance or operation of the Grantee's cable television system;
provided, however, that no additional or special fees shall be imposed on the
Grantee by the City for any such license, permit or authorization other than
fees applicable to other persons for such licenses, permits or authorizations
and that no fees shall be
-12-
<PAGE>
imposed on the Grantee by the City for any permits and/or inspections for
attachments to utility poles or service drops. Additionally, the City shall use
its best efforts to assist the Grantee in obtaining all such local licenses,
permits and authorizations in an expeditious and timely manner. To the extent
that any license, permit or authorization is not granted by the City within ten
(10) days of it being requested by the Grantee, all timetables set forth in this
Agreement that must be met by the Grantee shall be lengthened accordingly, upon
approval by the Chicago Cable Commission (the "Cable Commission").
4.6 Not a Tax
---------
Payment by the Grantee to the City of the franchise fee and other fees set
forth herein shall not be considered in the nature of a tax, but shall be in
addition to any and all federal, state and local taxes, that are separate and
distinct obligations of the Grantee.
4.7 Recomputation
-------------
Pursuant to Section 4-280-170(C) of the Cable Ordinance, the City expressly
reserves the right to inspect the Grantee's books and records and to audit and
recompute the amount determined to be payable to the City as a percentage of the
Grantees gross revenues as defined in Section 4-280-030(N) of the Cable
Ordinance ("Gross Revenues"); provided that the City shall be reimbursed by the
Grantee for the City's costs in connection with exercising the City's rights
consistent with Section 4-280-170(C) of the Cable Ordinance. If, after
exercising such right, the City determines that an additional amount is due from
the Grantee, the Grantee shall pay such additional amount within thirty (30)
days after the Grantees receipt of notice from the City pursuant to Section 4-
280-170(C) of the Cable Ordinance. The City's rights pursuant to this Section
4.7 shall also apply to verification of all other payments for which the Grantee
is obligated pursuant to this Agreement.
4.8 Interest
--------
If any payments for which the Grantee is obligated pursuant to this
Agreement are not made on or before the due dates, the Grantee shall make such
payments from such due date in the amount due and owing until such amount is
paid in full plus an amount calculated at the prime rate of interest effective
and as publicly announced by the First National Bank of Chicago or its successor
as of the due date. If an additional amount is due as a result of the
recomputation referred to in Section 4.7 of this Agreement and such amount is
not paid within thirty (30) days after the Grantees receipt of notice from the
City pursuant to Section 4-280-170(C) of the Cable Ordinance, the Grantee shall
pay the amount due and owing until such amount is paid in full plus an amount
calculated at the prime rate of interest effective and as publicly announced by
the First National Bank of Chicago or its successor as of the due date. The
obligations and calculations set forth in this Section 4.8 shall apply to all
payment obligations of the Grantee as set forth in this Agreement.
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<PAGE>
Section 5. Insurance and Bonds
-------------------
The Grantee expressly acknowledges and agrees that the requirements set
forth in this Section 5 are in addition to the obligations of the Grantee to
Section 4-280-180 of the Cable Ordinance.
5.1 Types and Amounts of Insurance
------------------------------
Pursuant and in addition to Section 4-280-180 of the Cable Ordinance, the
Grantee shall procure and maintain at all times, at the Grantee's own expense,
during the term of this Agreement, and during any time period following
expiration of this Agreement if the Grantee is required to perform additional
work or services in connection with this Agreement for any reason whatsoever,
the VM of policies of ce specified below, with insurance companies licensed to
do business in the State of Illinois covering all operations under this
Agreement, whether performed by the Grantee or, by way of illustration and not
on, any and all of the Grantee's contractors, subcontractors, architects,
engineers, coon managers, agents or consultants (collectively "Contractors and
"Subcontractors").
The types of policies of insurance and current limits of liability and
related coverages required pursuant to Section 5 of this Agreement are as
follows:
(1) Workers Co nd OcoRational Disease Insurance
-------------------------------------------
Workers Compensation and Occupational Disease Insurance, in accordance
with the laws of the State of Illinois, or any other applicable jurisdiction,
covering all employees who are to provide a service under this Agreement and
Employer's Liability coverage with limits of liability of not less than one
hundred thousand dollars ($100,000) each accident or illness.
(2) Commercial General Liability Insurance (Primary and Umbrella)
--------------------------------------
Commercial General Liability Insurance or equivalent with limits of
not less than ten million dollars ($10,000,000) per occurrence, combined single
limits, for bodily injury, personal injury, and property damage liability.
Coverage extensions shall include the following: all premises and operations,
products/completed operations, explosion, collapse, underground, independent
contractors, separation of insured, broad form property, and contractual
liability (with no limitation endorsement).
(3) Automobile Liability Insurance (Primary and Umbrella)
------------------------------
When any motor vehicles owned, non-owned or hired are used in
connection with work or services to be performed pursuant to this Agreement, the
Grantee shall provide Comprehensive Automobile Liability Insurance with
liability Insurance of not less than one
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<PAGE>
million dollars ($1,000,000) per occurrence combined single limit, for bodily
injury and property damage.
(4) Professional Liability
----------------------
If and when any architects, engineers, construction managers or
consultants perform work or services in connection with this Agreement,
Professional Liability Insurance covering acts, efforts, or omissions shall be
maintained with limits of not less than one million dollars ($1,000,000).
Coverage extensions shall include contractual liability. When any Professional
Liability policy of insurance as required in this Section 5.(I)(4) is renewed or
replaced, the policy of insurance retroactive date shall coincide with, or
precede, start of work or services pursuant to this Agreement and as the case
may be prior to the start of work or services pursuant to any contract between
the Grantee and any of the Grantees Contractors or Subcontractors. Any claims-
made policy of insurance issued to this Section 5.(I)(4) that is not renewed or
replaced shall have an extended reporting period of a minimum of two (2) years.
(5) All Risk Property Insurance
---------------------------
The Grantee shall be responsible for all loss or damage to personal
property (including but not limited to material, equipment, tools and supplies),
owned or rented, by the Grantee.
5.2 General Requirements Applicable to All Types and Amounts of Insurance
---------------------------------------------------------------------
(1) Certificates to City.
--------------------
The Grantee shall furnish the Comptroller of the City of Chicago (the
"City Comptroller") (c/o Department of Purchases, Contracts and Supplies, City
Hall, Room 403, 121 North LaSalle Street, Chicago, Illinois 60602), original
Certificates of Insurance (including evidence of premium payment) evidencing all
required insurance coverages to be in force on the Acceptance Date, and such
Renewal Certificates of Insurance (including evidence of premium payment), or
such similar evidence of insurance, if such policies of insurance have an
expiration or renewal date occurring during the term of this Agreement. Prior
to the Date of Acceptance the Grantee shall submit such evidence of insurance on
the "City of Chicago Insurance Certificate of Coverage Form" or such other
form(s) as prescribed by the City. The receipt by the City of any such
certificate(s) or other evidence of insurance shall not constitute agreement by
the City that the insurance requirements set forth in the Cable Ordinance and
this Agreement have been fully met or that the policies of insurance indicated
on such certificate(s) or other evidence of insurance are in compliance with the
requirements of the Cable Ordinance and this Agreement. It shall not be deemed
a waiver by the City of the requirements of this Section 5, if, for any reason,
the City does not receive such certificates or other evidence of insurance from
the Grantee. The Grantee shall advise all its insurers of the provisions of
this Agreement regarding insurance. Non-conforming insurance shall not relieve
the Grantee of its obligation to secure
-15-
<PAGE>
insurance as specified in the Cable Ordinance and this Agreement. Nonfulfillment
of the insurance conditions may constitute a violation of this Agreement. The
City retains the right to order the Grantee to stop work and services until
proper evidence of insurance is provided consistent with this Agreement.
(2) Named Insureds
--------------
The City, including its employees, its elected and appointed
officials, its agents, its consultants and its representatives are to be
expressly named as additional insureds on a primary, non-contributory basis, on
all policies of insurance required pursuant to the Section 5 for any liability
arising directly or indirectly from the work or services of the Grantee or the
Grantee's Contractors or Subcontractors.
(3) 60 Day Notice
-------------
All policies of compliance required pursuant to this Section 5 shall
expressly provide for sixty (60) days prior written notice to the City in the
event limits of liability or any other coverages are substantially changed,
canceled, or non-renewed.
(4) Contractors and Subcontractors
------------------------------
The Grantee shall require all the Grantee's Contractors and
Subcontractors to carry all relevant policies of insurance as are required of
the Grantee with the same limits of liability and related coverages as required
of the Grantee by this Agreement. In the alternative, the Grantee, at the
Grantee's expense, may provide such coverages for any or all Contractors and
Subcontractors. If so, the evidence of such assumption by the Grantee shall be
in writing.
(5) Deductibles
-----------
Any and all deductibles or self-insured retentions on all insurance
coverages pursuant to this Agreement shall be become solely by the Grantee.
(6) Subrogation Waiver
------------------
Unless and until the Grantee and each Contractor or Subcontractor and
each entity issuing a policy of insurance pursuant to this Agreement agree that
all insurers issuing any policy of insurance pursuant to this Agreement shall
waive their rights of subrogation against the City, its employees, its elected
and appointed officials, its agents, its consultants and its representatives
such policy of insurance shall be per se inadequate and non-conforming for
purposes of compliance by the Grantee with Section 4-280-180 of the Cable
Ordinance and this Agreement.
(7) No Limit Liability
------------------
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<PAGE>
The Grantee agrees that the insurance coverages pursuant to this
Agreement shall in no way limit the Grantee's liabilities and responsibilities
specified in this Agreement or by law.
(8) Claims Made Policies
--------------------
In addition to the requirements of Section 5.1(4) of this Agreement,
to the extent that any policy of ce required by the Cable Ordinance and Section
5 of this Agreement is issued on a claims made basis and is not renewed or
replaced, such policy of insurance retroactive date shall have an extended
reporting period of a minimum of two (2) years.
(9) Additional Coverage
-------------------
If the Grantee, or any of the Grantees Contractors or Subcontractors,
desire additional insurance coverage, higher limits of liability, or other forms
of indemnification for their own protection, the Grantee and each of its
Contractors and Subcontractors, shall be responsible for the acquisition and
cost of such additional policies of insurance and limits of liability
thereunder.
(10) Modifications of Section 5
--------------------------
The City maintains the right to modify the requirements of Section 5
of this Agreement at any time during the term of this Agreement. The City shall
give the Grantee written notice of any such modifications not less than 30 days
in advance of requiring such modification.
5.3 Performance Bonds
-----------------
Pursuant to the applicable provisions of Section 4-280-180(A)(3) of the
Cable Ordinance, the Grantee shall file with the Comptroller of the City of
Chicago (the "City Comptroller") for approval by the City Comptroller written
evidence of the following: A performance bond with a good and sufficient surety
running to the City with a minimum amount of three million dollars
($3,000,000.00); provided, however, that the amount of such performance bond
may, at the Grantee's option, be reduced to two million dollar ($2,000,000.00)
upon construction of fifty percent (50%) of the Grantee's cable television
system and may, at the Grantee's option, be further reduced to one million
dollars ($1,000,000.00) upon completion of construction of the Grantee's cable
television system. To the extent the Grantee chooses to reduce the levels of
such performance bond provided for in this Section 5.3, such reduction shall
only be accomplished with the prior approval of the City Comptroller.
The form of the initial performance bond and any optional reductions
pursuant to this Section 5.3 shall also be ffied with the Corporation Counsel of
the City of Chicago (the "Corporation Counsel") for approval.
-17-
<PAGE>
5.4 Right to Require Replacement of Insurance or Bonds.
--------------------------------------------------
In the event that the financial condition of any entity insuring any policy
of insurance or performance bond pursuant to the requirements of the Cable
Ordinance and this Agreement materially adversely changes during the term of
this Agreement or during the term of any such policy of insurance and
performance bond issued pursuant to the Cable Ordinance and this Agreement such
that the City Comptroller, pursuant to Section 4-280-180 of the Cable Ordinance
would not have accepted the policy of insurance or approved the performance bond
or the City Corporation Counsel would not have found the form of the policy of
insurance or performance bond satisfactory; the City may, at any time, require
the prompt replacement of such policy of ce or bond, as the financial condition
of any entity issuing such policy of insurance or performance bond may require.
The Grantee agrees to inform the City of any information the Grantee receives
regarding a material adverse change in the financial condition of any entity
issuing any policy of insurance or performance bond pursuant to this Agreement.
If the City determines replacement of any policy of insurance or
performance bond is necessary, the City shall infom the Grantee in writing
setting forth the City's reasons for such replacement demand. Upon receipt by
the Grantee of such written notice from the City, the Grantee shall promptly,
but in no event within more than twenty-one (21) days of receipt of such notice,
either respond in writing to the City regarding the City's replacement demand or
replace the policy of ce or performance bond, as the case may be.
5.5 Insurance for Contractors and Subcontractors
--------------------------------------------
Consistent with Section 5.2(4) and (9) of this Agreement, the Grantee shall
provide insurance coverage for any Contractor or Subcontractor involved in the
construction, installation, maintenance or operation of its cable television
system by either obtaining the necessary endorsements to any and all of the
Grantee's policies of insurance or by requiring such Contractor or Subcontractor
to obtain appropriate insurance coverage consistent with Section 4280-180(A) and
(B) of the Cable Ordinance and appropriate to the extent of such Contractor or
Subcontractor's involvement in the construction, installation, maintenance or
operation of the Grantee's cable television system.
5.6 Alterations
-----------
The Grantee shall not materially change or alter the terms or conditions of
any policy of insurance or performance bond required pursuant to this Section 5
except upon sixty (60) days prior written notice to the Cable Commission, the
City Comptroller and the City Corporation Counsel. Any changes or alterations
to any policy of insurance or performance bond shall satisfy the requirements
set forth in this Section 5 and Section 4-280-180 of the Cable Ordinance and be
in a form satisfactory to the City Corporation Counsel and to the extent
provided for in Section 4-280-180 of the Cable Ordinance acceptable to the City
Comptroller.
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<PAGE>
5.7 The City's Right To Increase Minimum Amounts. In the event of
--------------------------------------------
changed circumstances that render the limits of liability and coverages provided
for in any policy of insurance or performance bond provided for in Sections 5.1
and 5.3 of this Agreement inadequate, the City reserves the right to reasonably
increase the minimum amounts of such limits of liability and related coverages
upon sixty (60) days prior written notice to the Grantee in order to ensure
adequate protection to the City. Within twenty-one (21) days after such notice,
the Grantee shall increase the limits of liabilities and related coverages, as
applicable, to an amount(s) consistent with the City's notice pursuant to this
Section 5.7.
5.3 No Excuse from Performance
--------------------------
None of the provisions contained in this Section 5 nor the policies
of insurance or performance bonds required pursuant to this Agreement shall be
construed to excuse the faithful performance by the Grantee of the terms and
conditions of the Cable Ordinance and this Agreement or limit the liability of
the Grantee under the Cable Ordinance and this Agreement for any and all damages
in excess of the coverages provided for in such policies of insurance or
performance bonds.
5.9 Endorsement
-----------
Any and all of the policies of insurance and performance bonds
required pursuant to this Section 5 shall expressly contain the following
endorsement:
"It is hereby understood and agreed that the insurance company
[surety] shall not cancel or refuse to renew this policy of insurance
[performance bond] without giving the City Comptroller written notice, by
registered mail, of its intention to cancel or not to renew, at least sixty (60)
days prior to such action."
Section 6. Letter of Credit
----------------
6.1 Form and Amount
---------------
Pursuant to the terms and conditions set forth in Section 4-280-190
of the Cable Ordinance, within 10 days from the Date of Acceptance, the Grantee
shall obtain and deposit with the City a letter of credit from a financial
institution satisfactory to and approved by the City Comptroller. Additionally,
the form and content of this letter of credit shall be approved by the City
Corporation Counsel. The wnount of the letter of credit shall be five hundred
thousand dollars ($500,000.00); provided, however, that the amount of the letter
of credit shall be three hundred seventy-five thousand dollars ($375,000.00) per
franchise area if the Grantee or its affiliates provide cable television
services in two of the City's franchise areas; provided, further, that the
amount of the letter of credit shall be three hundred fifty thousand dollars
($350,000.00)
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<PAGE>
per franchise area if the Grantee or its affiliates provide cable television
services in three or more of the City's franchise areas.
6.2 Endorsement
-----------
Pursuant and in addition to Section 4-280-190(E) of the Cable Ordinance,
the letter of credit referred to herein shall contain the following endorsement:
"It is hereby understood and agreed that the surety will not cancel or
reffim to renew this letter of credit without giving the City Comptroller
written notice, by registered mad, of its intention to cancel or not to renew
this letter of credit, at least thirty (30) days prior to such action."
Section 7. Programming Services and Fees
-----------------------------
7.1 Subscriber Services and Fees
----------------------------
The Grantee shall provide to subscribers the broad categories of
programming services set forth in Exhibit C attached to this Agreement and made
a part hereof The Grantee shall provide thirty (30) days prior written notice to
the Cable Commission and the subscribers affected thereby of any change in the
monthly subscriber fees for all such services and of any change in channel
Assignment or in the video programming service provided over any such channel.
The City expressly retains and reserves throughout the term of this Agreement
all authority and right to regulate the amount of said monthly subscriber fees
to the extent the City's exercise of such authority and right is permitted by
and in accordance with applicable law, including Section 4-280-210(E) of the
Cable Ordinance as interpreted and applied in harmony with Section 543 of the
Communications Act as same may be amended from time to time, and the rules and
regulations of the FCC promulgated thereunder.
7.2 User Services and Fees
----------------------
The Grantee shall provide to users the services at the discounted
rates set forth in Exhibit D attached to this Agreement and made a part hereof
The Grantee shall file with the Cable Commission a description of all its user
services and the fees to be charged therefor at least thirty (30) days prior to
the marketing of any such services.
7.3 New Subscriber Services
-----------------------
In the event the Grantee proposes to offer any new subscriber
services on the Grantee's cable television system, the Grantee, pursuant to
Section 4-280-220(E) of the Cable Ordinance, shall file with the Cable
Commission a description of such services and the fees to be charged therefor
not less than thirty (30) days prior to any marketing of such new subscriber
services.
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<PAGE>
7.4 Promotions and Discounts
------------------------
Pursuant and in addition to Section 4-280-210(G) of the Cable Ordinance, as
interpreted and applied in harmony with Section 543(d) of the Communications Act
as same may be amended from time to time, and the rules and regulations of the
FCC promulgated thereunder, the Grantee may, for promotional purposes, offer
service tiers, pay-per-channel or other services at discounted fees. The
Grantee shall file a description of such swaces and the fees to be charged
therefor with the Cable Commission not less than forty-eight (48) hours prior to
any marketing of such services described in this Section 7.4.
7.5 Extra-Long Drops
----------------
If the installation of a service outlet requires an aerial drop in excess
of one hundred fifty (150) feet or an underground drop in excess of seventy-five
(75) feet, the Grantee may charge the subscriber requesting such extra-long drop
an amount that is equal to the costs of time and materials in accordance with
industry standards for that portion of the drop in excess of one hundred fifty
(150) feet or seventy-five (75) feet, respectively. The Grantee shall provide
such subscriber a written estimate of the costs of installing an extra-long drop
and obtain such subscribers written consent prior to any installation of such
drop; provided, however, that the Grantee may require an advance payment of such
costs from such subscriber as a condition of performing the requested
installation.
7.6 Non-Standard Installations
--------------------------
If a subscriber requests a non-standard on for aesthetic purposes
including, but not limited to, optional underground construction pursuant to
Section 4-280-300(E) of the Cable Ordinance, concealed wiring or routing from
the tap to the dwelling unit that differs from the easiest route that could
otherwise be taken (usually following the telephone drop) which results in
greater costs, the Grantee may charge the subscriber for such non-standard
installation in an amount equal to the costs of time and materials in accordance
with prevailing industry standards at the time of such request. The Grantee
shall provide such subscriber a written estimate of the costs of such
installation and obtain such subscriber's written consent prior to any such
installation; provided, however, that the Grantee may require an advance payment
of such costs from such subscriber as a condition of performing the requested
non-standard installation.
Section 8. System Design
-------------
8.1 Subscriber Network System
-------------------------
The Grantee shall construct a subscriber network system utilizing a fiber
optic trunk and coaxial feeder cable providing a minimum upper frequency limit
of 75OMRz with return transmission paths, which shall be capable of one hundred
sixteen (116) analog charmers
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downstream and four (4) channels upstream, 4 of which a minimum of eighty (80)
downstream channels will be activated upon initiation of service in accordance
with the design set forth in the Grantee's Application.
8.2 Additional Channels/Institutional Network System
------------------------------------------------
If the Grantee determines the need for additional channel capacity or the
activation of upstream channel capacity, or for the activation of an
institutional network system ("INS"), the Grantee shall provide such additional
capacity or activate any or all of such capacity either on the subscriber
network system or on a separate institutional network system upon the Grantees
determination that such additional capacity is technically and economically
feasible.
8.3 Twenty-Four Hour Operation
--------------------------
The Grantee's cable television system shall be designed and operated to
ensure that it is in operation and is capable of receiving and transporting
twenty-four (24) hours per day; provided, however, that the operation of the
Grantee's cable television system may be interrupted by the Grantee only during
the times and for the reasons set forth in Section 4-280290 (E) of the Cable
Ordinance.
8.4 Transmissions Between the Subscriber and Institutional Network Systems
----------------------------------------------------------------------
In the event that an INS is constructed by the Grantee, both the Grantees
subscriber network system and INS shall be designed so as to prevent access from
either the subscriber network system onto the INS or from the INS onto the
subscriber network system except upon the mutual agreement of the Grantee and
the originator of a transmission or as otherwise specified in this Agreement.
8.5 Alternative Design
------------------
If the Grantee elects to use an alternative to the design set forth in the
Grantee's Application and Section 5.1 of this Agreement, such alternative
design shall be at least equal to or exceed the performance and capabilities of
the design set forth in the Grantee's Application and Section S.I of this
Agreement. The Grantee shall submit in writing such alternative design with
appropriate documentation to the Cable Commission no later than sixty (60) days
prior to the implementation of such design alternative in the construction or on
of the Grantee's cable television system.
8.6 Interference
------------
The Grantees cable television system shall be designed to minimize
accumulation of upstream thermal noise. All connectors, splices and other
equipment used therein by the Grantee shall be designed, manufactured and
installed so as to signal leakage or ingress.
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<PAGE>
8.7 Reliability and Safety
----------------------
In order to promote reliability and the Grantee shall protect its equipment
in a suitable manner from possible damage due to electrical surges. All trunk
amplifiers shall contain automatic or manual gain and slope control circuitry
designed to maintain high levels of signal quality over varying temperature
conditions; provided, however, that no less than one-half of all trunk
amplifiers shall contain automatic gain and slope control circuitry.
8.8 Satellite Earth Stations
------------------------
The Grantee shall, at a minimum, provide and maintain uninterrupted
carriage of all satellite-delivered services offered on the Grantee's cable
television system. Additionally, the Grantee shall provide an uninterruptible
power supply ("UPS") for all equipment necessary to carry such satellite-
delivered services.
8.9 Standby Power
-------------
The Grantee shall provide standby power as set forth in the relevant
provisions of the Grantee's Application or shau provide and maintain equipment
capable of providing standby power for the Grantee's headend and hub facilities
for a minimum of eight (8) hours and for the transportation and distribution
amplifiers for a minimum of two (2) hours at any temperature above -
10(degrees)F; provided, however, that standby power for the transportation and
distribution amplifiers may be maintained at a minimum of one (1) hour at any
temperature above 10(degrees)F if:
(i) an automatic remote visual and aural alarm is provided and
continuously monitored twenty-four (24) hours per day and automatically
indicates when a standby power unit is operating in an emergency mode; (H) a
pool of portable generators capable of providing the requisite power are
conveniently located; and (iii) procedures are established to ensure the prompt
dispatch of a portable generator to any standby power unit operating in an
emergency mode.
8.10 Standby Capability
------------------
The Grantee shall provide and maintain facilities including a diversity of
failure modes to ensure standby capability so that the faflure of any part of
the Grantees cable television system does not result in a loss of service
throughout the Grantee's cable television system.
8.11 Status/Performance Monitoring
-----------------------------
The Grantee shall perform such status/performance monitoring as may be
required by applicable FCC rules and regulations.
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8.12 Equipment
---------
In the construction and installation of its cable television systm the
Grantee shall install the equipment set forth in the Grantee's Appfication;
provided, however, that upon prior written notice to the Cable Commission the
Grantee may substitute such equipment with equipment of equivalent or better
quality and function consistent with the requirements set forth in Section 8 of
this Agreement. Such notice shall provide a description of the proposed
equipment and the reasons for the substitution. All equipment used in the
construction and installation of the Grantee's cable television system shall be
new-, provided, however, that the Grantee may, in specific instances, seek a
waiver from the Cable Commission of said requirement. In any event the Grantee
shall retain the necessary invoices and records as evidence of such purchases
for a period of not less than two (2) years from date of such purchases.
8.13 Satellite Uplink
----------------
If the Grantee determines that it is technically and economically feasible
to offer satellite uplink services, a written notice shall be filed by the
Grantee with the Cable Commission at least thirty (30) days prior to offering
such satellite uplink service. This notice from the Grantee shall contain, at a
minimum, a detailed description of such satellite uplink services and applicable
rates.
8.14 Applicability of Sections 9. 10, 11 and 12 of This Agreement.
------------------------------------------------------------
The Grantee expressly understands and agrees with respect to the design,
construction and operation of the Grantee's cable television system this Section
8 shall be read, interpreted and enforced consistent with the Grantee's
obligations pursuant to the Cable Ordinance and Sections 9, 10, 11 and 12 of
this Agreement.
Section 9. Technical Standards
-------------------
The Grantee shall conform to the FCC Proof of Performance Standards
including, but not fin-dted to, composite triple beat ("CTB"), carrier noise
("C/N"), composite second order ("CSO"), Hum and Differential Gain and number of
system status monitoring test points based on the number of the Grantee
subscribers, plus one (1) test point at each repeater in accordance with the
design set forth in the Grantee's Application and consistent with the
requirements set forth in Section 8 of this Agreement.
9.1 Performance Requirements
------------------------
The Grantee shall maintain the following performance Standards at the
output of any trunk or distribution amplifier on both the Grantees subscriber
and institutional network systems:
Visual carrier-to-noise ratio 46 dB Minimum
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Visual carrier-to-composite triple
beat ratio
Without HRC or IRS 53 dB Minimum
With either HRC or IRC 47 dB Minimum
9.2 Subscriber Network System
-------------------------
Prior to utilizing the upstream portion of the Grantee's subscriber network
system for the transmission of subscriber or user video signals the Grantee
shall submit to the Cable Commission for its approval a plan that establishes
performance standards and methods of measurement for the utilization of such
upstream portion. Prior to the activation of service to subscribers on the
downstream portions of the Grantee's subscriber network system the Grantee shall
submit to the Cable Commission for its approval a plan that establishes methods
of measurement for all applicable technical standards for the utilization of
such downstream portion.
9.3 Institutional Network System
----------------------------
In the event that the Grantee offers an INS, the Grantee's INS performance
parameters shall be in accordance with those set forth in Section 9.2 of this
Agreement.
9.4 Performance Measurement Standards
---------------------------------
In order to properly conduct the performance observations set forth in
Section 9.2 of this Agreement, the Grantee shall ensure that all amplifiers and
other equipment are in normal operating condition with automatic slope and gain
control ("ASGC") carriers properly adjusted.
9.5 Data Transmissions
------------------
The Bit Error Rate ("BER") for all point-to-point data transmissions on the
Grantee's cable television system shall not exceed one multiplied by ten to the
negative eighth power (I x 10/-8/) unless error detection and correction
protocols are provided in accompanying software to ensure reliable transmission
of all point-to-point data notwithstanding a larger BER.
9.6 Interference
------------
The Grantee shall comply with applicable FCC rules and regulations in order
to ensure that the operation of the Grantee's cable television system does not
cause objectionable interference to any television or radio reception.
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9.7 Test Procedures
---------------
Pursuant and in addition to Section 4-280-280(A) of the Cable Ordinance,
the Grantee shall conduct all technical performance tests in accordance with the
procedures set forth in the most current (at the time of each technical
performance test) edition of "Standards of Good Engineering Practices for
Measurements on Cable Television Systems," NCTA-008-0477. The Grantee shall
also submit to the Cable Commission initial proof of performance tests for each
portion of the Grantees cable television system activated pursuant to the
Grantees construction schedule as set forth in Exhibit E-2 described in Section
11.2 of this Agreement.
Section 10. Maintenance of System
---------------------
At all times during the term of this Agreement, the Grantee shall maintain
its cable television system in good repair and condition.
Section 11. Construction Schedule and Other Reports
---------------------------------------
Pursuant and in addition to Section 4-280-310 of the Cable Ordinance:
11.1 Construction Timetable
----------------------
The Grantee has submitted to the City a construction timetable (the
"Construction Timetable") as set forth in Exhibit E-3 attached to this Agreement
and made a part hereof Exhibit E-3 shall be enforceable under the terms and
conditions of the Cable Ordinance and this Agreement and consistent with the
Communication Act, as may be amended from time to time.
11.2 Construction Schedule and Map
-----------------------------
Pursuant to Section 4-280-310(D) of the Cable Ordinance, the Grantee shall,
within three (3) months of the Date of Acceptance, furnish the Cable Commission
a complete construction schedule and map (the "Construction Schedule"). Such
Construction Schedule shall be consistent with the Grantee's Construction
Timetable referred to in Section 11.1 of this Agreement and upon approval by the
Cable Commission shall be attached to this Agreement as Exhibit E-2 and made a
part hereof. More specifically, such Construction Schedule shall expressly
provide: the number of fiber optic node sections, the approximate number of
plant mileage within Franchise Area 1; and the approximate number of dwelling
units to be constructed and activated on the subscriber network system on a
quarterly basis, and the scheduled dates for completion of construction of all
major facilities. Such Construction Schedule shall also include a map of
Franchise Area I showing the boundaries of all fiber optic node sections to be
constructed and activated by the Grantee consistent with the Grantee's
Construction Timetable referred to in Section 11.1 of this Agreement. The
Grantee's Construction Schedule shall be submitted by the Grantee to the Cable
Commission on forms set forth in Exhibit E-1 to this Agreement. The Grantees
Construction Schedule shall, at a minimum
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set forth the location of all major facilities, trunk and supertrunk lines for
the Grantee's cable television system. Additionally, the Grantee's Construction
Schedule shall be updated whenever substantial changes become necessary. A
substantial change in the Grantee's Construction Schedule shall be deemed to
occur whenever an adjustment is necessary that would result in a delay in
construction as set forth in the Grantee's quarterly schedule. Without the prior
approval of the Cable Commission, no change in the Construction Schedule shall
be permitted that would result in a delay inconsistent with the Grantee's
Construction Timetable referred to in Section 11.1 and Exhibit E-3 to this
Agreement. In addition, upon commencement of construction of its cable
television system, the Grantee, for informational purposes, shall notify the
Cable Commission in writing on a monthly basis of those areas where strand or
cable has been installed or where service is being provided. Such informational
notices to the Cable Commission shall be included on the forms set forth in
Exhibit E-1 to this Agreement.
11.3 "As Built" Maps
---------------
The Grantee shall submit to the Cable Commission "as built" maps for those
portions of the Grantee's cable television system that have been constructed and
activated pursuant to the Construction Schedule referred to in Section 11.2 of
this Agreement as soon as such maps are completed by the Grantee, but in no
event later than ninety (90) days after completion of such construction and
activation. Such maps, set forth by fiber optic node section, shall, at a
minimum, include cable routings and the location of amplifiers, power supplies
and system monitor test points. The Grantee shall, during the term of this
Agreement, maintain up-to-date as built maps, that shall be available for
examination by the City during the Grantee's normal business hours.
11.4 Third Party Litigation
----------------------
The Grantee agrees that, except to the extent it is prevented from doing so
by order of a court or strative agency or other body having appropriate
jurisdiction, litigation or any administrative proceedings instituted by any
person or persons or entity or entities not a party to this Agreement shall not
suspend the Grantee's obligation to construct, install, activate and operate its
cable television system in accordance with the construction schedules referred
to in Sections 11.1, 11.2 and 11.3 of this Agreement.
Section 12. Construction Requirements and Standards
---------------------------------------
12.1 General
-------
The Grantee shall construct, install, maintain and operate its cable
television system in a safe, orderly and workmanlike manner utilizing only
materials of good, durable quality with due respect for engineering
considerations and in accordance with applicable federal, state and local laws
and regulations.
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12.2 Compliance Standards
--------------------
Pursuant and in addition to Section 4-280-270(A) of the Cable Ordinance,
the Grantee shall at all times during the term of this Agreement comply with the
following:
(1) National Electrical Safety Code of the American National Standards
Institute (latest edition);
(2) National Electrical Code of the National Fire Protection Association
(latest edition);
(3) UL Code, (latest edition);
(4) Tower Standards:
(a) EIA-RS-222-A,
(b) Federal Aviation Administration (the "FAA") and
(c) United States and State of Illinois Departments of Transportation.
12.3 Construction and Installation Manual
------------------------------------
The Grantee shall submit to the Cable Commission a manual that sets forth
the specifications, standards and procedures for construction and installation
of the Grantees cable television system (the "Construction/Installation
Manual"). Said manual shall be consistent with the highest state-of-the-art
standards of the cable television industry and shall, at a minimum, establish
procedures to ensure quality work and provide for the safety and protection of
residents and property. The Grantee's Construction/Installation Manual shall be
submitted to the Cable Commission not later than sixty (60) days prior to
commencement of construction of the Grantee's cable television system.
12.4 The Grantee's Construction and Inspection Manual
------------------------------------------------
The Grantee shall submit a "Construction and Inspection Mamud for
Grounding, Bonding, and Surge Protection," (the "Construction/Inspection
Manual") to the Cable Commission not later than sixty (60) days prior to the
commencement of construction of its cable television system. Such manual shall,
at a minimum, included procedures regarding the following:
(a) Aerial Pole Lines
(b) Ground Resistance Measurement
(c) Grounding and Bonding Locations
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(d) Underground Construction
(e) Service Drops - Aerial
(f) Service Drops - Underground
(g) Towers
(h) TVROs (including LNAs and LNCs)
(1) Buildings Power Supplies
(k) Amplifiers
(1) Operating Reliability Goals.
12.5 Engineering Site Survey
-----------------------
The Grantee shall submit to the Cable Commission a fully coordinated
engineering site survey (the "Site Survey") of all the Grantee's off-air
broadcast and satellite signal reception sites demonstrating adequate clearance
from interference at least sixty (60) days prior to commencement of construction
of the Grantee's cable television system.
12.6 Restoration
-----------
Pursuant and in addition to Section 4-280-300(F) of the Cable Ordinance,
the Grantee shall promptly restore or replace all public ways or private
property in as good a condition as the Grantee found said public ways and
private property at the time of commencement of the Grantee's work thereon;
provided, however, that where conditions prohibit prompt restoration or
replacement of said public ways, the Grantee may request from the City an
extension of time within which to complete such restoration, which request shall
not unreasonably be denied. The Grantee shall conduct all restoration or
replacement in a competent and efficient manner minimizing disruption and
inconvenience to others.
12.7 Tree Trimming on Public Property
--------------------------------
Pursuant and in addition to Section 4-280-300(I) of the Cable Ordinance,
the Grantee, in trimming trees or other foliage on public property, shall
properly and promptly dispose of such trimmings.
12.8 Tree Trimming on Private Property
---------------------------------
The Grantee shall not trim any tree or other foliage located on private
property prior to obtaining the written consent of the owner of such private
property. Such trees or other foliage shall be trunmed at the Grantees own and
trlmmmgs therefrom shall be disposed of properly and promptly.
12.9 Iogies
------
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The Grantee's cable television system shall be designed, constructed and
operated as a state-of-the-art cable television system consistent with the
Grantee's Application and as required by this Agreement. If, as a result of
technological developments during the term of this Agreement, the quality or
quantity of programming or services available to subscribers or users of the
Grantee's cable television system become subject to upgrade, the Grantee shall,
at the request of the Cable Commission, investigate the feasibility of
implementing such new developments and shall implement such technological
developments if such implementation (i) can be accomplished without adding an
unwarranted financial burden to subscribers and (ii) is economically feasible
and viable for the Grantee. In det whether or not the Grantee shall be required
to implement such new developments, the Cable Commission and the Grantee shall
consider, among other factors, the remaining term of this Agreement, performance
demonstrating the operational feasibifity of the new developmenm construction
costs, the adaptabifity of such developments to the Grantee's cable television
system or any part thereof and the potential marketability of the new services
and other factors affecting the economic feasibility and viability of
implementation of such new technologies.
12.10 Contractors and Subcontractors
------------------------------
All Contractors and Subcontractors of the Grantee must be properly licensed
under all applicable federal, state and local laws and regulations. The Grantee
shall be solely and completely responsible for all acts or omissions of any and
all of the Grantee's Contractors or Subcontractors in the construction, on,
maintenance or operation of the Grantee's cable television system.
Section 13. Extension of Service
--------------------
13.1 New Developments
----------------
The Grantee shall, upon request for service, provide service to all new
developments located within Franchise Area I if a new development is located
within a portion of Franchise Area I in which construction of the Grantee's
cable television system has been completed or is in the process of being
completed; provided, however, that the Grantee may, upon approval of the Cable
Commission, extend the time for providing such service.
13.2 Annexation
----------
Upon annexation by the City of any new territory contiguous to Franchise
Area 1, the Grantee shall, at the request of the City, provide service to said
area upon terms and conditions mutually agreed to by the City and the Grantee;
provided, however, that the Grantee may, upon Cable Commission approval,
postpone the time for providing service to said area where it would result in a
delay in the Grantee's Construction Schedule as set forth in Exhibit E-2 of this
Agreement.
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Section 14. Removal of System
-----------------
14.1 Removal By The Grantee
----------------------
If the City Council requires the removal of all of the Grantee's property
located within the public ways of the City pursuant to Section 4-280-100(D)(3)
or Section 4-280-1 10(F) of the Cable Ordinance, the Grantee, at its own
expense, shall remove such property within one (1) year after complete cessation
of the Grantees cable television service or such longer period as approved by
the City Council, and under supervision of the City shall repair and restore the
public ways pursuant to Section 4-280-300(F) of the Cable Ordinance. The
Grantee shall be responsible for any and all damages caused by such removal. If
the City Council requires the removal of all of the Grantee's property located
within the public ways of the City pursuant to Section 4-280-100(D)(3) or
Section 4-280-110(F) of the Cable Ordinance and it after complete cessation of
the Grantee's cable television service, the Grantee fads to remove or cause the
removal of all of its property located within the public ways of the City within
one (1) year or such longer period as approved by the Council, the City shall
deem such property abandoned and such property, at the option of the City, shall
become property of the City.
14.2 Removal By The City
-------------------
If the City Council requires the removal of all of the Grantee's property
located within the public ways of the City pursuant to Section 4-280-100(D)(3)
or Section 4-280-110(F) of the Cable Ordinance and if the Grantee faus to remove
or cause the removal of all of its property located within the public ways of
the City within one (1) year after complete cessation of the Grantee's cable
television service, or such longer period as approved by the City Council, the
City may remove or cause the removal of such system; provided, however, that the
City shall be reimbursed for the total costs of such removal to the extent that
such costs exceed the amount of the performance bond provided for pursuant to
Section 5.3 of this Agreement.
Section 15. Intra-City Interconnection
--------------------------
15.1 Purpose
-------
Pursuant and in addition to Section 4-280-340 of the Cable Ordinance, the
Grantee shall cooperate with other cable television services franchise grantees
within the City ("Other Grantees") to interconnect all cable television within
the City to amre that the granting by the City of separate franchises for cable
television services does not restrict utilization of such cable television
service systems on a City-wide basis. Sufficient interconnection is essential
for access channels and local origination channels to facilitate City-wide and
geographically-targeted programming and services.
15.2 Capacity and Timetable
----------------------
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Interconnection of all cable, television systems within the City shall, at
a minimum provide adequate capacity for two (2) channels including two (2)
subcarriers to be delivered from each of the Other Grantees' franchise areas to
a central interconnection facility and eight (8) channels including two (2)
subcarriers to be delivered to each of the grantees' franchise areas from a
central interconnection facility. Said interconnection shall be operational
within one (1) year of service being delivered by the Grantee to its first
subscriber. Additional channel capacity shall be incrementally activated on an
as-needed basis to ensure that all public access, municipal utilization, non-
alphanumeric local origination, and at least one leased access channel can be
delivered to each of the Other Grantees' franchise areas from a central
interconnection facility; provided, however, that the Other Grantees as part of
the interconnection plan referred to in Section 15.3 of this Agreement may
submit an alternative design that equals or exceeds the performance and
capabilities of the design referred to in this Section 15.2.
15.3 Plan of Interconnection
-----------------------
The Grantee, in cooperation with the Other Grantees, shall develop a plan
of interconnection (the "Interconnection Plan") consistent with the requirements
set forth in Section 15 of this Agreement. Such plan shall address, in detail,
all tasks necessary to implement an interconnection system for the City,
including, but not limited to, organizational structure, administration, design
financing, projected costs and expenses, technical performance and construction
standards, channel bandwidth allocation procedures, construction, operation,
maintenance and upgrading of the interconnection system. This Interconnection
Plan shall be submitted to the Cable Commission for approval within ninety (90)
days of the Acceptance Date; provided, however, that the Cable Commission may
extend the time for submission of such plan upon request by the Grantee and the
Other Grantees. In the event that the Grantee and Other Grantees are unable to
agree upon such a plan within ninety (90) days or such longer period as approved
by the Cable Commission, the Cable Commission shall act as the arbitrator and
its decision shall be final and binding on the Grantee and the Other Grantees.
Upon Cable Commission approval, this Interconnection Plan shall be attached to
this Agreement as Exhibit L and made a part hereof.
15.4 Interconnection Responsibilities
--------------------------------
The Grantee and the Other Grantees, shall be responsible for (i) providing
and covering the costs of all equipment and facilities necessary to implement
the Interconnection Plan referred to in Section 15.3 of this Agreement, (ii)
obtaining all licenses, permits and authorizations necessary to conduct and
operate such interconnection system, and (iii) covering all capital costs and
operational and maintenance expenses associated therewith, as provided in said
plan of interconnection.
15.5 Construction and Technical Standards
------------------------------------
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The interconnection system described in Section 15 of this Agreement shall
be designed, constructed, installed, maintained and operated in accordance with
the standards set forth in Sections 4-280-260(A), 4-280-270(A) and 4-280-280(A)
of the Cable Ordinance and Sections 9, 10, 11 and 12 of this Agreement.
Additionally, such interconnection system shall be designed, constructed,
operated and maintained so as not to degrade the quality of any of the signals
transmitted on the Grantee's and Other Grantees' subscriber or institutional
network systems.
15.6 Fees, Rules, Etc.
----------------
Nothing herein shall prohibit the Grantee from establishing reasonable fees
for use of the interconnection system or from promulgating and requiring
reasonable terms or conditions relating to the use thereof; provided, however,
that neither the City nor the Chicago Access Corporation (the "CAC") shall be
charged at any time for the use thereof In addition, the Cable Commission shall
annually review utilization of the interconnection system and the allocation of
bandwidth to the City and the CAC to ensure that the City and the CAC have been
reserved adequate capacity on the interconnection system to meet the respective
reasonable needs of the City and the CAC.
Section 16. Channel Allocation
------------------
16.1 Standard Allocation
-------------------
The Grantee shall at all times provide the same channel allocations for the
following channels as provided for by all Other Grantees operating cable
television services systems within the City:
(1) The non-alphanumeric local origination channel referred to in
Exhibit 0 attached hereto and made part of this Agreement;
(2) All channels under the control of the CAC;
(3) At least one (1) leased access channel; and
(4) At least two (2) local government access channels.
The Grantee hereby agrees to comply with the standard channel allocation
set forth in Exhibit F attached hereto and made part of this Agreement. The
Grantee shall exercise its best efforts in cooperation with all Other Grantees
operating within the City to establish a standard allocation for those channels
for which such allocation is required but not established as of the Date of
Acceptance. Upon agreement between and among the Grantee and all Other
Grantees, such standard channel allocation shall be incorporated into Exhibit F
to this Agreement.
16.2 Aeronautical Frequencies
------------------------
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The Grantee shall comply with all FCC rules and regulations regarding
operation in the frequency bands 108-137 and 225-400
Section 17. Universal Subscribers
---------------------
The Grantee shall make service available throughout Franchise Area I in
accordance with Sections 7 and 11 of this Agreement.
Section 18. Local Origination
-----------------
Pursuant to and in compliance with Section 542(g)(2)(C) of the
Communications Act, and consistent with the public benefits of public,
educational and governmental ("PEG") access, during the term of this Agreement,
the Grantee, in cooperation with the Other Grantees operating cable television
services systems within the City, has voluntarily agreed to contribute to local
origination as set forth in Exhibit G attached hereto and made part of this
Agreement. The Grantee has voluntarily agreed to remit seven hundred ninety-
eight thousand eight hundred sixty-five dollars ($798,865.00) in funding for PEG
access local origination directly to the City in fifteen (15) equal annual
payments of fifty three thousand two hundred fifty-eight dollars ($53,258.00).
The first annual payment shall be made no later than ninety (90) days following
the Acceptance Date, and each subsequent payment shall be made on or before such
date of each subsequent year during the term of this Agreement. The Grantee
shall provide local origination workshops as set forth in Exhibit C to this
Agreement.
Section 19. Chicago Access Corporation
--------------------------
In furtherance of the benefits to the public of PEG access:
19.1 Channel Commitments
-------------------
Pursuant to Section 4-280-360(A) of the Cable Ordinance, the Grantee shall
dedicate ten percent (10%) of its usable channels from their inception as access
channels on its subscriber network system. All such channels shall be provided
to the CAC free of charge and under the exclusive use and control of the CAC;
provided, however, that such channels are utilized by the CAC for non-commercial
programming and purposes and without any charges by the CAC to any subscriber or
advertiser. Under no circumstances shall the Grantee have the authority or
right to exercise any control over the use or operation of such channels except
as provided in Section 4-280-360(B) of the Cable Ordinance and Section 531
of the Communications Act. Neither the Grantee nor the CAC shall be liable for
the quality or content of programming produced or transmitted by the Grantee or
CAC.
19.2 Payments and Contributions
--------------------------
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(1) Pursuant to and in compliance with Section 542(g)(2)(C) of the
Communications Act, the Grantee shall during the term of this Agreement pay to
CAC a total of one million one hundred twenty-five thousand dollars ($1,125,000)
for the exclusive use of CAC in connection with CAC PEG access capital costs.
These CAC PEG capital cost payments by the Grantee shall be made in accordance
with Exhibit H attached hereto and made part of this Agreement. These PEG
access related capital costs payments to CAC by Grantee shall be as follows:
one hundred twenty five thousand dollars ($125,000) shall be payable no later
than one hundred eighty (180) days from the Date of Acceptance; one hundred
thousand dollars ($100,000) shall be payable no later than three hundred sixty
(360) days from the Date of Acceptance (the "360 Day Payment"); one hundred
thousand dollars ($100,000) shall be payable no later than the last day of each
of the four (4) calendar years begining with the calendar year in which the 360-
Day Payment is to be made; and fifty thousand dollars ($50,000) shall be payable
no later than the last day of each of the following ten (10) calendar years.
(2) In addition to the PEG access cost capital payments set forth in
Section 19.2(1) of this Agreement, the Grantee has voluntarily agreed to pay CAC
one percent (1%) of its annual gross revenues as defined in an agreement dated
January 26, 1996 by and between the Grantee and CAC (the "CAC Agreement"). The
terms and conditions of those payments by the Grantee to CAC are as set forth in
the CAC Agreement.
19.3 Equipment
---------
The Grantee shall provide, at the Grantee's sole expense but without change
in ownership, modulators and other necessary equipment to permit full and
practical utilization from the Grantee's headend downstrum by conventional
technical means, of each CAC channel as from time to time requested by the CAC
but in no event earlier than system activation. Additionally, the Grantee shall
insure that its cable television system is constructed and operated to permit
the CAC, at CAC's expense, to cablecast live pro from remote locations with no
charge to the CAC for access to the Grantee's existing facilities suitable for
such purposes at the Grantee's headend.
19.4 Programming Authority
---------------------
The Grantee shall have no authority or control over any programming
cablecast on channels dedicated to the CAC pursuant to Section 19.1 of this
Agreement. All programming cablecast on such channels shall not be considered
origination cablecasting for purposes of Grantee's compliance with Section 76
Subpart G of the FCC rules and regulations unless otherwise determined by the
FCC with respect to the Grantee. The Grantee shall have no responsibility under
Section 4-280-260(D) of the Cable Ordinance for programming cablecast on any CAC
dedicated channels. Nothing in Section 19 of this Agreement shall be construed
to imply that Grantee is a common carrier.
19.5 CAC/The Grantee Policies and Procedures
---------------------------------------
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In order to facilitate effective operations and worldng arrangements
between the CAC and the Grantee and to resolve difficulties, if any, in the
implementation of the Grantee's commitments to the CAC, within one hundred and
twenty (120) days after the Acceptance Date or such later date as agreed upon by
and between the Grantee and the CAC, the Grantee and the CAC shall develop
written policies and procedures that shall be filed with the Cable Commission.
Said policies and procedures shall detail the mutual obligations of the Grantee
and the CAC 'm a manner not inconsistent with the Cable Ordinance, Section 542
of the Communications Act, as it may be amended from time to time and this
Agreement and shall include an acknowledgment by the CAC and the Grantee that,
with respect to any mutual obligations provided for under this Agreement and the
written policies and procedures to be adopted by and between the Grantee and the
CAC, the Grantee and CAC shall act in a reasonable, expeditious and timely
manner.
Section 20. Leased Access
-------------
The Grantee shall comply with Section 532 of the Communications Act as
amended from time to time, and all FCC rules and regulations promulgated
thereunder, regarding the provision of channel capacity for commercial use. The
Grantee acknowledges and agrees that, should current federal preemptive
authority be modified so as to permit the City to enact and enforce requirements
governing the provision of channel capacity for commercial use, the Grantee
shall comply with such any and all requirements of the City during the remainder
of the term of this Agreement.
Section 21. Municipal Utilization
---------------------
21.1 Description
-----------
During the term of this Agreement, the Grantee shall provide for municipal
utintion on its subscriber network system as set forth in the Grantee's
Application and Exhibit I attached to this Agreement. The channels dedicated to
the use and control of the City and other local government agencies designated
by the City as set forth in Exhibit I to this Agreement shall be utiked for non-
commercial programming and purposes and without any charges by the City to any
subscribers The Grantee shall have no authority or control over any programming
cablecast on such dedicated channels. All programming cablecast on such
dedicated channels shall not be considered origination cablecasting for purposes
of the Granteies compliance with Section 76 Subpart G of the FCC rules and
regulations unless otherwise determined by the FCC with respect to the Grantee.
The Grantee shall have no responsibility under Section 4-280-260(D) of the Cable
Ordinance for programming cablecast on any such dedicated channel.
Additionally, nothing in Section 21 of this Agreement shall be construed to
imply that Grantee is a common carrier.
21.2 Additional Channel CanaciU
--------------------------
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Upon demonstration by the City of full utilization of the channel capacity
dedicated to the City, the Grantee shall exercise its best efforts to provide
additional channel capacity to the City on the Grantee's cable television system
to meet the reasonable needs of the City unless to do so would place an
unreasonable economic burden on the Grantee.
Section 22. Enhanced/Developmental Services
-------------------------------
If the Grantee determines to offer enhanced/developmental services, a
notice shall be filed with the Cable Commission at least thirty (30) days prior
to launch of such enhanced/developmental services. Said notice shall contain
detailed descriptions of such services and applicable rates.
Section 23. Employment Requirements
-----------------------
The following provisions are set forth pursuant and in addition to Section
554 of the Communications Act, as may be amended from time to time, and all FCC
rules and regulations promulgated thereunder, and Section 4-280-530 of the Cable
Ordinance.
23.1 Affirmative Action
------------------
Pursuant to Section 4-180-530 (B) and (C) of the Cable Ordinance, the
Grantee, during the term of this Agreement, shall exercise its best efforts to
maximize equal employment opportunities for minorities and women. The goal for
the Grantees workforce with respect to minority employment shall be parity with
the population of minorities in relation to the general population of the City.
The Grantee shall take affirmative action to accomplish this goal in each of the
job categories set forth in Exhibit J attached hereto and made part of this
Agreement. The goals for the Grantee's workforce with respect to female
employment shall be parity with the respective percentage representations of
females in the labor force of the City in each of the job categories set forth
in Exhibit J to this Agreement. The Grantee shall take affirmative action to
accomplish such goals in such job categories.
23.2 Equal Employment Opportunity Affirmative Action Plan
----------------------------------------------------
The Grantee shall develop an Equal Employment Opportunity/Affirmative
Action Plan (the "EEO/AA Plan") in accordance with the requirements set forth in
Exhibit J to this Agreement. This EEO/AA Plan shall be Med with the Cable
Commission for approval within ninety (90) days after the Acceptance Date. The
Cable Commission shall within forty-five (45) days after receipt by it of such
plan approve such plan or notify Grantee in writing of the deficiencies in such
plan. In no event shall Grantee commence construction of its cable television
services system prior to approval of the Grantee's EEO/AA Plan.
23.3 Pass-Through Requirements
-------------------------
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In order to satisfy the employment requirements of Section 23 of this
Agreement, the Communications Act and applicable FCC rules and regulations, and
the Cable Ordinance, the Grantee shall ensure that each contractor having a
contract or contracts with the Grantee and each sub-contractor having a contract
or contracts with the Grantees Contractors and Subcontractors in excess of fifty
thousand dollars ($50,000) and at least fifteen (15) employees engaged in the
construction, installation, maintenance or operation of the Grantee's cable
television system complies with Sections 23.1, 23.4, 23.5,73.6, 23.7 and 23.8 of
this Agreement, Section 4-280-530 of the Cable Ordinance, Section 554 of the
Communications Act, and all FCC rules and regulations promulgated thereunder.
Additionally, the Grantee shall ensure that each such contractor or sub-
contractor develops an Equal Employment Opportunity/Affirmative Action Plan (the
"Contractors/Sub-Contractors' EEO/AA Plan") in accordance with the requirements
set forth in Exhibit J to this Agreement. Each such Contractor/Sub-Contractor
EEO/AA Plan shall be made available to the Cable Commission upon the Cable
Commissions request.
23.4 Local Residents
---------------
The Grantee shall take affirmative action to ensure that at least fifty
percent (50%) of its employees engaged in the construction, installation,
maintenance or operation of its cable television system are actual residents of
the City.
23.5 Unions
------
The Grantee shall notify each labor union or representative of workers with
which it has a collective bargaining agreement or other contract or
understanding or with which the Grantee enters into discussions regarding a
collective bargaining agreement or other contract or understanding of the
Grantees responsibilities under Section 23 of this Agreement, Section 4-280-530
of the Cable Ordinance, Section 554 of the Communications Act, and all FCC rules
and regulations promulgated thereunder. The Grantee shall, to the extent
possible through negotiation or modification of any such agreements, contracts
or understandings, ensure that such agreements, contracts or understandings
contain provisions consistent with Section 23 of this Agreement, Section 4-280-
530 of the Cable Ordinance, and Section 554 of the Communications Act, and all
FCC rules and regulations promulgated thereunder so as not to impede the
Grantee's ability to satisfy the requirements set forth herein and therein.
23.6 Training
--------
The Grantee shall provide training programs for qualified minorities and
women as set forth in Grandees Application. In addition, the Grantee shall
establish such other training programs as necessary to satisfy the employment
requirements as set forth in this Agreement.
23.7 Records
-------
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Commencing ninety (90) days after the Acceptance Date and continuing for
the term of this Agreement, the Grantee shall prepare and maintain the following
records on forms provided by the Cable Commission: job applicant flow logs,
promotion, demotion, termination and transfer logs, and training activity and/or
apprenticeship program participation summaries. Such records shall be available
to the City during the Grantees normal business hours and shall be retained in
the Grantees files for not less than three (3) years.
23.8 Reporting Requirements
----------------------
The Grantee, during the term provided of this Agreement, shall Me with the
Cable Commission the following reports on forms supplied by the Cable
Commission:
(1) Commencing within one hundred twenty (120) days after the
Acceptance Date and continuing on a quarterly basis until construction of the
Grantees cable television system has been completed and annually thereafter for
the term of this Agreement:
(a) statistical reports;
(b) progress evaluation reports;
(c) a report listing any EEO/AA complaints filed against the
Grantee with a court or federal or State of Illinois or local agency having
appropriate jurisdiction.
(2) Commencing one (1) year after approval by the Cable Commission
of the Grantees EEO/AA Plan and con on an annual basis for the term of this
Agreement a report summarizing and updating the Grantee's EEO/AA Plan.
23.9 Compliance
----------
In order to monitor the Grantee's compliance with its EEO/AA Plan and the
other requirements set forth in Section 23 of this Agreement, the Cable
Commission, whenever necessary or appropriate, but no less than annually, shall,
commencing one (1) year after its approval of the Grantee's EEO/AA Plan, conduct
a compliance review. Such review shall consist of a comprehensive analysis and
evaluation of the records maintained and the reports required to be submitted to
the Cable Commission pursuant to Sections 23.7 and 23.9 of this Agreement and
any other relevant information and data. The Grantee shall be deemed to be in
compliance for purposes of Section 23 of this Agreement and Section 4-280-530(B)
and (C) and of the Cable Ordinance if the Cable Commission determines that the
Grantee has exercised its best efforts to comply on an annual basis with the
Grantees EEO/AA Plan and the requirements set forth in Sections 23.1, 23.3, 23.4
and 23.6 of this Agreement.
Section 24. Contractors and Subcontractors
------------------------------
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24.1 Local Businesses
----------------
The Grantee shall utilize businesses located in the City in connection with
the construction, installation, maintenance and operation of its cable
television services system to the maximum extent feasible and with due regard to
price, quality and timing of delivery. in addition, the Grantee shall to the
maximum extent feasible and with due regard to price, quality and timing of
delivery of the purchase of comparable materials, equipment or supplies of any
nature, give preference for such items which are led, manufactured or otherwise
produced, in whole or in part, within the City.
24.2 Minority Business Enterprises (MBEs)
------------------------------------
Pursuant to Section 4-280-530(E) of the Cable Ordinance, the Grantee shall,
during the term of this Agreement, exercise its best efforts to ensure that
qualified minority-owned businesses ("MBEs") located in and certified by the
City receive a fair and substantial share of the economic benefits forthcoming
from development of the Grantee's cable television services system. For
purposes of this Section 24.2, "a fair and substantial share of the economic
benefits" shall mean twenty-five percent (25%) of the total dollar value of
contracts awarded by the Grantee, excluding contracts where participation of
MBEs would not be practically possible such as factory direct purchases,
purchases of satellite-delivered services and purchases of materials or
equipment from a sole source of supply. Such exclusions shall be detailed, with
justifications, in the Grantee's Minority Business Enterprise Plan (the "MBE
Plan") referred to in Section 24.4 of this Agreement. The Grantees MBE Plan
shall be subject to Cable Commission approval.
24.3 Women's Business Enterprises (WBEs)
-----------------------------------
The Grantee, during the term of this Agreement, shall exercise its best
efforts to ensure that qualified women-owned businesses ("WBEs") located in and
certified by the City are awarded five percent (5%) of the total dollar value of
con issued by the Grantee, excluding contacts where participation of WBEs would
not be practically possible such as factory direct purchases, purchases of
satellite-delivered services and purchases of materials or equipment from a sole
source of supply. Such exclusions shall be detailed, with justifications, in
the Grantee's Women's Business Enterprise Plan (the "WBE Plan") referred to in
Section 24.4 of this Agreement. The Grantee's WBE Plan shall be subject to
Cable Commission approval.
24.4 Business Enterprise Plans
-------------------------
The Grantee shall develop separate MBE and WBE Plans in accordance with the
requirements set forth in Exhibit J attached hereto and made a part of this
Agreement. Such plans shall be filed with the Cable Commission for approval
within ninety (90) days after the Acceptance Date. The Cable Commission shall,
within forty-five (45) days of receipt by it of such plans, approve such plans
or notify Grantee in writing of the deficiencies in any of said plans. In no
event shall Grantee commence construction prior to such approvals.
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24.5 Reporting Requirements
----------------------
During the term of this Agreement, the Grantee shall file with the Cable
Commission the following reports on forms supplied by the Cable Commission:
(1) Commencing within one hundred twenty (120) days after the
Acceptance Date and continuing on a quarterly basis until construction of the
Grantee's cable television system has been completed and annually thereafter for
the term of this Agreement:
(2) (a) a descriptive summary of the categories and total dollar
value of all contracts awarded by the Grantee,
(b) a descriptive summary of the categories and total dollar
value of all contracts awarded by the Grantee, excluding
contracts where participation of MBEs and WBEs would not be
practically possible in accordance with Sections 24.2 and
24.3 of this Agreement and Exhibit I to this Agreement;
(c) a descriptive of the total dollar value of all contracts
awarded to MBEs and WBES;
(d) a descriptive summary of the Grantee's efforts both to
locate and facilitate the participation of qualified MBEs and
WBEs in the construction, installation, maintenance and
operation of the Grantee's cable television system including
a description of the specific programs implemented by the
Grantee to meet the goals set forth in Sections 24.2 and 24.3
of this Agreement.
(e) Commencing within one (1) year after approval by the
Cable Commission of the Grantees MBE and WBE Plans and
continuing on an annual basis for the term of this Agreement,
separate reports summarizing and updating the Grantees WBE
and WBE Plans.
24.6 Compliance
In order to monitor the Grantee's compliance with its MBE and WBE Plans and
the other requirements set forth herein, the Cable Commission, whenever
necessary or appropriate, but no less than annually shall, commencing one (1)
year after approval by the Cable Commission of the Grantee's MBEs and WBE Plans,
conduct a compliance review. Such review shall consist of a comprehensive
analysis and evaluation of the reports required to be submitted to the Cable
Commission pursuant to Section 24.5 of this Agreement and any other relevant
information and data. The Grantee shall be deemed to be in compliance for
purposes of Section 24 of this Agreement and Section 4-280-530(E) of the Cable
Ordinance if the Cable Commission
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determines that the Grantee has exercised its best efforts to comply on an
annual basis with its MBE and WBE Plans and the requirements set forth in
Sections 24.1, 24.2 and 24.3 of this Agreement.
Section 25. Consumer Services
-----------------
The Grantee shall adhere to all applicable FCC regulations relating to
customer service obligations, and shall not contest any decision by the City,
the Cable Commission or the Cable Administrator to enforce FCC standards in
accordance with federal or local law.
25.1 Consumer Services Plan
----------------------
Pursuant and in addition to Section 4-280-220(E) of the Cable Ordinance and
Grantee Application, the Grantee shall submit to the Cable Commission a detailed
Consumer Services Plan (the "Consumer Services Plan") sixty (60) days prior to
commencement of service to its first subscriber. Such plan shall, at a minimum,
demonstrate that the facilities, personnel, repair, complaint and adjustment
procedures, telephone and other information systems of the Grantee are
sufficient to ensure timely, efficient and effective services to consumers. The
Grantee's Consumer Services Plan shall also be consistent with the highest
standards of the cable television industry and the requirements set forth in
this Agreement, in applicable FCC regulations, and in Sections 4-280-270(B) and
4-280-290 of the Cable Ordinance.
25.2 Business Offices and Personnel
------------------------------
Pursuant and in addition to Section 4-280-270(B) of the Cable Ordinance,
the Grantee shall establish and maintain such business offices and provide
personnel, telephone service and other equipment, as needed, to ensure timely,
efficient and effective service to consumers. Such personnel shall include one
person designated by the Grantee to act as a liaison between the Grantee and the
City regarding consumer service issues. All business offices of the Grantee
shall have a locally fisted telephone number with an access line available to
subscribers 24 hours a day, seven days a week. The Grantee's business offices
shall be open, at a minimum, during the hours set forth in the Grantee's
Application (including one (1) evening per week and/or on the weekends.)
Additionally, at various times during the day, the Grantee shall cablecast the
address, telephone number and office hours of its business offices on a local
origination channel received by all subscribers.
25.3 Subscriber Compliance
---------------------
Pursuant and in addition to Section 4-280-290(B) of the Cable Ordinance,
the Grantee shall promptly respond to and resolve all subscriber complaints;
provided, however, that nothing herein shall require the Grantee to maintain or
repair any equipment not provided by the Grantee, maintain records with respect
thereto nor respond to or resolve subscriber complaints relating thereto. The
Grantee shall maintain records of such complaints setting forth the date and
nature
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of the company and any action taken in response thereto. Such records shall be
available to the City during the Grantees normal business hours and retained in
the Grantee's files for not less than three (3) years. A statistical summary of
such records shall be prepared by the Grantee and submitted to the Cable
Commission monthly commencing thirty (30) days after commencement of
construction and continuing until construction of the Grantee's cable television
system is complete in accordance with Exhibit E-2 to this Agreement. Thereafter,
such records shall be submitted to the Cable Commission annually.
25.4 Major Outages
-------------
The Grantee shall maintain records of all major outages. Such records
shall indicate the estimated number of subscribers affected, the date and time
of first notification of the outage, the date and time service was restored, the
cause of the outage and a description of the collective action taken. Such
records shall be available to the City during the Grantees normal business hours
and retained in the Grantees files for not less than three (3) years. A
statistical summary of such records shall be prepared by the Grantee and
submitted to the Cable Commission annually, commencing twelve (12) months after
service is provided to the first subscriber.
25.5 Pre-Construction Information
----------------------------
Prior to commencement of construction of an area, the Grantee shall
exercise its best efforts to inform the residents thereof of the nature and
timetable for such construction and shall provide the residents with the
procedures for filing complaints.
25.6 The Grantee Solicitation
------------------------
At the time the Grantee solicits the residents of an area for subscription
of cable television services, and again upon actual installation of service, the
Grantee shall provide such residents a simple written explanation of all
products and services offered, the options for and prices of such products and
services, the parental lock-out devise, installation and service maintenance
procedures, cable television services use instructions, programming channel
positions, billing and complaint procedures and privacy rights of the subscriber
as set forth in Section 4-280-320 of the Cable Ordinance and Section 27 of this
Agreement.
25.7 The Grantee Solicitation
------------------------
Pursuant and in addition to Section 4-280-310(C) of the Cable Ordinance,
the Grantee shall fill all reasonable orders for a standard tion of its services
within seven (7) business days and all other reasonable orders within thirty
(30) days after the date of such order. For purposes of the time period for
installation as opposed to any costs charged as set forth in Sections 7.5 and
7.6 of this Agreement, "standard" installations are those that are located up to
125 feet from the existing distribution system. A request shall be deemed
reasonable if (i) the services requested are uniformly available on the Grantees
cable television system; (ii) the services are requested in
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a portion of Franchise Area I where the Grantees cable television system has
been constructed and activated; (iii) the Grantee in cooperation with
appropriate agencies can accomplish a proper physical extension of its cable
television system to a person's premises within such seven (7) or thirty (30)
days; and (iv) the Grantee can obtain access to a performs premises. If the
Grantee fails within such seven (7) or thirty (30) day period to provide the
service requested, the Grantee, upon request of the person requesting service,
shall within thirty (30) days thereafter promptly refund any and all deposits or
advance payments made by such person. The Grantee shall maintain a record of all
installation requests detailing when and what action was taken.
25.8 Translated Information
----------------------
The information and materials required in Sections 25.5 and 25.6 of this
Agreement shall also be available in the Spanish language.
25.9 Program Guides
--------------
In the event the Grantee or an agent of the Grantee provides to the
Grantee's subscribers written program guides, such guides shall fist, at a
minimum, all non-must carry channels carried on the Grantee's cable television
system and shall, to the extent reasonable as determined by the Grantee fist all
programs carried on all non-must carry channels.
25.10 Information Filed With The Cable Commission
-------------------------------------------
Pursuant and in addition to Section 4-280-220(E) of the Cable Ordinance,
the Grantee shall file the information required in Section 4-280-220(E) and the
information and materials set forth in Sections 25.5, 25.6 and 25.8 of this
Agreement with the Cable Commission at least fourteen (14) days prior to any
distribution of such information or materials except as otherwise provided in
Section 7 of this Agreement.
25.11 Employee Identification
-----------------------
Each employee of the Grantee when entering private property or working on
public ways shall be required to wear an employee identification card issued by
the Grantee bearing the name and a photograph of said employee.
25.12 Nondiscrimination
-----------------
The Grantee shall not discriminate against any person in the solicitation
or provision of any service on the basis of age, sex, race, color, creed, ethnic
origin, sexual orientation, marital status or physical or mental impairment.
Section 26. Users
-----
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The provisions set forth in Sections 4-280-210(F) and 4-280-220(E) of the
Cable Ordinance shall apply to all users of the Grantee's cable television
system.
Section 27. Privacy
-------
27.1 Requirements
------------
The Grantee shall construct, install, maintain and operate its cable
television system so as to protect the privacy rights of each subscriber and
user in accordance with Section 4-280-320 of the Cable Ordinance as interpreted
and applied in harmony with Section 551 of the Communications Act and FCC rules
and regulations promulgated thereunder, the requirements of this Agreement and
any other applicable federal, state and local laws and regulations.
27.2 Monitoring, Collection, Use or Release
--------------------------------------
Pursuant and in addition to Section 4-280-320(B) of the Cable Ordinance,
the Grantee shall not monitor, connect or use any information or signals
transmitted over the Grantees cable television system, with the exception of any
record of aggregated data that does not identify particular persons, without the
prior written or electronic consent of the subscriber or user, provided that
such collection and use is permissible in order to obtain information necessary
to provide services to the subscriber or detect an unauthorized reception of
cable service. The Grantee shall not release or disclose any individually
identifiable information about any subscriber or user to the City or any other
third party without the prior written or electronic consent of such subscribers
or users unless such disclosure is made by the Grantee to a subscriber(s) or
user(s) in accord with the exceptions set forth in Section 551(c)(2) of the
Communications Act. Any consent of a subscriber or user for the monitoring
collection, use or release of any information or signals transmitted over or
obtained by the Grantees cable television system shall be explicit, in writing
or electronic form, and in a form separate from any contract or other agreement
for cable television services or use. Such consent shall contain a statement in
bold print that states that the subscriber or user knowingly authorizes the
monitoring, collection, use or release of such information, that the consent is
revocable at any time by the subscriber or user without penalty and that
describes the exact timing and nature of the monitoring, collection, use or
release of such information. Such consent is revocable without penalty at any
time by the subscriber or user upon prior written or electronic notice to the
Grantee. In no event shall such consent be obtained by the Grantee from a
subscriber or user as a condition of cable television service or a continuation
thereto, except if such consent is necessary to adequately provide such service.
27.3 Privacy Information
-------------------
Prior to installation of service, and at least once a year thereafter,
the Grantee shall provide each subscriber with a simple, thorough written
explanation conforming to the notice requirements set forth in Section
551(1)(a)(A-E) of the Communications Act, and further
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informing each subscriber of all applicable privacy requirements as set forth
herein and in Section 4-280-320 of the Cable Ordinance; provided, however, that
such information shall be filed with the Cable Commission not less than fourteen
(14) days prior to its being distributed to-any subscriber.
27.4 Ownership of Data
-----------------
The ownership of any data or signals originated by a subscriber or user
and maintained by the Grantee or a third party that are intended for the sole
use of such subscriber or user shall remain solely in the originating subscriber
or user, even though such data or signals are maintained by the Grantee or a
third party.
If the Grantee cannot reasonably remedy the violation within the time
period specified and so informs the Cable Commission, the Cable Commission may
extend the time permitted for remedying the violation provided the Grantee
informs the Cable Commission on a regular basis of the steps being taken to
remedy such violation.
28.3 Notice of Assessment
--------------------
If within thirty (30) days of its receipt of notice of the violation
pursuant to Section 28.2 of this Agreement, the Grantee falls to submit a
written response contesting any Cable Commission notice of violation as set
forth in Section 28.2 of this Agreement or if after requesting an opportunity to
be heard the Grantee fails to establish during such hearing that such violation
did not occur or was beyond its control or if the Grantee falls to remedy the
violation within the time period specified or any extensions thereto pursuant to
Section 28.2 of this Agreement, the Cable Commission, after considering an
relevant factors, may impose upon the Grantee monetary penalties, fines,
liquidated or substituted damages or other monetary sanctions from the date of
notice of violation in accordance with Sections 28.5 or 28.6 of this Agreement
and shall provide the Grantee with prior written notice of such assessment.
Such notice of assessment shall state the amount to be assessed and provide a
date of at least fifteen (15) days after receipt of such notice upon which
payment for the violation is due from the Grantee.
28.4 Withdrawal from Letter of Credit
--------------------------------
If The Grantee fails to pay to the City any monetary penalties, fines,
liquidated or substituted damages or other monetary sanctions imposed upon the
Grantee by the Cable Commission within three (3) days after the date set forth
in the notice of assessment pursuant to Section 28.3 of this Agreement, the
Cable Commission, pursuant to Section 4-280-190(B) of the Cable Ordinance, may
immediately request payment of the amount thereof from the letter of credit and
draw on the letter of credit referred to in Section 6 of this Agreement. If a
draw by the City on Grantee's letter of credit is made, the City shall notify
the Grantee in writing of the date and amount of such draw.
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28.5 Substituted Damage
------------------
The Grantee agrees the following events, if any such event occurs, will
result in actual damages to the City which actual damages will be either
impracticable or difficult to ascertain and therefore agrees to pay to the City
the following amounts which shall not be considered in the nature of penalties:
(1) $750.00 a day for each day and part thereof that such failure
continues as a result of a material failure to construct and activate the
Grantee's cable television services system in accordance with the Construction
Timetable and Construction Schedule and referred to in Sections I 1. I and II. 2
of this Agreement unless such failure is caused by circumstances beyond the
Grantee's control or by a change or extension in such timetable, schedule or map
approved by the Cable Commission;
(2) $750.00 a day for each day or part thereof that such failure
continues as a result of a material failure to comply with the design,
technical, maintenance, construction or operational requirements set forth or
referred to in Sections 8. 9. 10 and 12 of this Agreement;
(3) $750.00 per day for each day or part thereof that such failure
continues as a result of a material failure to comply with the interconnection
requirements set forth or referred to in Section 15 of this Agreement; and
(4) $250.00 a day for each day or part thereof that such a failure
continues, except as approved by the Cable Commission or the City Council, if
required, a material failure to provide the services set forth or referred to in
Section 7 of this Agreement.
28.6 Monetary Penalties, Fines and Other Monetary Sanctions
------------------------------------------------------
Pursuant to Section 4-280-570(A) and (B) of the Cable Ordinance, if the
Grantee falls to comply with any provision of the Cable Ordinance or this
Agreement, the Cable Commission may assess and impose monetary penalties, fines
and other monetary sanctions for such failure in an amount not to exceed $750.00
per day per violation for each day or part thereof that such failure continues.
If the Grantee fails to comply with any rule or regulation lawfully adopted by
the Cable Commission pursuant to Section 4-280-460(A)(10) of the Cable.
Ordinance, the Cable Commission may assess and impose fines for such failure in
an amount not to exceed $50.00 per day per violation for each day or part
thereof that such failure continues. AU such monetary penalties, fines and
other monetary sanctions shall be determined by the Cable Commission in
accordance with the principles set forth below:
(1) Such monetary penalties, fines and other monetary sanctions
shall exceed the financial benefits to the Grantees delaying or failing to
comply with the applicable requirement;
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(2) Even where such benefits are not easily discemable, such
monetary penalties, fines and other monetary sanctions shall be of an
amount to have a significant deterrent effect on the Grantee; and
(3) Such monetary penalties, fines and other monetary sanctions
shall be sufficient to protect the City and other affected parties against
loss resulting from the Grantees violations.
28.7 Act or Omission Beyond The Grantee's Control
--------------------------------------------
The Grantee shall not be subject to the imposition of monetary
penalties, fines, liquidated or substituted damages or other monetary sanctions
referred to in Section 28 of this Agreement for any act or omission if such act
or omission was beyond the Grantee's control. An act or omission shall not be
deemed to be beyond the Grantee's control if committed, omitted or caused by an
affiliate, or Contractor or Subcontractor of the Grantee involved in
constructing, installing, maintaining or operating the Grantees cable television
system within the City of Chicago. Neither the inability of the Grantee to
obtain financing for whatever reason nor the n-dsfeasance or malfeasance of the
Grantee's officers, directors, employees, agents, affiliates and Contractors and
Subcontractors shall be deemed an act or omission beyond the Grantee's control.
28.8 Other Rights of The City
------------------------
The right of the Cable Commission to impose upon the Grantee monetary
penalties, fines, liquidated or substituted dwnages or other monetary sanctions
pursuant to Sections 28.5 and 28.6 hereof shall be in addition to any other
rights or remedies the Cable Commission or the City have pursuant to the
Communications Act, FCC rules and regulations, the Cable Ordinance, this
Agreement or other applicable laws.
28.9 No Waiver of Rights
-------------------
The decision by the Cable Commission to forego the imposition upon the
Grantee of monetary penalties, fines, liquidated or substituted damages or other
monetary sanctions in a particular instance shall in no way act to waive the
Cable Commission's or the City's rights under .this Section 28 for subsequent
violations of the Cable Ordinance or this Agreement.
Section 29. Miscellaneous Provisions
------------------------
29.1 Law
---
This Agreement shall be construed pursuant to the laws of the State of
Illinois unless otherwise preempted by Federal law.
29.2 Descriptive Headings
--------------------
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Section headings are descriptive and used merely for the purpose of
organization and where inconsistent with the text are to be disregarded.
29.3 Employees and Agents
--------------------
The Grantee shall be solely and completely responsible for the actions
of its employees and agents in the course of their employment.
29.4 Rights Reserved to The City
---------------------------
The Grantee hereby acknowledges and accepts the rights reserved to the
City in Section 4-280-520 of the Cable Ordinance and hereby waives the Grantees
rights, if any, to attempt to modify any provisions of this Agreement without
the prior written approval of the City or appropriate action of the City
Council, if such City Council action is required.
29.5 Compliance with The Cable Ethics Ordinance
------------------------------------------
The Grantee pledges that it has made no promise or inducement, oral or
written, to any City employee, City representative or City advisor as defined in
Section 4-284-020 of the Cable Ethics Ordinance regarding the receipt or award
of the franchise granted hereunder.
29.6 No Inducement
-------------
The Grantee acknowledges that it has not been induced to accept this
franchise by any promise, verbal or written, made by or on behalf of the City or
by any third person regarding any term or condition set forth in the Cable
Ordinance or this Agreement.
29.7 No FCC Waivers Without Notice to The City
-----------------------------------------
The Grantee shall not apply for any waivers, exceptions or declaratory
rulings from the FCC or any other federal or state regulatory agency regarding
the Grantee's cable television system without prior written notice to the City.
29.8 No Excuse from Compliance
-------------------------
The Grantee shall not be excused from compliance with any of the terms
or conditions of the Communications Act, FCC rules and regulations, the Cable
Ethics Ordinance, the Cable Ordinance or this Agreement by failure of the City
upon one or more occasions to insist upon such compliance by the Grantee or to
seek compliance by the Grantee with any term or condition of the Ethics
Ordinance, the Communications Act, FCC rules and regulations, the Cable
Ordinance or this Agreement.
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29.9 Transfer of Franchises
----------------------
Except as otherwise provided in Section 537 of the Communications Act,
the Grantee agrees that the Grantee shall not assign, transfer, sell,
hypothecate or otherwise alienate this franchise granted pursuant to the Cable
Ordinance from the Date of Acceptance until thirty-six (36) months thereafter.
During and after such thirty-six month period and during the term of this
Agreement, the Grantee shall conform in all respects to Section 4-280-200 of the
Cable Ordinance.
29.10 Cable Commission Action
-----------------------
In any action by the Cable Commission mandated or permitted under the
Cable Ordinance or this Agreement, the Cable Commission shall act in a
reasonable, expeditious and timely manner. Additionally, in any instance where
Cable Commission approval or consent is required under the Cable Ordinance or
this Agreement, the Cable Commission shall not unreasonably withhold its
approval or consent.
29.11 Force Majeure
-------------
The Grantee shall not be deemed in violation of this Agreement or the
Cable Ordinance for delay in performance or failure to perform in whole or part
its obligations under the Cable Ordinance or this Agreement due to strike, war
or act of war (whether an actual declaration is made or not), insurrection,
riot, act of public enemy, accident, fire, flood or other act of God or by other
events to the extent that such events are caused by circumstances beyond the
Grantee's control pursuant to Section 4-280-110(E) of the Cable Ordinance and
Section 28.7 of this Agreement. Any such delay or failure to perform shall not
be deemed to be a violation of the Cable Ordinance or this Agreement. in the
event that a delay in performance or failure to perform affects only part of the
Grantees ability to perform such obligations under the Cable Ordinance or this
Agreement, the Grantee shall perform such obligations to the extent the Grantee
is able to do so in as expeditious a manner as possible. The Grantee shall
promptly notify the Cable Commission in writing of an event covered by this
Section 29.1 1, which writing shall include, at a minimum, the date, nature and
cause of such event. Additionally, the Grantee, in such notice, shall indicate
the anticipated extent of such delay and the specific obligations pursuant to
the Cable Ordinance or this Agreement to be affected.
29.12 Severability
------------
Except as otherwise provided in Section 4.2 of this Agreement, if any
provision of this Agreement or any portion of any provision of this Agreement is
deemed invalid under any applicable ordinance or federal or state law, such
provision shall be, to the extent invalid, deemed omitted and all remaining
provisions of this Agreement shall remain in full force and effect.
29.13 Notices
-------
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All notices and filings required by the Cable Ordinance, this Agreement
or any other applicable law or regulation shall be, except as otherwise provided
in this Agreement, or other applicable law or regulation:
If to the City: The Cable Administrator
Office of Cable Communications
510 North Peshtigo Court
Suite 900
Chicago, Illinois 60611
If to the Grantee: Glenn W. Milligan
President and CEO
21st Century Cable T.V., Inc.
455 North City Front Plaza
Chicago, Illinois 60611
and
Edward T. Joyce, Esq.
Edward T. Joyce and Associates
11 South LaSalle Street
Suite 1600
Chicago, Illinois 60603
and shall be by United States Mail, with all necessary postage pre-paid, except
as otherwise provided by this Agreement, the Cable Ordinance or any other law or
regulation.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their respective, duly authorized agents or officers, as of the day
and year set forth below.
City of Chicago
- -------------------------- -------------------------------
Date
21st Century Cable TV, Inc.
- -------------------------- By:
Date ----------------------------
Its:
---------------------------
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Approved as to form
and legality:
- ------------------------------
Corporation Counsel of the
City of Chicago
Date:
-------------------------
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EXHIBIT A
---------
FORM OF ACCEPTANCE
------------------
In accepting the franchise for Franchise Area 1 within the City of Chicago,
pursuant to Sections 4-180-470(A),(B), (C), 4-280-500(A) and 4-280-550(A) of the
Cable Ordinance, the Grantee hereby:
a) agrees to accept the validity of the terms and conditions of the
Chicago Cable Communications Ordinance, Chapter 4-280 of the Municipal Code and
the Agreement in their respective entireties relying upon the Grantee's own
investigation and understanding of the power and authority of the City of
Chicago to grant said franchise. The Grantee further agrees that it shall not,
at any time, proceed against the City in any claim or proceeding challenging any
term or provision of the Chicago Cable Communications Ordinance or Agreement as
unreasonable, arbitrary or void, or allege that the City did not have the
authority to impose such term or condition;
b) expressly acknowledges that the Grantee has not been induced to accept
the Agreement by any promise, verbal or written, on behalf of the City or by any
third person regarding any term or condition of the Chicago Cable Communications
Ordinance or the Agreement not expressed therein;
c) further acknowledges that the Grantee has carefully read the terms and
conditions of the Chicago Cable Communications Ordinance and the Agreement and
accepts without reservation the obligations imposed by the terms and conditions
therein; and
d) pledges that no promise or inducement, oral or written, has been made
to any City employee or official regarding receipt of this franchise.
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<PAGE>
Exhibit A (con't)
The undersigned hereby certifies:
That he/she has been duly authorized pursuant to [expressly identify the
corporate action permitting such action] to make this acceptance of the
franchise for Franchise Area I within the City of Chicago
The Grantee 21st Century Cable T.V., Inc.
Signature of Affiant
----------------------------
Name of Affiant
----------------------------
Title of Affiant
----------------------------
Date
----------------------------
Sworn to and subscribes before me
this __ day of _______, 1996.
- --------------------------
Notary
- --------------------------
Date Commission Expires
-54-
<PAGE>
EXHIBIT B
---------
Beginning at the intersection of Lake Michigan and the North City Limits;
thence west and south along the City Limits to the intersection of Kedzie Ave.
and Devon Ave. (City Limits); thence west on Devon Ave. (City Limits) to the
North Shore Channel; thence south on the North Shore Channel to Bryn Mawr Ave.;
thence east on Bryn Mawr Ave. to Western Ave.; thence north on Western Ave. to
Peterson Ave.; thence east on Peterson Ave. to Ravenswood Ave.; thence south on
Raveswood Ave. to Wellington Avenue.; thence west on Wellington Ave. to the C &
N.W. RY.; thence south on the C & N.W. RY. to Diversey Ave.; thence west on
Diversey Ave. to the North Branch of the Chicago River; thence south on the
North Branch of the Chicago River and the South Branch of the Chicago River to
18th St.; thence east on 18th St. to Clark St.; thence south on Clark St. to
Cermak Rd.; thence east on Cermak Rd. to Federal St.; thence south on Federal
St. and Federal St. extended across the Adlai E. Stevenson Expressway and
continuing south on Federal St. to 26th St.; thence west on 26th St. to the
C.R.I. & P.R.R.; thence south on the C.R.I. & P.R.R. to 35th St; thence east on
35th St. to Federal St.; thence south on Federal St. to Pershing Rd.; thence
west on Pershing Rd. to the C.R.I. & P.R.R.; thence south on the C.R.I. & P.R.R.
to 51st St.; thence east on 51st St. to Cottage Grove Ave.; thence north on
Cottage Grove Ave. to 43rd St.; thence east on 43rd St. and 43rd St. as extended
to Lake Michigan; thence north along Lake Michigan to the place of beginning.
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<PAGE>
EXHIBIT C
---------
SUBSCRIBER SERVICES
-------------------
In addition to other services the Grantee may offer on its cable television
network, the Grantee shall provide on its lowest-priced tier of service and to
all subscribers: two (2) local government access channels; all channels
dedicated to the Chicago Access Corporation; all television broadcast signals
required to be carried by FCC regulations; at least one (1) leased access
channel; and three (3) local origination channels, not more than two (2) of
which may be alphanumeric.
The Grantee shall, in addition, offer the following broad categories of
programming services which are available and meet the needs of the subscribers:
children's programming, family programming, cultural programming, educational
programming, consumer programming, ethnic programming, entertainment
programming, music programming, sports programming, news and public affairs
programming, business programming, religious programming and special interest
programming.
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EXHIBIT D
---------
USER DISCOUNTS
--------------
At such time as the Grantee may choose to activate an institutional network
system ("INS"), a discount for government and not-for-profit institutions shall
be established subject to applicable regulatory approvals.
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<PAGE>
EXHIBIT E-1
-----------
CONSTRUCTION SCHEDULE FORMS
---------------------------
I. Construction Schedule - Quarterly
II. Construction Schedule - Major Installations
III. Construction by Year - Subscriber Network System
IV. Monthly Construction Summary Report and Map
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<PAGE>
Exhibit E-1 (con't)
The Grantee: 21st Century Cable TV, Inc.
Franchise Area 1.
I. Construction Schedule - Quarterly
Quarter commencing ________________ to ____________, 199_
A. Subscriber Network System
1. Number of fiber optic node sections
to be constructed ____________
2. Number of fiber optic node sections
to be activated ____________
Summary
-------
Approximate Aerial Miles to be Constructed ____________
Approximate Underground Miles to be Constructed ____________
Approximate Total Miles to be Constructed ____________
Approximate Occupied Dwelling Units Passed ____________
Percentage (%) of Franchise Area 1 ODUs Passed ____________
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<PAGE>
Exhibit E-1 (con't)
-------------------
The Grantee: 21st Century Cable TV, Inc.
Franchise Area 1.
II. Construction Schedule - Major Installations
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<PAGE>
EXHIBIT E-3
-----------
CONSTRUCTION TIMETABLE
----------------------
FRANCHISE AREA I
----------------
1. Preconstruction Period
----------------------
The Grantee shall commence construction of its cable television headend
facilities within three (3) months following the Acceptance Date; and shall
commence construction and installation of its strand, and fiber and/or coaxial
cable distribution plant within six (6) months following the Acceptance Date.
2. Projected Occupied Dwellings and Miles
--------------------------------------
The following projections are an integral part of the Grantee's construction
timetable consistent with the graphic representation of that timetable depicted
in this exhibit.
Year of Occupied Dwelling Distribution Average Monthly
Constr. Units Passed Plant Milage Construction Rate
1 64,283 81.12 mi. 6.76 mi.
2 97,309 113.93 mi. 9.494 mi.
3 90,110 117.41 mi. 9.784 mi
4 29,747 45.74 mi. 3.812 mi.
TOTALS 271,449 358.20 mi. 7.462 mi.
MAP
[To Come]
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<PAGE>
E-3- I
EXHIBIT E-3
-----------
CONSTRUCTION TIMETABLE
----------------------
[graphic]
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<PAGE>
EXHIBIT F
STANDARD CHANNEL ALLOCATION
---------------------------
CHANNEL SERVICE
19 CAC
21 CAC
23 MUTV
25 Local Origination
27 CAC
36 CAC
42 CAC
49 MUTV
51 CAC
53 Leased Access
70 CAC
71 CAC
72 CAC
73 CAC
74 CAC
75 (partial) CAC
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<PAGE>
EXHIBIT G
---------
. - LOCAL ORIGINATION
-----------------
(21 st Century letter dated October 24, 1994 to Cable Administrator]
21ST CENTURY CABLE TV., INC.
---------------------------
October 24, 1994
Ms. Joyce Gallagher HAND DELIVERED
--------------
Cable Administrator
Office of Cable Communications 510 N. Peshtigo Court 9th Floor
Chicago, IL 60611
RE: LOCAL ORIGINATION PROPOSAL
----------------- --------
Dear Ms. Gallagher:
21st. Century Cable TV, Inc. ("21st Century") is submitting, as part of its
application for an Area 1 cable television franchise, the following proposal for
support of Local origination in Chicago.
As a new cable franchisee, 21st Century's presence in the marketplace will give
Local origination an incremental increase in funding and other tangible benefits
which will further the City's goal of, "maximizing new opportunities for access
to information, and increased communication among and within Chicago's diverse
neighborhoods, and other social and economic benefits throughout the City." This
goal complements well the city's overall desire that cable television serve "as
a means to improve communications between and among the citizens and public
institutions of the City and as a vehicle for the participation of all segments
of the City,, including minorities, in the economic opportunities created
thereby."
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<PAGE>
Additionally, 21st Century embraces the Chicago Cable Commission's Resolution
#454 which states, "that Local Origination supplement the other locally produced
programming (public, governments, and commercial/leased access) .... and
increase the public's choice of programming and foster community pride and
cultural diversity .... and be directed or geared to the City of Chicago and its
residents .... and be produced by City residents or business entities located in
the City of Chicago .... and designed specifically for City residents .... and
relates to local (Chicago) subjects and/or interests."
I. MISSION STATEMENT
-----------------
21st Century's interpretation of the mission of Local origination in
Chicago is both compatible and parallel with the aforementioned goals
set forth by the City of Chicago and Chicago Cable Commission.
Ms. Joyce Gallagher
October 24, 1994
Page Two
It is 21st Century's belief that. the 24-hour nonalphanumeric Local
Origination channel on its system be reserved exclusively for
programming produced by Chicago producers and businesses. This
channel should function as an "incubator" in which aspiring local
producers can hone and develop their skills and talents, as wel-I as
e)fdhange -ideas" and Viewpoints. The Local Origination program
should give Chicago residents, including minorities and women, access
to modern studio facilities and related production and editing
equipment which might not otherwise be available.
It is absolutely imperative that Local Origination programming mirror
the broad interests and cultural diversity of Chicago's ethnic
neighborhoods, which greatly contribute to its stature as a world
class city.
in concert with publicly conceived, ethnically sensitive and
professionally administered policies and procedures, Local Origination
should create improved communication, substantial economic benefits
and myriad career opportunities for all Chicagoans.
II. CAPITAL FUNDING
---------------
21st century's capital "funding proposal for Local Origination it both
straightforward and equitable.
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<PAGE>
of the total 1,019,380 households in the City's five cable franchise
areas, Cable Area I contains 271,449 homes. 21st Century's funding is
based upon the prorata share those Area 1 homes comprise of all
Chicago households divided by two. This halving reflects the fact
that 21st century will not enjoy a monopoly and must share its
potential customer universe with an established, preexisting Area 1
franchisees This number is then multiplied times the total Local,
Origination financial commitment made jointly by the two current
franchisees.
The 21st Century Local Origination funding formula is as follows:
271,449 Area 1 homes / 1,019,380 total homes / 2 Area 1 franchise holders X
---------------------------------------------------------------------------
S6 million original joint L.O. commitment
-----------------------------------------
$798,865.00
Ms. Joyce Gallagher
October 240 1994
.Page Three
21st Century will remit the $798,865.00 in funding for Local
Origination directly to the City of Chicago in fifteen equal annual
payments of $53,258-00. 21st Century requests that the City insure
that these monies represent a full incremental increase over the
current funding level.
Further, 21st Century requests that the Cable Administrator and
Chicago Cable Commission be given sole authority to identify the
specific uses (i.e., cameras, editing equipment, etc.) for this new
funding in order to generate the maximum benefit for the Local
Origination program, its participating local producers and ethnic
neighborhoods.
III. LOCAL ORIGINATION WORKSHOPS
---------------------------
In addition to the aforementioned capital funding for Local
Origination, 21st Century shall organize and fund 60 top-quality
production workshops designed to develop and expand the talents and
skills of local Chicago producers. Topics such as lighting, camera
operation, set design, script writing, casting, editing, and other
creative aspects of production will be addressed.Conducted on a
quarterly basis by locally and nationally recognized career
professionals, these 21st Century Local Origination workshops will be
open to all interested local producers at no charge. In addition to
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<PAGE>
the above referenced topics, these seasoned industry veterans will
share a wealth of motivating and insightful personal experiences.
21st Century shall insure that individuals recruited to conduct its
Local Origination seminars shall also equitably represent Chicago's
ethnic communities. Commitments to conduct four (4) workshops each
have already be obtained by 21st Century from a nationally acclaimed
African-American male film director and an Emmy and Peabody Award-
winning female communications and production company president.
Similar commitments from highly qualified Hispanic and Asian
professionals will be announced in the near future by 21st Century.
Ms. Joyce Gallagher
October 24, 1994
Page Four
IV. LOCAL ORIGINATION PROGRAM ADMINISTRATION
----------------------------------------
In light of the preexisting Local origination joint venture agreement
between the two current f ranchisees which provides for specified
periods of reciprocal administrative -- responsibility through at
least 1997, 21st Century hereby commits to its full prorata
administrative responsibility of the Local Origination program in a
timeframe and scope to be determined by and acceptable to the City.
Please feel free to contact me if further clarification or additional
information is desired.
Respectfully,
Glenn W. Milligan
President & CEO
GWM/lal
cc: Michael Hasten Ben Gibson Steve Murray
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<PAGE>
RECEIPT OF DOCUMENT ACKNOWLEDGED:
1994
Joyce Gallagher DATE
Cable Administrator
office of Cable Communications
City of Chicago
EXHIBIT H
-------
CHICAGO ACCESS CORPORATION PEG CAPITAL
--------------------------------------
21st CENTURY MANDATORY PEG ACCESS PAYMENT
(March 1, 1994 letter to Cable Administrator]
March 10 1994
Ms. Joyce Gallagher
Cable Administrator
City,,of Chicago
Re: CHICAGO ACCESS- CORPORATION (CAC) FUNDING AND CHANNEL CAPACITY
--------------------------------------------------------------
Dear Ms. Gallagher:
Throughout the past months and, in particular, during December, 01 1994, 21st
Century Cable TV, Inc. ("21st Century") participated in a dialoque with the
Chicago Access Corporation's ("CAC") executive director and attorney relating
yments the payments based an gross revenues and capi a payments which 21st
Century would make to CAC.
Specifically, 21st Century proposed to make an initial payment of $129,000
within six months of the grant of a franchise and an additional $100,000 within
twelve months at said grant. We believe our initial payment would therefore be
regarded as $223,000. in addition,, we committed to contribute It of our .gross
revenue to CAC an an annual basis which payments in the aggregate
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<PAGE>
we projected would total $60,850,,972 during the franchise period. After our
first year of operation and in each of the next four successive years (i.e.
throuqh year five), we proposed to pay CAC $100,000 per year to be used for
capital improvements. Thereafter and throughout the term of our franchise, we
proposed to pay CAC $50,OOO year to be used for capital improvements. This
committment in the aggregate, we beleive, far exceeds what should reasonably be
expected from 21st century considering that the initial capital costs of
establishing CAC's facilities were already paid for by the two companies who
have enjoyed a monopoly over the last ten years.
At the conclusion of our discussions,, we were informsd by CAC's counsel that
CAC did not wish to negotiate with us regarding the amount of our initial
payment and, the amounts of our annual payments were not based on gross
revenues. Instead, CAC said we should negotiate those amounts with the City
Council.
21st Century has been an record since the fil'ing of our' cable Franchise
Application that we would negotiate a11 contributions to CAC with the City
Council or its designee.
MS. Joyce Gallaqher
March, 1994
Page Two
Since these discussions with representatives of the CAC were
cordial and we thought, mutually beneficial, 21st Century
was
shocked by the harsh, politically-charged rhetoric contained the
unsigned commentss which CAC filed with your office this February.
CAC did not have the courtesy to send us a copy of their Comments even
though this document, both in form and
substance, deviates substantially from the agreement we
believed that we had in good faith reached-vith CAC.
21st Century is providing you with this information so
that you will understand why we did not give you a formal proposal with respect
to funding CAC. Since our funding apparently is still an issue with CAC and
possibly you, please consider this letter as a supplement to our franchise
Application. With respect to funding CAC, 2lst Century makes the following
proposal
A. Funding
1. Initial Payment 21st Century proposes to pay CAC
$225,000 within the first twelve months after issuance
of its franchise.
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<PAGE>
2. Percentage of Annual Gross Cable Revenue
21st Century has since its November 3, 1992 Cable Franchise
Application stated that it would pay it of its annual gross cable
---
revenues to CAC. That position will shortly be memorialized in a
contract between CAC and 21st Century.
3. Contributions of Funds for Studios, Equipment and Technical
-----------------------------------------------------------
Assistance
----------
21st Century has proposed to pay CAC $100,000 during
years two through five after the grant of a franchise and $50,000
per year thereafter for this purpose.
B. Channel Capacity
In its November 5. 1993 Cable Franchise Application (Page IX-1)
and in its September 5,. 1993 Preliminary Report Analysis &
Response (Paqe IX), 21st Century committed to make 10% of its
channel capacity or 11.6. channels available to CAC. 21st
Century assumed since CAC would not be able to use all 11.6
channels because it would not be offering more proqramming to
21st Century customers than to Chicago Cable or Prime Cable of
Chicago customers that 21st Century could utilize the unused
capacity with CAC permission.
We are writing to make it clear as possible that 21st Century without
reservation has dedicated 11.6 channels on its subscriber network system, free
of charge, f or the exclusive use and control of CAC.
With the exception of SEction A., Paragraph 2 (Percentage of Gross Cable
REvenues) herein, the funding to support 21st Century's CAC proposal is
contained in the $3,400,000 line item (Miscellaneous Franchise Obligations) of
Section IV-Financial, Pages IV-10 and IV-24a. submitted in our January 24, 1994
Supplemental Information.
21st Century hopes that this letter makes our position with respect to funding
CAC and use and control of 11.6 channels by CAC perfectly clear. If you have
any further questions, please contract us immediately. We request that you send
a copy of this letter to CAC so that if it has any further questions, it may
also contact us directly
Respectfully,
Glenn W. Milligan
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<PAGE>
President & CEO
RECEIPT ACKNOWLEDGED AND CERTIFIED:
EXHIBIT I
---------
MUNICIPAL UTILIZATION
---------------------
SUBSCRIBER NETWORK SYSTEM
-------------------------
1. Channel Commitments - The Grantee shall provide, free of charge, two (2)
-------------------
local government access channels on its subscriber network system for the
exclusive use and control of the City and other -local government agencies
designated by the. City. Said channels shall be administered by the City.
2. Service Outlets - Pursuant and in addition to Section 4-280-260(C) of the
---------------
Cable Ordinance, the Grantee shall provide, free of charge, one bidirectional
fiber optic service outlet for regular subscriber service to each of the
institutions and such other buildings used for governmental purposes as may be
designated by the City in areas which are passed by the Grantee's subscriber
network system.
3. Access to The Grantee's Facilities - The Grantee shall permit the City and
----------------------------------
other local government agencies designated by the City to use its studio,
facilities and equipment for municipal access programming. The Grantee shall
also provide direct audio and video feed capability between the municipal access
studios and facilities and its cable television system.
4. Staff - During the term of this Agreement, the Grantee shall provide, at a
minimum, for one (1) full-time skilled employee to staff the municipal access
studios and facilities, operate such studios and facilities, and create, produce
and cablecast quality municipal access programming under the direction of the
City. The Grantee employee shall be made available to the City within thirty
(30) days following the effective date of this Agreement, and work during the
hours and at the sites designated by the City and be competent, trained, and
knowledgeable in all aspects of cable television production and programming.
5. Municipal Cable/Technical Assistance - The Grantee shall provide to the
------------------------------------
City 2,000 hours of engineering consultation services without charge during the
15 year term of the franchise. The 2,000 hours of consultation services shall
be equally divided among the 15 years of the franchise; provided, however, that
if the City does not fully utilize its total hours of such engineering
consultation services in any one (1) year, any unused such services shall be
carried forward to the next year.
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<PAGE>
6. Municilial Cable Access Maintenance Fund - Commencing on the Acceptance
----------------------------------------
Date of the Agreement, the Grantee shall on request by the City on an annual
basis provide $10,000.00 to the City for the maintenance and operation of the
municipal access studios, facilities and equipment.
Exhibit J
---------
EQUAL EMPLOYMENT OPPORTUNITY/ AFFIRMATIVE ACTION PLAN
--------------------------- -----------
The City and the Grantee recognize that in order to ensure the participation of
minorities' and women in the Grantees work force that the Grantee must take
affirmative action to maximiz equal employment opportunities for minorities and
women. To this end, the Grantee, pursuant to Section 23.2 of the Agreement,
shall develop and file an Equal Employment Opportunity/Affirmative Action Plan
(the "EEO/AA Plan") with the Cable Comniission for approval within ninety (90)
days after the Date of Acceptance. For purposes of this Exhibit J and Section
23 of the Agreement, all general population and labor force statistics shall be
detived from the latest U.S. Census Data.
1. EEO/AA Plan
-----------
The Grantee's EEO/AA Plan shall contain:
A. A workforce profile that indicates the number of individual positions by job
title of each of the following job categories:
1. Officials and Managers/Technical/Professional;
2. Sales;
3. Office and Clerical;
4. Craftsmen;
5. Operatives;
6. Laborers; and
7. Service workers.
This workforce profile shall also indicate the levels by grade or pay scale of
the various positions within each job category.
B. Specific, numerical tive action goals. Such goals shall be set by;
I . -Multiplying established percentages for each group in the
appropriate job
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<PAGE>
category, by;
2. The number of positions (whether filled or vacant) indicated
in each job category; and
3. Subtracting the members of each group presently included in
the Grantee's workforce in each job category.
C. A description of the Grantee's EEO/AA Plan that demonstrates the Grantee's
commitment to maximizing the employment opportunities of minorities and women in
its workforce.
The Grantee's EEO/AA Plan shall be disseminated both internally and externally
and appropriately reflected in the Granteies:
1) Employee and Supervisory Manuals;
2) Training and Employment Materials;
3) Employment notices which set forth the rights of an employee
if he/she believes that he/she has been discriminated against;
4) Job application forms in bold type; and
5) Contracts with its Contractors and Subcontractors.
Also indicative of the Grantees efforts to disseminate its policy
shall be the featuring of minorities and women in advertisements,
posters or other public relations materials.
D. A description of personnel practices and procedures that will by used by
the Grantee to: 1) eliminate artificial barriers or other impediments to full
utilization of minorities and females and 2) ensure that the Grantee's policies,
procedures or practices are both neutral and nondiscriminatory on their face and
administered in a fair manner. This description shall provide an analysis of
personnel practices and procedures and include, but not be limited to, a general
description of the following:
1) The Grantee's selection process, including, but not limited
to, job descriptions, job titles, employee requirements,
application forms, interview procedures;
2) The Grantees transfer, evaluation, and promotion practices;
3) Salaries, fiinge benefits and other forms of compensation;
4) Accesubifity of the Grantee!s facilities or equipment to
handicapped persons, and
5) Seniority practices.
E. The designation of a senior company official who shall have full
responsibility for the development, implementation and monitoring of the
Grantee's EEO/AA policies and programs.
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This official shall be given adequate personnel and financial resources to
conduct the Grantee's EEO/AA policies and programs. The title of this official
shall appear in all materials relating to the Grantee's EEO/AA Plan.
F. A description of the procedures to be used by the Grantee to inform all of
its personnel that successfid implementation of and compliance with the
Grantee's EEO/AA policies and programs will be an essential element in
performance evaluation and promotion.
G. A description of a systematic, affirmative action recruitment program to be
used by the Grantee to attract minority and female applicants to the Grantees
workforce. Such description shall also identify applicant sources in the City's
labor force. The Grantee may rely on personnel resource organizations to obtain
data on current and potential applicant sources. Nfinority and women's
organizations and colleges with a significant proportion of minority and female
students may also provide such recruitment information. Techniques to recruit
potential applicants may include:
1) Placing job announcements/advertisements in newspapers;
2) On-site visits at minority and womens colleges;
3) Contacting and sending job announcements to minority and
women's professional organizations and civil rights, legal and
conununity organizations;
4) Attendance at special career programs at local high schools
and colleges or participating in conventions or meetings
sponsored by civil rights or public interest organizations; and
5) Announcing employment opportunities on radio and TV on both
minority and non-minority stations.
established and implemented by the Grantee to satisfy the employment
requirements set forth herein and in Section 23 of the Agreement.
1. A description of the Grantees internal audit and monitoring system that
must be integrated with the Grantee's normal personnel, budgetary and management
systems and used to conduct an analysis of each aspect of the Grantee's EEO/AA
policies and programs and to measure the effectiveness of this program. This
description shall include, but not be limited to:
1) A procedure for monitoring vacancies created by new hiring,
expansion, promotion, attrition or termination to assess
opportunities for meeting its E4ual Employment Opportunity and
Affirmative Action goals.
2) A procedure for assess'ng the usefulness of various
recruitment sources and techniques.
11. Underutilization Analysis
-------------------------
Subsequent to submission of its EEO/AA Plan, the Grantee shall be required to
conduct, on
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an annual basis, a statistical analysis pursuant to guidelines established by
the Cable Commission to determine whether minorities or women are underutilized
in the Grantee's workforce in any job category. Generally, this analysis shall
consist of a comparison of the projected annual, numerical affin,native action
goals of the Grantee and the actual representation of minorities and females in
the Grantee's workforce.
Exhibit K
---------
MBE AND WBE PLANS
-----------------
The City recognizes that (i) minority and women-owned businesses have
historically been underutilized in the cable television industry; (ii) the
minority and female populations comprise substantially more than half of the
general population of the City; (iii) there are a significant number of
qualified minority and women-owned businesses located within the City and (iv)
by providing opportunities to such minority and women-owned businesses, The
Grantee shall assist in increasing the participation of minority and women-owned
businesses in the cable television industry. To this end, the Grantee, pursuant
to Section 24.2 and 3 of the Agreement, shall develop separate NLBE' and
WBE'Plans.
I. MBE/WME Plans
-------------
Both the NME and WBE Plans of the Grantee shall contain:
A. A description of the Grantee's internal MBE/WBE policy that demonstrates
the Grantee conunitment to maximizing the participation of minority and women-
owned businesses located in the City in the construction, installation,
maintenance and operation of its cable television system. This policy shall be
dissen-dnated both internally and externally and be reflected in all of the
Grantee's contracts. Indicative of the Grantee's efforts to disseminate this
policy shall be:
1) Timely notice of the Grantees intent to award contracts to
the n-dnority and female business communities, MBE/WBE assistance
agencies and other MBE/WBE-related organizations;
2) Advertising in publications having significant circulation
among minorities and/or females;
3 Sponsoring conferences to advertise the Grantees MBE/WBE
policies and to explain the procedures for MBE/WBE participation;
4) Maintaining systematic contacts with the minority and female
business communities, MBE/WBE assistance agencies, MBE/WBE
contractor associations and other minority and female
organizations to encourage referrals of qualified MBE/WBE;
5) Commuricating the Grantees MBE/WBE policies to all existing
Contractors and subcontractors and requesting MBE/WBE referrals
for future considerations.
The designation of a senior company official who shall have full responsibility
for the development, implementation and monitoring of the Grantee's MBE/WBE
programs. This official shall be given adequate personnel and financial
resources to conduct such programs. The title of this official shall appear in
all of the Grantees materials relating to MBE/WBE.
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<PAGE>
C. A description of specific programs including those programs set forth
in Section XIVof the Grantee's Appfication that will be established and
implemented by the Grantee to meet its required MBE and WBE goals and to ensure
the participation of MBE/WBEs in the construction, installation, maintenance and
operation of its cable television system.
D. A description of specialized programs that the Grantee may, at its
option, establish and implement to meet its required MBE and WBE goals and to
ensure the participation of MBEs/WBEs in the construction, installation,
maintenance and operation of the Grantee's cable television system such as:
1) Set-asides for MBE/WES;
2) Joint venture arrangements between MBE/WBEs and other firms;
3) Sole source contracts with capable, qualified MBEs/ WBES;
4) Division of contracts to facilitate greater MBE/WBE
participation;
5) Accelerated or pro-mted payment plans and pro-rated delivery
schedules in order to minimize the cash flow problems of
MBE/WBEs;
6) Purchasing supplies and/or leasing the required equipment for
a job and then subcontracting with MBEs/WBEs only for the
expertise required to perform the job;and
7) Revolving loan funds.
Also indicative of the Grantee's efforts to meet its MBE/WBE goals shall be: a)
the deposit of funds in minority or women-owned banks; b) bonding, management
and technical assistance;
c) the dissemination of infomational materials; d) the sponsoring of seminars
and workshops-, and e) advising MBE/WBEs on organizational and contractual
requirements, bid specifications, contracting schedules and procurement
procedures.
E. A description of the categories and dollar values of all contracts to be
awarded by the Grantee.
F. A description of the categories and dollar values of all contracts that
should be excluded from the total dollar value of contracts to be awarded by the
Grantee because participation of MBE/WBEs would not be practically possible such
as factory direct purchases, purchases of sateuite-delivered services and
purchases of materials or equipment from a sole source of supply. These
exclusions must be justified by the Grantee in this description and are subject
to Cable Commission approval.
G. A description of the s internal audit and monitoring system that must be
integrated with the Grantee!s normal personnel, budgetary and management systems
and used for purposes of measuring the effectiveness of the Grantees MBE/WBE
programs. Said description shall:
1) Set forth specifically the steps the Grantee will take to identify
and award contracts to MBEs and WBES;
2) Detad the methods the Grantee will use for monitoring its MBE/WBE
programs;
3) Be consistent with the MBE/WBE counting methods set forth below:
a) The total dollar value of the contract awarded to the MBE/WBE
is counted toward the applicable MBE/WBE goals.
-76-
<PAGE>
b) The total dollar value of a contract with an MBE/WBE owned and
controlled by both minority males and non-minority females is counted
towards MBE or WBE goals respectively, in proportion to the percentage of
ownership and co ntrol of each group in the business.
c) The total dollar value of a contact with an MBE-owned and controlled by
minority women is counted towards either the applicable MBE goal or the WBE
goal, but not toward botil The Grantee may choose the goal to which the
contract value is applied.
d) The portion of the total dollar value of a contract with an eligible
joint venture that is equal to the percentage of ownership and control of
the MBE/WBE partner in the joint venture may be counted towards the
applicable MBE/WBE goals.
e) Only expenditures to MBE/WBEs that perform a "commercially useful
function" in the performance of a conma may be counted towards the
applicable MBE/WBE goals. An MBE/WBE is considered to perform a
"commercially useful function" if it is responsible for the execution of a
distinct element in the performance of a contract and carries out its
responsibilities by actively performing, managing and supervising the job.
f) The portion of the total dollar value of a sub-contract performed by an
MBE/WBE is counted towards the applicable MBE/WBE goals.
g) Materials and supplies obtained from MBE/WBE suppliers and manufacturers
may be counted towards the applicable MBE/WBE goals, provided that the
MBE/WBE assumes the actual and contractual responsibility for the provision
of materials or supplies. In cases where the MBE/WBE exercises the
exclusive role of a distributor, broker or agent for the obtaining of
materials or supplies, then only the commission, markup or fee earned by the
MBE/WBE may be counted towards the appficable MBE/WBE goals.
K- 6
EXHIBIT L
---------
PLAN OF INTERCONNECTION
-----------------------
(To Come - per Section 15.3 -
due 90 days after Acceptance Date]
-77-
<PAGE>
Exhibit 10.2
LICENSE AGREEMENT
THIS LICENSE AGREEMENT is made and entered into on this 27th day of October,
1994, by and between CHICAGO TRANSIT AUTHORITY, a municipal corporation of the
State of Illinois ("CTA") and 21st CENTURY CABLE TV, INC. ("21st Century"), an
Illinois corporation.
WHEREAS, 2lst Century is negotiating a cable television franchise
agreement with the City of Chicago to provide cable television service to
subscribers in the Chicago lakefront area;
WHEREAS, 21st Century has requested a license ("License") from CTA to
install and maintain fiberoptic cable on railway structures of CTA's Red, Brown
and Green transit lines;
WHEREAS, in exchange for the License, 2lst Century has agreed 1) to
provide and install, at its own expense, a minimum of 24 dedicated strands of
fiberoptic cable for-the exclusive use of CTA, 2) to give CTA the right to use,
barter or sell 100 thirty-second ad spots weekly to be aired on 21st Century
satellite channels of CTA's choice, and 3) to commit up to three virtual data
channels on the 21st Century system for CTA's exclusive use to disseminate
information about routes, schedules, boarding locations and any other
information directly related to CTA operations;
NOW THEREFORE, in consideration of the promises and agreements
hereinafter set forth to be performed by the parties hereto respectively, the
parties mutually agree as follows:
1. 21st Century's Installation Rights
----------------------------------
1.1 CTA hereby grants 21st Century the right to install and maintain
fiberoptic cable on railway structures of CTA's Red, Brown and Green transit
lines ("CTA Railway Structures") along the proposed route set forth in Exhibit
A. The cable installed by 21st Century on CTA Railway Structures for 21st
Century is referred to herein as "21st Century Cable." The cable
-1-
<PAGE>
installed by 21st Century on CTA Railway Structures for CTA is referred to
herein as "CTA Cable."
1.2 For identification purposes, 21st Century, at its own expense,
shall imprint a blue tracer line on the exterior jacket and shall imprint the
21st Century label at three-foot intervals along the entire 21st Century Cable.
1.3 21st Century shall submit to CTA in advance working drawings of
all proposed procedures and methods for installation of the 21st Century Cable
and CTA Cable on CTA Railway Structures. All installation shall be subject to
the prior review and approval of the General Manager, Engineering, Chicago
Transit Authority, P.O. Box 3555, Chicago, IL 60654.
1.4 21st Century shall provide written notice of its intent to begin
work to the General Manager, Rail System Maintenance, Chicago Transit Authority,
3915 W. Maypole Ave., Chicago, IL 60624 at least 10 days before commencing any
work on CTA Railway Structures. 21st Century agrees to comply with any time
restrictions, safety procedures, policies and other requirements (including but
not limited to attendance at Rapid Transit Right-of-Way Safety Training
sessions) imposed by CTA for all work performed on or near CTA Railway
Structures.
1.5 21st Century shall install and maintain the 21st Century Cable on
CTA Railway Structures in a good and workmanlike manner throughout the term of
this License Agreement and any renewals thereof. 21st Century will make no
attachments which will in any way interfere with the wires or attachments of CTA
or any other person or entity utilizing CTA property.
1.6 In the event CTA determines that the attachments securing 21st
Century Cable and CTA Cable must, for any reason, be moved or modified, 21st
Century shall, at its own expense, make all necessary changes of the equipment
to meet CTA's need.
1.7 21st Century shall use the fiberoptic cable on CTA's Railway
Structures solely for the purpose stated in 21st Century's franchise agreement
with the City of Chicago ("Franchise
-2-
<PAGE>
Agreement"). If 21st Century obtains any additional franchise or license or
intends to provide additional services via the 21st Century Cable, 21st Century
shall negotiate and reach an agreement with CTA regarding additional
compensation for CTA before using the fiberoptic cable for such additional
service or purpose.
1.8 The attachment rights for fiberoptic cable granted by CTA to 21st
Century under this License Agreement shall be nonexclusive. However, CTA shall
not grant to any other entity any attachment rights which would unreasonably
restrict 21st Century's ability to access, service and maintain the 21st Century
Cable.
1.9 21st Century agrees to reimburse CTA for all labor and materials
costs incurred by CTA as a result of the implementation of this License
Agreement, including but not limited to the costs of any CTA personnel required
to supervise the installation, maintenance and removal of 21st Century Cable on
CTA Railway Structures and CTA's expenses for the protection of its tracks,
structures, or operation during the progress of any work done hereunder. 21st
Century's duty to reimburse CTA as stated in this Paragraph 1.9 is unconditional
and shall remain in effect regardless of any other provision of this License
Agreement.
2. CTA's Fiberoptic Cable
----------------------
2.1 In the process of installing the 21st Century Cable, 21st Century
shall also provide and install, at its own expense, a dedicated fiberoptic cable
(the CTA Cable) containing a minimum of 24 continuous fiber strands for the
exclusive use of CTA along the attachment route described in Exhibit A. The CTA
Cable provided by 21st Century shall meet or exceed the quality and performance
standards of the 21st Century Cable on CTA Railway Structures. Upon
installation, the CTA Cable shall become the property of CTA.
2.2 21st Century, at its own expense, shall imprint a red tracer line
on the exterior jacket and shall imprint the words "CTA CABLE" at three-foot
intervals along the entire CTA Cable.
-3-
<PAGE>
2.3 In addition, 21st Century shall give CTA 200 feet of extra coiled
fiberoptic cable which shall be placed in a container provided by CTA at each
CTA rapid transit station along the 21st Century attachment route. Upon CTA's
request, 21st Century shall,. at its own expense, install such extra fiberoptic
cable in the CTA rapid transit stations along the 21st Century attachment route.
3. CTA's weekly ad spots
---------------------
3.1 Upon initiation of its local advertising insertion program and
continuously thereafter, 21st Century shall provide CTA with 100 thirty-second
ad spots weekly, at no charge and without restriction, to be aired on any basic
satellite channels on 21st Century's system that contractually grant permission
for local ad insertion.
3.2 CTA shall be solely responsible for all expenses incurred in the
production of its advertisements to be aired on 21st Century's cable television
system. Furthermore, CTA shall deliver these advertisements, along with
information regarding selected weekly air dates, times and channels, to 21st
Century within certain mutually agreeable timeframes in order to maximize 21st
Century's ability to sell unsold ad inventory not selected by CTA to other
customers.
3.3 21st Century grants CTA the unrestricted right to barter or sell,
for CTA's sole benefit, to an outside entity, any unused ads from its weekly
allowance of 100 thirty-second ad spots. If any unused ad spots are bartered or
sold by CTA, the recipient of these ad spots must comply with all other
provisions applicable to CTA and contained within this Paragraph 3.
3.4 CTA shall forfeit any ad spots that it does not use, barter or
sell from its weekly allowance. CTA shall not carry over or accumulate unused
ad spots from any given week to another week.
3.5 If, for any reason, 21st Century does not begin its local
advertising insertion program within sixty (60) days of the date when 21st
Century's subscriber level reaches 20,000,
-4-
<PAGE>
then CTA shall be entitled to monetary compensation in the amount of fifty
dollars ($50.00) per ad spot per week for each week the ad spots are not
provided.
-5-
<PAGE>
4. CTA's Virtual Data Channels
---------------------------
4.1 21st Century shall commit up to three of the virtual data
channels on the 21st Century system for CTA's exclusive use to disseminate
information about routes, schedules, boarding locations and any other
information directly related to CTA operations.
4.2 It shall be CTA's ongoing responsibility to provide 21st Century
with the operational information referred to in 4.1 in a mutually agreeable
electronic format. CTA will assume all responsibility for the accuracy of any
and all information submitted for distribution on 21st Century's virtual data
channels.
5. Indemnity
---------
21st Century shall indemnify and hold harmless CTA and its agents,
officers, officials, employees and assigns and any other persons or corporations
interested in CTA Railway Structures as owner or licensee or otherwise against
all injuries, deaths, losses, damages, claims, suits liabilities, judgments,
costs and expenses which may in any manner accrue against CTA as a consequence
of the award or performance of this License Agreement. This indemnity applies
(a) whether any loss for which CTA seeks indemnity shall be caused or
contributed to by the sole or partial negligent act or omission of 21st Century,
its agents, officials or employees; or (b) whether any loss for which CTA seeks
indemnity shall be caused or contributed to by the sole or partial negligently
act or omission of 21st Century's subcontractors or their agents, officials or
employees. 21st Century shall, at its own expense, appear, defend and pay all
charges of attorneys and all costs and other expenses arising in connection with
this indemnity. If any judgment is rendered against CTA, 21st Century shall at
its own expense satisfy and discharge the judgment. 21st Century expressly
understands and agrees that any performance-payment bond or insurance protection
required by this License Agreement, or otherwise provided by 21st Century, shall
in no way limit 21st Century's responsibility to indemnify and defend CTA
pursuant to this Paragraph 5.
-6-
<PAGE>
6. Insurance
---------
6.1 Unless otherwise agreed to in writing by CTA, 21st Century, at
its sole cost and expense, shall maintain at all times during the term of this
License Agreement policies of insurance for the mutual benefit of CTA and 21st
Century as follows:
a. Commercial general liability insurance against claims for
bodily injury and property damage occurring in and about CTA Railway
Structures or adjacent facilities in an amount of at least $1,000,000.00
per occurrence with an aggregate limit of $1,000,000. CTA must be listed as
an additional insured as per insurance services organization Form CG2010
and must receive a certified copy of the policy and the endorsement prior
to the commencement of work on CTA Railway Structures.
b. Worker's compensation insurance (Coverage A) to the extent
required under Illinois law. 21st Century must provide CTA with an accord
certificate of insurance evidencing coverage for all contractors performing
work on CTA property prior to the commencement of work on CTA Railway
Structures.
c. Automobile liability insurance in an amount of at least
$1,000,000 combined single limits. 21st Century must submit an accord
certificate evidencing the coverage prior to the commencement of work on
CTA Railway Structures.
d. Railroad protective liability for bodily injury and property
damage in an amount of at least $2,000,000 per occurrence and $6,000,000
aggregate. CTA must be listed as a named insured on the policy and must
receive, review and approve the original policy prior to the commencement
of work on CTA Railway Structures.
e. Such other insurance or in such amounts as may from time to
time be reasonably required by CTA against other insurable hazards that are
at the time commonly insured against in the case of property similarly
situated.
-7-
<PAGE>
6.2 All policies of insurance under Paragraph 6.1 shall be written by
companies satisfactory to CTA and licensed to do business in the State of
Illinois and have a financial rating of at least B+ in the most recent edition
of A.M. Best Guide.
6.3 Each policy of insurance under Paragraph 6.1 shall bear an
endorsement that such policy shall not be canceled or modified without at least
thirty (30) days prior written notice by certified mail to CTA's General
Manager, Benefit Services at the address in Paragraph 10. Furthermore, each
policy of insurance under Paragraph 6.1 shall contain a provision that no act or
omission of 21st Century shall affect or limit the obligation of the insurance
company to pay the amount of any loss sustained.
6.4 The insurance to be carried shall be in no way limited by any
limitations expressed in Paragraph 5, nor any limitation placed on the indemnity
therein given as a matter of law. In addition to the above, all such insurance
shall specifically include, but not by way of limitation, all claims arising or
alleged to arise against CTA under the Illinois Structural Work Act.
6.5 21st Century shall deliver to CTA any renewal or replacement
policy, endorsement or certificate at least thirty (30) days before the
expiration or other termination of an existing policy, endorsement or
certificate.
6.6 21st Century shall not carry separate insurance concurrent in
form or contributing in the event of loss with that required by this Agreement
unless CTA is included therein as an insured with loss payable as provided in
this Agreement.
6.7 21st Century shall perform and satisfy all requirements of the
companies writing any insurance policies referred to in this Agreement so that
at all times companies of good standing reasonably satisfactory to CTA shall be
willing to write such insurance.
6.8 If 21st Century fails or refuses to procure or maintain insurance
as required by this Agreement or fails or refuses to furnish CTA with required
proof that the insurance has been
-8-
<PAGE>
procured and is in force and paid for, CTA shall have the right, at CTA's
election and without notice, to procure and maintain such insurance as required
in Paragraph 6.1. 21st Century shall reimburse CTA for all costs related to
CTA's procurement of replacement insurance.
6.9 The amounts and types of insurance required of and provided by
21st Century under this License Agreement shall not exceed the amounts, and
types of insurance required of any future person or entity entering into any
similar agreement for attachments to and utilization of CTA property.
7. Relationship of the parties
---------------------------
The parties herein agree that their relationship is strictly that of
licensor (CTA) and licensee (21st Century); that this instrument is not a lease
and does not grant 21st Century any interest in CTA Railway Structures; and that
21st Century shall not be deemed to be an employee, agent or tenant of CTA for
any purpose whatsoever.
8. Term of Agreement
-----------------
The initial term of this License Agreement shall be for a period of fifteen
(15) years, concurrent with the initial term of the Franchise Agreement with the
City of Chicago. This License Agreement shall automatically be renewed for
subsequent fifteen (15) year terms contingent upon the written agreement of both
parties herein, with said approval not to be unreasonably withheld.
9. Termination
-----------
In the event that 21st Century is notified by CTA via certified letter of
any area(s) of noncompliance with the terms, covenants and conditions of this
License Agreement, and 21st Century fails to remedy such area(s) of
noncompliance within ten (10) working days of receipt of CTA's certified letter,
then CTA may terminate this License Agreement upon thirty (30) days written
notice to 21st Century. If, for any reason, CTA is no longer able to provide
rapid transit
-9-
<PAGE>
service on CTA Railway Structures, CTA may terminate this License Agreement by
providing thirty (30) days written notice to 21st Century.
10. Notice
------
Except as otherwise noted, all notices required under this License
Agreement shall be in writing and directed to the following:
President General Manager
21st Century Cable TV, Inc. Property & Admin. Services
401 E. Illinois Chicago Transit Authority
Suite 535 P.O. Box 3555
Chicago, IL 60611 Chicago, IL 60654
11. Assignment
----------
21st Century shall not pledge to any financing source or assign or transfer
to any affiliated or successor companies, partners or purchasers this Agreement
or any rights granted under this Agreement without the prior written consent of
the Chicago Transit Board. No assignment or transfer of this Agreement or
rights granted under this Agreement shall be effective unless the assignee or
transferee shall, at the time of such assignment or transfer, assume ill the
terms, covenants and conditions of this Agreement.
12. Miscellaneous
-------------
12.1 In performing any act, or service permitted under the terms of this
License Agreement, 21st Century shall not discriminate against any worker,
employee or any member of the public, because of race, creed, color, religion,
age, sex, national origin or physical or mental disability.
12.2 21st Century shall comply with all applicable federal, state and local
laws and all relevant CTA Ordinances, including but not limited to CTA's Ethics
Ordinance.
12.3 If this License Agreement contains any provision found to be unlawful,
said provision shall be deemed to be of no effect and shall be deemed stricken
from the License
-10-
<PAGE>
Agreement without affecting the binding force of the License Agreement as it
shall remain after omitting such provision.
12.4 The parties hereby agree that the laws of the State of Illinois shall
govern the interpretation of this License Agreement and that any lawsuit
initiated as a result of this License Agreement shall be filed in the applicable
Federal or State court in Chicago, Illinois. The parties further agree that the
only venue shall be the applicable Federal or State court located in Chicago,
Illinois.
13. Effective date
--------------
This License Agreement shall become effective upon the award to 21st
Century of a Franchise Agreement by the City of Chicago.
If 21st Century does not obtain a Franchise Agreement with the City of
Chicago within twelve (12) months of the execution of this License Agreement, at
CTA's sole option, this License Agreement shall be null and void.
-11-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this License Agreement
on the day and year first above written.
CHICAGO TRANSIT AUTHORITY 21st CENTURY CABLE TV, INC.
By: By:
---------------------------------- ---------------------------
President Its:
--------------------------
Attest: Signed and Sworn to on this
--------------------------- 27th day of October, 1994
Its:
---------------------------
Authorized by
Chicago Transit Board -----------------------------
Ordinance No. 94-117 Notary Public
Approved as to form and legality,
subject to proper authorization
and execution thereof:
- --------------------------------
Counsel
-12-
<PAGE>
Exhibit A
-13-
<PAGE>
Exhibit 12.1
21st CENTURY TELECOM GROUP, INC.
COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES
(Unaudited)
<TABLE>
<CAPTION>
Year Ended
March 31,
-------------------------------------------------
1995 1996 1997
--------------------------------------------------
<S> <C> <C> <C>
1. EARNINGS
a) Loss before interest expense and income taxes (663,886) (811,921) (2,379,449)
b) Portion of rental expense representative of the interest factor (1) (8,855) (11,422) (18,384)
--------------------------------------------------
Total of 1(a) and 1(b) (655,031) (800,499) (2,361,065)
2. COMBINED FIXED CHARGES
a) Total interest expense 115,428 214,688 437,843
b) Portion of rental expense representative of the interest factor (1) 8,855 11,422 18,384
c) Dividends on Class A Convertible 8% Cumulative preferred stock - - 280,795
--------------------------------------------------
Total 2(a) through 2(c) 124,283 226,110 737,022
--------------------------------------------------
3. RATIO OF EARNINGS TO COMBINED FIXED CHARGES (5.27) (3.54) (3.20)
==================================================
4. DEFICIENCY RELATED TO LESS THAN ONE-TO-ONE COVERAGE 779,314 1,026,609 3,098,087
==================================================
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended
December 31, Inception-to-Date
------------------------------ Oct. 29, 1992 to
1996 1997 December 31, 1997
--------------------------------------------------
<S> <C> <C> <C>
1. EARNINGS
a) Loss before interest expense and income taxes (1,735,884) (7,725,635) (11,963,470)
b) Portion of rental expense representative of the interest factor (1) (15,032) (148,025) (199,480)
--------------------------------------------------
Total of 1(a) and 1(b) (1,720,852) (7,577,610) (11,763,990)
2. COMBINED FIXED CHARGES
a) Total interest expense 376,828 119,226 925,240
b) Portion of rental expense representative of the interest factor (1) 15,032 148,025 199,480
c) Dividends on Class A Convertible 8% Cumulative preferred stock - 1,349,934 1,630,729
--------------------------------------------------
Total 2(a) through 2(c) 391,860 1,617,185 2,755,449
--------------------------------------------------
3. RATIO OF EARNINGS TO COMBINED FIXED CHARGES (4.39) (4.69) (4.27)
==================================================
4. DEFICIENCY RELATED TO LESS THAN ONE-TO-ONE COVERAGE 2,112,712 9,194,795 14,519,439
==================================================
</TABLE>
(1) We consider one-third of total rental expense to represent return on
capital.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTS
As independent public accounts, we hereby consent to the use of our reports (and
to all references to our Firm) included in or made a part of this registration
statement.
/s/
---------------------------------------
ARTHUR ANDERSEN LLP
Chicago, Illinois
March __, 1998
<PAGE>
Exhibit 25.1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM T-1
---------
STATEMENT OF ELIGIBILITY UNDER THE
TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
Check if an Application to Determine Eligibility
of a Trustee Pursuant to Section 305(b)(2) __
STATE STREET BANK AND TRUST COMPANY
(Exact name of trustee as specified in its charter)
Massachusetts 04-1867445
(Jurisdiction of incorporation or (I.R.S. Employer
organization if not a U.S. national bank) Identification No.)
225 Franklin Street, Boston, Massachusetts 02110
(Address of principal executive offices) (Zip Code)
John R. Towers, Esq. Executive Vice President and General Counsel
225 Franklin Street, Boston, Massachusetts 02110
(617) 654-3253
(Name, address and telephone number of agent for service)
21/st/ Century Telecom Group, Inc.
(Exact name of obligor as specified in its charter)
ILLINOIS (36-4076758)
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
World Trade Center- 350 N. Orleans - Suite 600
Chicago, Illinois 60654
(Address of principal executive offices) (Zip Code)
12-1/4% Senior Discount Notes Due 2008
(Title of indenture securities)
<PAGE>
GENERAL
Item 1. General Information.
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervisory authority to
which it is subject.
Department of Banking and Insurance of The Commonwealth of
Massachusetts, 100 Cambridge Street, Boston, Massachusetts.
Board of Governors of the Federal Reserve System, Washington,
D.C., Federal Deposit Insurance Corporation, Washington, D.C.
(b) Whether it is authorized to exercise corporate trust powers.
Trustee is authorized to exercise corporate trust powers.
Item 2. Affiliations with Obligor.
If the Obligor is an affiliate of the trustee, describe each such
affiliation.
The obligor is not an affiliate of the trustee or of its
parent, State Street Corporation.
(See note on page 2.)
Item 3. through Item 15. Not applicable.
Item 16. List of Exhibits.
List below all exhibits filed as part of this statement of
eligibility.
1. A copy of the articles of association of the trustee as now in
effect.
A copy of the Articles of Association of the trustee, as now
in effect, is on file with the Securities and Exchange Commission as
Exhibit 1 to Amendment No. 1 to the Statement of Eligibility and
Qualification of Trustee (Form T-1) filed with the Registration
Statement of Morse Shoe, Inc. (File No. 22-17940) and is incorporated
herein by reference thereto.
2. A copy of the certificate of authority of the trustee to commence
business, if not contained in the articles of association.
A copy of a Statement from the Commissioner of Banks of
Massachusetts that no certificate of authority for the trustee to
commence business was necessary or issued is on file with the
Securities and Exchange Commission as Exhibit 2 to Amendment No. 1 to
the Statement of Eligibility and Qualification of Trustee (Form T-1)
filed with the Registration Statement of Morse Shoe, Inc. (File
No. 22-17940) and is incorporated herein by reference thereto.
3. A copy of the authorization of the trustee to exercise corporate
trust powers, if such authorization is not contained in the documents specified
in paragraph (1) or (2), above.
A copy of the authorization of the trustee to exercise
corporate trust powers is on file with the Securities and Exchange
Commission as Exhibit 3 to Amendment No. 1 to the Statement of
Eligibility and Qualification of Trustee (Form T-1) filed with the
Registration Statement of Morse Shoe, Inc. (File No. 22-17940) and is
incorporated herein by reference thereto.
4. A copy of the existing by-laws of the trustee, or instruments
corresponding thereto.
A copy of the by-laws of the trustee, as now in effect, is
on file with the Securities and Exchange Commission as Exhibit 4 to
the Statement of Eligibility and Qualification of Trustee (Form T-1)
filed with the Registration Statement of Eastern Edison Company (File
No. 33-37823) and is incorporated herein by reference thereto.
<PAGE>
5. A copy of each indenture referred to in Item 4. if the obligor is
in default.
Not applicable.
6. The consents of United States institutional trustees required by
Section 321(b) of the Act.
The consent of the trustee required by Section 321(b) of the
Act is annexed hereto as Exhibit 6 and made a part hereof.
7. A copy of the latest report of condition of the trustee published
pursuant to law or the requirements of its supervising or examining authority.
A copy of the latest report of condition of the trustee
published pursuant to law or the requirements of its supervising or examining
authority is annexed hereto as Exhibit 7 and made a part hereof.
NOTES
In answering any item of this Statement of Eligibility which relates to
matters peculiarly within the knowledge of the obligor or any underwriter for
the obligor, the trustee has relied upon information furnished to it by the
obligor and the underwriters, and the trustee disclaims responsibility for the
accuracy or completeness of such information.
The answer furnished to Item 2. of this statement will be amended, if
necessary, to reflect any facts which differ from those stated and which would
have been required to be stated if known at the date hereof.
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, as
amended, the trustee, State Street Bank and Trust Company, a corporation
organized and existing under the laws of The Commonwealth of Massachusetts, has
duly caused this statement of eligibility to be signed on its behalf by the
undersigned, thereunto duly authorized, all in the City of Boston and The
Commonwealth of Massachusetts, on the February 25, 1998.
STATE STREET BANK AND TRUST COMPANY
By:
-------------------------------------
NAME Paul D. Allen
TITLE Vice President
<PAGE>
EXHIBIT 6
CONSENT OF THE TRUSTEE
Pursuant to the requirements of Section 321(b) of the Trust Indenture Act
of 1939, as amended, in connection with the proposed issuance by 21/st/ Century
Telecom Group, Inc. of its 12-1/4% Senior Discount Notes due 2008, we hereby
consent that reports of examination by Federal, State, Territorial or District
authorities may be furnished by such authorities to the Securities and Exchange
Commission upon request therefor.
STATE STREET BANK AND TRUST COMPANY
By:
-------------------------------------
NAME Paul D. Allen
TITLE Vice President
Dated: February 25, 1998
<PAGE>
3
EXHIBIT 7
Consolidated Report of Condition of State Street Bank and Trust Company,
Massachusetts and foreign and domestic subsidiaries, a state banking institution
organized and operating under the banking laws of this commonwealth and a member
of the Federal Reserve System, at the close of business September 30, 1997,
------------------
published in accordance with a call made by the Federal Reserve Bank of this
District pursuant to the provisions of the Federal Reserve Act and in accordance
with a call made by the Commissioner of Banks under General Laws, Chapter 172,
Section 22(a).
<TABLE>
<CAPTION>
Thousands of
ASSETS Dollars
<S> <C>
Cash and balances due from depository institutions:
Noninterest-bearing balances and currency and coin............................. 1,380,475
Interest-bearing balances...................................................... 8,821,855
Securities............................................................................... 10,461,989
Federal funds sold and securities purchased
under agreements to resell in domestic offices
of the bank and its Edge subsidiary............................................ 6,085,138
Loans and lease financing receivables:
Loans and leases, net of unearned income ...................................... 5,597,831
Allowance for loan and lease losses ........................................... 79,416
Allocated transfer risk reserve................................................ 0
Loans and leases, net of unearned income and allowances........................ 5,518,415
Assets held in trading accounts.......................................................... 917,895
Premises and fixed assets................................................................ 390,028
Other real estate owned.................................................................. 779
Investments in unconsolidated subsidiaries............................................... 34,278
Customers' liability to this bank on acceptances outstanding............................. 83,470
Intangible assets........................................................................ 227,659
Other assets............................................................................. 1,969,514
----------
Total assets............................................................................. 35,891,495
==========
LIABILITIES
Deposits:
In domestic offices............................................................ 8,095,559
Noninterest-bearing................................................. 5,962,025
Interest-bearing.................................................... 2,133,534
In foreign offices and Edge subsidiary......................................... 14,399,173
Noninterest-bearing................................................. 86,798
Interest-bearing.................................................... 14,312,375
Federal funds purchased and securities sold under
agreements to repurchase in domestic offices of
the bank and of its Edge subsidiary............................................ 7,660,881
Demand notes issued to the U.S. Treasury and Trading Liabilities......................... 1,107,552
Other borrowed money..................................................................... 589,733
Subordinated notes and debentures........................................................ 0
Bank's liability on acceptances executed and outstanding................................. 85,600
Other liabilities........................................................................ 1,830,593
Total liabilities........................................................................ 33,769,091
----------
EQUITY CAPITAL
Perpetual preferred stock and related
surplus.................................................................................. 0
Common stock............................................................................. 29,931
Surplus.................................................................................. 437,183
Undivided profits and capital reserves/Net unrealized holding gains (losses)............. 1,660,158
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Cumulative foreign currency translation adjustments...................................... (4,868)
Total equity capital..................................................................... 2,122,404
---------
Total liabilities and equity capital..................................................... 35,891,495
</TABLE>
4
I, Rex S. Schuette, Senior Vice President and Comptroller of the above named
bank do hereby declare that this Report of Condition has been prepared in
conformance with the instructions issued by the Board of Governors of the
Federal Reserve System and is true to the best of my knowledge and belief.
Rex S. Schuette
We, the undersigned directors, attest to the correctness of this Report of
Condition and declare that it has been examined by us and to the best of our
knowledge and belief has been prepared in conformance with the instructions
issued by the Board of Governors of the Federal Reserve System and is true and
correct.
David A. Spina
Marshall N. Carter
Truman S. Casner
<PAGE>
5
5. A copy of each indenture referred to in Item 4. if the obligor is in
default.
Not applicable.
6. The consents of United States institutional trustees required by
Section 321(b) of the Act.
The consent of the trustee required by Section 321(b) of the Act
is annexed hereto as Exhibit 6 and made a part hereof.
7. A copy of the latest report of condition of the trustee published
pursuant to law or the requirements of its supervising or examining authority.
A copy of the latest report of condition of the trustee published
pursuant to law or the requirements of its supervising or examining authority is
annexed hereto as Exhibit 7 and made a part hereof.
NOTES
In answering any item of this Statement of Eligibility which relates to
matters peculiarly within the knowledge of the obligor or any underwriter of the
obligor, the trustee has relied upon the information furnished to it by the
obligor and the underwriters, and the trustee disclaims responsibility for the
accuracy or completeness of such information.
The answer to Item 2. of this statement will be amended, if necessary, to
reflect any facts which differ from those stated and which would have been
required to be stated if known at the date hereof.
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, as
amended, the trustee, State Street Bank and Trust Company, a corporation duly
organized and existing under the laws of The Commonwealth of Massachusetts, has
duly caused this statement of eligibility to be signed on its behalf by the
undersigned, thereunto duly authorized, all in the City of Boston and The
Commonwealth of Massachusetts, on the February 25, 1998.
STATE STREET BANK AND TRUST COMPANY
By: /s/ NAME
-----------------------------
NAME Paul D. Allen
TITLE Vice President
<PAGE>
2
EXHIBIT 6
CONSENT OF THE TRUSTEE
Pursuant to the requirements of Section 321(b) of the Trust Indenture Act
of 1939, as amended, in connection with the proposed issuance by 21/st/ Century
Telecom Group, Inc. of its 12-1/4% Senior Discount Notes Due 2008, we hereby
consent that reports of examination by Federal, State, Territorial or District
authorities may be furnished by such authorities to the Securities and Exchange
Commission upon request therefor.
STATE STREET BANK AND TRUST COMPANY
By: /s/ NAME
------------------------------
NAME Paul D. Allen
TITLE Vice President
Dated: February 25, 1998
<PAGE>
EXHIBIT 99.1
LETTER OF TRANSMITTAL
21st Century Telecom Group, Inc.
Offer to Exchange its Registered
12-1/4% Senior Discount Notes due 2008
for any and all of its Outstanding
12-1/4% Senior Discount Notes due 2008
Pursuant to the Prospectus, dated March [__], 1998.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M. ON [__________, 1998], UNLESS
EXTENDED (THE "EXPIRATION DATE"). TENDERS MAY BE WITHDRAWN PRIOR TO 5:00 P.M.
ON THE EXPIRATION DATE.
By Registered or Certified Mail;
By Overnight Courier; or by Hand:
State Street Bank and Trust Company
Two International Place, 4th Floor
Boston, Massachusetts 02110-2804
Attention: Corporate Trust Department
By Facsimile: (617) 664-5371
Attention: Corporate Trust Department
Telephone: (617) 664-5625
Delivery of this Letter of Transmittal to an address other than as set
forth above, or transmission of instructions via a facsimile number other than
the one listed above will not constitute a valid delivery. The instructions
accompanying this Letter of Transmittal should be read carefully before this
Letter of Transmittal is completed.
The undersigned acknowledges that he or she has received the Prospectus,
dated March [__], 1998 (the "Prospectus"), of 21st Century Telecom Group, Inc.,
an Illinois corporation (the "Company"), and this Letter of Transmittal (this
"Letter") which, together with the Prospectus, constitute the Company's offer
(the "Exchange Offer") to exchange an aggregate principal amount at maturity of
$363,135,000 of 12-1/4% Senior Discount Notes Due 2008 (the "New Notes") which
have been registered under the Securities Act of 1933, as amended (the
"Securities Act"), pursuant to a Registration Statement of which the Prospectus
is a part, for an equal principal amount of the Company's outstanding 12-1/4%
Senior Discount Notes Due 2008 (the "Old Notes").
For each Old Note accepted for exchange, the holder of such Old Note will
receive a New Note having a principal amount at maturity equal to that of the
surrendered Old Note. The Company reserves the right, at anytime or from time
to time, to extend the Exchange Offer at its discretion, in which event the term
"Expiration Date" shall mean the latest time and date to which the Exchange
Offer is extended. In order to extend the Expiration Date, the Company will
notify the Exchange Agent of any extension by oral or written notice and will
mail to the record holders of Old Notes an announcement thereof, each prior to
9:00 a.m., Eastern Standard Time, on the next business day after the previously
scheduled Expiration Date. Such announcement may state that the Company is
extending the Exchange Offer for a specified period of time.
<PAGE>
This Letter is to be completed by holders of Old Notes if (i) certificates
of the Old Notes are to be forwarded herewith or (ii) delivery of Old Notes is
to be made by book-entry transfer to the account maintained by the Exchange
Agent at The Depository Trust Company (the "Book-Entry Transfer Facility")
pursuant to the procedures set forth in "The Exchange Offer" section of the
Prospectus. Holders of Old Notes whose certificates are not immediately
available, or who are unable to deliver their certificates or confirmation of
the book-entry tender of their Old Notes into the Exchange Agent's account at
the Book-Entry Transfer Facility (a "Book-Entry Confirmation") and all other
documents required by this Letter to the Exchange Agent on or prior to the
Expiration Date, must tender their Old Notes in accordance with the guaranteed
delivery procedures set forth in "The Exchange Offer--Guaranteed Delivery
Procedures" section of the Prospectus. See Instruction 1. Delivery of documents
to the Book-Entry Transfer Facility does not constitute delivery to the Exchange
Agent.
The undersigned has completed the appropriate boxes below and signed this
Letter to indicate the action the undersigned desires to take with respect to
the Exchange Offer. Holders who wish to tender their Old Notes must complete
this Letter of Transmittal in its entirety.
List below the Old Notes to which this Letter relates. If the space below
is inadequate, the certificate numbers and principal amount of Old Notes should
be listed on a separate signed schedule affixed hereto.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
DESCRIPTION OF OLD NOTES
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Aggregate
Principal Principal
Name(s) and Addresses of Registered Holder(s) Certificate Amount of Amount
(Please Fill in, if blank) Number(s)(1) Old Note(s) Tendered (2)
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
Total
- -------------------------------------------------------------------------------------------------------
(1) Need not be completed if Old Notes are being tendered by book-entry transfer.
(2) Unless otherwise indicated in this column, a holder will be deemed to have tendered ALL of the
Old Notes represented by the Old Notes indicated in column 2. See Instruction 2. Old Notes
tendered hereby must be in denominations of principal amount of $1,000 and any integral multiple
thereof.
See Instruction 1.
- -------------------------------------------------------------------------------------------------------
</TABLE>
[_] CHECK HERE IF TENDERED OLD NOTES ARE ENCLOSED HEREWITH.
[_] CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED BY BOOK-ENTRY
TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE
BOOK-ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING:
Name of Tendering Institution___________________________________________________
Account Number________________________ Transaction Code Number_______________
[_] CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE
OF GUARANTEED DELIVERY ENCLOSED HEREWITH AND COMPLETE THE FOLLOWING (For
use by Eligible Institutions Only):
Name(s) of Registered Old Note Holder(s)________________________________________
Window Ticket Number (if any)___________________________________________________
-2-
<PAGE>
Date of Execution of Note of Guaranteed Delivery________________________________
Name of Institution which guaranteed delivery___________________________________
If Delivered by Book-Entry Transfer, Complete the Following:
Account Number___________________ Transaction Code Number__________________
[_] CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENT OR SUPPLEMENTS
THERETO:
Name:___________________________________________________________________________
Address:________________________________________________________________________
________________________________________________________________________
-3-
<PAGE>
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
Upon the terms and conditions of the Exchange Offer, the undersigned hereby
tenders to the Company the aggregate principal amount of Old Notes indicated
above. Subject to, and effective upon, the acceptance for exchange of the Old
Notes tendered in accordance with this Letter of Transmittal, the undersigned
sells, assigns and transfers to, or upon the order of, the Company all rights,
title and interest in and to the Old Notes tendered hereby.
The undersigned hereby represents and warrants that (i) the undersigned is
the owner of the Old Notes tendered hereby, (ii) the undersigned has full power
and authority to tender, exchange, sell, assign and transfer the Old Notes
tendered hereby and (iii) the Company will acquire good and unencumbered title
thereto, free and clear of all liens, restrictions, charges and encumbrances and
not subject to any adverse claim when the same are accepted by the Company. The
undersigned hereby further represents to the Company that (i) any New Notes
acquired in exchange for Old Notes tendered hereby will have been acquired in
the ordinary course of business of the undersigned or such other person
receiving such New Notes, (ii) neither the holder of such Old Notes nor any such
other person is engaged in, or intends to engage in a distribution of such New
Notes, or has an arrangement or understanding with any person to participate in
the distribution of such New Notes, and (iii) neither the holder of such Old
Notes nor any such other person is an "affiliate," as defined in Rule 405 under
the Securities Act of 1933, as amended (the "Securities Act"), of the Company.
The undersigned also acknowledges that this Exchange Offer is being made by
the Company based upon the Company's understanding of an interpretation by the
staff of the Securities and Exchange Commission (the "Commission") as set forth
in no-action letters issued to third parties, that the New Notes issued in
exchange for the Old Notes pursuant to the Exchange Offer may be offered for
resale, resold and otherwise transferred by holders thereof (other than any such
holder that is an "affiliate" of the Company within the meaning of Rule 405
under the Securities Act), without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that: (1) such
holders are not affiliates of the Company within the meaning of Rule 405 under
the Securities Act; (2) such New Notes are acquired in the ordinary course of
such holders' business; and (3) such holders are not engaged in, and do not
intend to engage in, a distribution of such New Notes and have no arrangement or
understanding with any person to participate in the distribution of such New
Notes. However, the staff of the Commission has not considered the Exchange
Offer in the context of a no-action letter and there can be no assurance that
the staff of the Commission would make a similar determination with respect to
the Exchange Offer as in other circumstances. If a holder of Old Notes is an
affiliate of the Company, and is engaged in or intends to engage in a
distribution of the New Notes or has any arrangement or understanding with
respect to the distribution of the New Notes to be acquired pursuant to the
Exchange Offer, such holder could not rely on the applicable interpretations of
the staff of the Commission and must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with any secondary
resale transaction. If the undersigned is a broker-dealer that will receive New
Notes for its own account in exchange for Old Notes, it represents that the Old
Notes to be exchanged for the New Notes were acquired by it as a result of
market-making activities or other trading activities and acknowledges that it
will deliver a prospectus in connection with any resale of such New Notes;
however, by so acknowledging and by delivering a prospectus, the undersigned
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act.
The undersigned will, upon request, execute and deliver any additional
documents deemed by the Company to be necessary or desirable to complete the
sale, assignment and transfer of the Old Notes tendered hereby. All authority
conferred or agreed to be conferred in this Letter and every obligation of the
undersigned hereunder shall be binding upon the successors, assigns, heirs,
executors, administrators, trustees in bankruptcy and legal representatives of
the undersigned and shall not be affected by, and shall survive, the death or
incapacity of the undersigned. This tender may be withdrawn only in accordance
with the procedures set forth in "The Exchange Offer--Withdrawal of Tenders"
section of the Prospectus.
<PAGE>
Unless otherwise indicated herein in the box entitled "Special Issuance
Instructions" below, please deliver the New Notes (and, if applicable,
substitute certificates representing Old Notes for any Old Notes not exchanged)
in the name of the undersigned or, in the case of a book-entry delivery of Old
Notes, please credit the account indicated above maintained at the Book-Entry
Transfer Facility. Similarly, unless otherwise indicated under the box entitled
"Special Delivery Instructions" below, please send the New Notes (and, if
applicable, substitute certificates representing Old Notes for any Old Notes not
exchanged) to the undersigned at the address shown above in the box entitled
"Description of Old Notes."
THE UNDERSIGNED, BY COMPLETING THE BOX ENTITLED "DESCRIPTION OF OLD NOTES"
ABOVE AND SIGNING THIS LETTER OF TRANSMITTAL, WILL BE DEEMED TO HAVE TENDERED
THE OLD NOTES AS SET FORTH IN SUCH BOX ABOVE.
- --------------------------------------------------------------------------------
SPECIAL ISSUANCE INSTRUCTIONS
(See Instructions 3 and 4)
To be completed ONLY if certificates for Old Notes not exchanged and/or New
Notes are to be issued in the name of and sent to someone other than the
person(s) whose signature(s) appear(s) on this Letter above, or if Old Notes
delivered by book-entry transfer which are not accepted for exchange are to be
returned by credit to an account maintained at the Book-Entry Transfer Facility
other than the account indicated above.
Issue New Notes and/or Old Notes to:
Name(s) ________________________________________
(Please Type or Print)
________________________________________
(Please Type or Print)
Address: _______________________________________
(Including Zip Code)
(Complete accompanying Substitute Form W-9)*
[_] Credit unexchanged Old Notes delivered by book-entry transfer to the Book-
Entry Transfer Facility account set forth below.
- ------------------------------------------------------------
Book-Entry Transfer Facility
Account Number, if applicable)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SPECIAL DELIVERY INSTRUCTIONS
(See Instructions 3 and 4)
To be completed ONLY if certificates for Old Notes not exchanged and/or New
Notes are to be sent to someone other than the person(s) whose signature(s)
appear(s) on this Letter above, or to such person(s) at an address other than
shown in the box entitled "Description of Old Notes" on this Letter above.
Mail New Notes and/or Old Notes to:
Name(s) ________________________________________
(Please Type or Print)
________________________________________
(Please Type or Print)
Address: _______________________________________
_______________________________________
(Including Zip Code)
- --------------------------------------------------------------------------------
IMPORTANT: THIS LETTER OR A FACSIMILE HEREOF (TOGETHER WITH THE
CERTIFICATES FOR OLD NOTES OR A BOOK-ENTRY CONFIRMATION AND ALL OTHER REQUIRED
DOCUMENTS OR THE NOTICE OF GUARANTEED DELIVERY) MUST BE RECEIVED
-5-
<PAGE>
BY THE EXCHANGE AGENT PRIOR TO 5:00 P.M., EASTERN STANDARD TIME, ON THE
EXPIRATION DATE.
PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL
CAREFULLY BEFORE COMPLETING ANY BOX ABOVE.
-6-
<PAGE>
PLEASE SIGN HERE
(TO BE COMPLETED BY ALL TENDERING HOLDERS)
(Complete accompanying Substitute Form W-9 on reverse side)
Dated: _________________________________________________________________, 1998
__________________________ __________________________, 1998
__________________________ __________________________, 1998
(Signature of Owner) (Date)
Area Code and Telephone Number: __________________________________________
If a holder is tendering any Old Notes, this Letter of Transmittal must be
signed by the registered holder(s) as the name(s) appear(s) on the
certificate(s) for the Old Notes or by an person(s) authorized to become
registered holder(s) by endorsements and documents transmitted herewith. If
signature is by a trustee, executor, administrator, guardian, officer or other
person acting in a fiduciary or representative capacity, please set forth full
title. See Instruction 3.
Name(s):__________________________________________________________________
__________________________________________________________________
(Please Type or Print)
Capacity:_________________________________________________________________
Address:__________________________________________________________________
__________________________________________________________________
(Including Zip Code)
SIGNATURE GUARANTEE
(if required by Instruction 3)
Signature(s) Guaranteed by
an Eligible Institution:__________________________________________________
(Authorized Signature)
__________________________________________________________________________
(Title)
__________________________________________________________________________
(Name and Firm)
Dated:____________________________________________________________________, 1996
-7-
<PAGE>
INSTRUCTIONS
Forming Part of the Terms and Conditions of the Offer to Exchange
Registered 12-1/4% Senior Discount Notes Due 2008 for any and all Outstanding
12-1/4% Senior Discount Notes Due 2008 of 21st Century Telecom Group, Inc.
1. Delivery of this Letter and Old Notes; Guaranteed Delivery Procedures.
This Letter is to be completed by holders of Old Notes either if
certificates are to be forwarded herewith or if tenders are to be made pursuant
to the procedures for delivery by book-entry set forth in "The Exchange Offer--
Book-Entry Transfer" section of the Prospectus. Certificates for all physically
tendered Old Notes, or Book-Entry Confirmation, as the case may be, as well as a
properly completed and duly executed Letter of Transmittal (or facsimile
thereof) and any other documents required by this Letter, must be received by
the Exchange Agent at the address set forth herein on or prior to the Expiration
Date, or the tendering holder must comply with the guaranteed delivery
procedures set forth below. Old Notes tendered hereby must be in denominations
of principal amount of maturity of $1,000 and any integral multiple thereof.
Holders of Old Notes whose certificates for Old Notes are not immediately
available or who cannot deliver their certificates and all other required
documents to the Exchange Agent on or prior to the Expiration Date, or who
cannot complete the procedure for book-entry transfer on a timely basis, may
tender their Old Notes pursuant to the guaranteed delivery procedures set forth
in "The Exchange Offer--Guaranteed Delivery Procedures" section of the
Prospectus. Pursuant to such procedures, (i) such tender must be made through
an Eligible Institution (as defined below), (ii) prior to the Expiration Date,
the Exchange Agent must receive from such Eligible Institution a properly
completed and duly executed Letter of Transmittal (or facsimile thereof) and
Notice of Guaranteed Delivery, substantially in the form provided by the Company
(by facsimile transmission, mail or hand delivery), setting forth the name and
address of the holder of Old Notes and the amount of Old Notes tendered, stating
that the tender is being made thereby and guaranteeing that within five business
days after the date of execution of the Notice of Guaranteed Delivery, the
certificates for all physically tendered Old Notes, or a Book-Entry
Confirmation, as the case may be, and any other documents required by this
Letter will be deposited by the Eligible Institution with the Exchange Agent,
and (iii) the certificates for all physically tendered Old Notes, in proper form
for transfer, or Book-Entry Confirmation, as the case may be, and all other
documents required by this Letter, are received by the Exchange Agent within
five business days after the date of execution of the Notice of Guaranteed
Delivery.
The method of delivery of this Letter, the Old Notes and all other required
documents is at the election and risk of tendering holders, but the delivery
will be deemed made only when actually received or confirmed by the Exchange
Agent. If Old Notes are sent by mail, it is suggested that the mailing be made
sufficiently in advance of the Expiration Date to permit delivery to the
Exchange Agent prior to 5:00 p.m., Eastern Standard Time, on the Expiration
Date.
See "The Exchange Offer" section of the Prospectus.
2. Partial Tenders (not applicable to holders of Old Notes who tender by book-
entry transfer).
If less than all of the Old Notes evidenced by a submitted certificate are
to be tendered, the tendering holder(s) should fill in the aggregate principal
amount of Old Notes to be tendered in the box above entitled "Description of Old
Notes--Principal Amount Tendered." A reissued certificate representing the
balance of nontendered Old Notes will be sent to such tendering holder, unless
otherwise provided in the appropriate box on this Letter, promptly after the
Expiration Date. All of the Old Notes delivered to the Exchange Agent will be
deemed to have been tendered unless otherwise indicated.
3. Signatures on this Letter; Bond Powers and Endorsements; Guarantee of
Signatures.
-8-
<PAGE>
If this Letter is signed by the registered holder of the Old Notes tendered
hereby, the signature must correspond with the name as written on the face of
the certificates without any change whatsoever.
If any tendered Old Notes are owned of record by two or more joint owners,
all such owners must sign this Letter.
If any tendered Old Notes are registered in different names on several
certificates, it will be necessary to complete, sign and submit as many separate
copies of this Letter as there are different registrations of certificates.
When this Letter is signed by the registered holder of the Old Notes
specified herein and tendered hereby, no endorsements of certificates or
separate bond powers are required. If, however, the New Notes are to be issued,
or any untendered Old Notes are to be reissued, to a person other than the
registered holder, then endorsements of any certificates transmitted hereby or
separate bond powers are required. Signatures on such certificates must be
guaranteed by an Eligible Institution.
If this Letter is signed by a person other than the registered holder of
any certificates specified herein, such certificates must be endorsed or
accompanied by appropriate bond powers, in either case signed exactly as the
name of the registered holder appears on the certificates and the signatures on
such certificates must be guaranteed by an Eligible Institution.
If this Letter or any certificates or bond powers are signed by trustees,
executors, administrators, guardians, attorney-in-fact, officers of corporations
or others acting in a fiduciary or representative capacity, such persons should
so indicate when signing, and, unless waived by the Company, proper evidence
satisfactory to the Company of their authority to so act must be submitted.
Endorsements on certificates for Old Notes or signatures on bond powers
required by this Instruction 3 must be guaranteed by a firm which is a member of
a registered national securities exchange or a member of the National
Association of Securities Dealers, Inc. or by a commercial bank or trust company
having an office or correspondent in the United States (an "Eligible
Institution").
Signatures on this Letter need not be guaranteed by an Eligible
Institution, provided the Old Notes are tendered: (i) by a registered holder of
Old Notes (which term, for purposes of the Exchange Offer, includes any
participant in the Book-Entry Transfer Facility system whose name appears on a
security position listing as the holder of such Old Notes) tendered who has not
completed the box entitled "Special Issuance Instructions" or "Special Delivery
Instructions" on this Letter, or (ii) for the account of an Eligible
Institution.
4. Special Issuance and Delivery Instructions.
Tendering holders of Old Notes should indicate in the applicable box the
name and address to which New Notes issued pursuant to the Exchange Offer and/or
substitute certificates evidencing Old Notes not exchanged are to be issued or
sent, if different from the name or address of the person signing this Letter.
In the case of issuance in a different name, the employer identification or
social security number of the person named must also be indicated. A holder of
Old Notes tendering Old Notes by book-entry transfer may request that Old Notes
not exchanged be credited to such account maintained at the Book-Entry Transfer
Facility as such holder of Old Notes may designate hereon. If no such
instructions are given, such Old Notes not exchanged will be returned to the
name and address of the person signing this Letter.
5. Tax Identification Number.
-9-
<PAGE>
Federal income tax law generally requires that a tendering holder whose Old
Notes are accepted for exchange must provide the Company (as payor) with such
holder's correct Taxpayer Identification Number ("TIN") on Substitute Form W-9
below, which, in the case of a tendering holder who is an individual, is his or
her social security number. If the Company is not provided with the current TIN
or an adequate basis for as exemption, such tendering holder may be subject to a
$50 penalty imposed by the Internal Revenue Service. In addition, delivery of
New Notes to such tendering holder may be subject to backup withholding in an
amount equal to 31% of all reportable payments made after the exchange. If
withholding results in an overpayment of taxes, a refund may be obtained.
Exempt holders of Old Notes (including, among others, all corporations and
certain foreign individuals) are not subject to these backup withholding and
reporting requirements. See the enclosed Guidelines of Certification of
Taxpayer Identification Number on Substitute Form W-9 (the "W-9 Guidelines") for
additional instructions.
To prevent backup withholding, each tendering holder of Old Notes must
provide its correct TIN by completing the "Substitute Form W-9" set forth below,
certifying that the TIN provided is correct (or that such holder is awaiting a
TIN) and that (i) the holder is exempt from backup withholding, (ii) the holder
has not been notified by the Internal Revenue Service that such holder is
subject to a backup withholding as a result of a failure to report all interest
or dividends or (iii) the Internal Revenue Service has notified the holder that
such holder is no longer subject to backup withholding. If the tendering holder
of Old Notes is a nonresident, alien or foreign entity not subject to backup
withholding, such holder must give the Company a completed Form W-8, Certificate
of Foreign Status. These forms may be obtained from the Exchange Agent. If the
Old Notes are in more than one name or are not in the name of the actual owner,
such holder should consult the W-9 Guidelines for information on which TIN to
report. If such holder does not have a TIN, such holder should consult the W-9
Guidelines for instructions on applying for a TIN, check the box in Part 2 of
the Substitute Form W-9 and write "applied for" in lieu of its TIN. Note:
checking this box and writing "applied for" on the form means that such holder
has already applied for a TIN or that such holder intends to apply for one in
the near future. If such holder does not provide its TIN to the Company within
60 days, backup withholding will begin and continue until such holder furnishes
its TIN to the Company.
6. Transfer Taxes.
The Company will pay all transfer taxes, if any, applicable to the transfer
of Old Notes to it or its order pursuant to the Exchange Offer. If, however,
New Notes and/or substitute Old Notes not exchanged are to be delivered to, or
are to be registered or issued in the name of, any person other than the
registered holder of the Old Notes tendered hereby, or if tendered Old Notes are
registered in the name of any person other than the person signing this Letter,
or if a transfer tax is imposed for any reason other than the transfer of Old
Notes to the Company or its order pursuant to the Exchange Offer, the amount of
any such transfer taxes (whether imposed on the registered holder or any other
persons) will be payable by the tendering holder. If satisfactory evidence of
payment of such taxes or exemption therefrom is not submitted herewith, the
amount of such transfer taxes will be billed directly to such tendering holder.
Except as provided in this Instruction 6, it not be necessary for transfer
tax stamps to be affixed to the Old Notes specified in this Letter.
7. Waiver of Conditions.
The Company reserves the absolute right to waive satisfaction of any or all
conditions enumerated in the Prospectus.
8. No Conditional Tenders.
-10-
<PAGE>
No alternative, conditional, irregular or contingent tenders will be
accepted. All tending holders of Old Notes, by execution of this Letter, shall
waive any right to receive notice of the acceptance of their Old Notes for
exchange.
Neither the Company, the Exchange Agent nor any other person is obligated
to give notice of any defect or irregularity with respect to any tender of Old
Notes nor shall any of them incur any liability for failure to give any such
notice.
9. Mutilated, Lost, Stolen or Destroyed Old Notes.
Any holder whose Old Notes have been mutilated, lost, stolen or destroyed
should contact the Exchange Agent at the address indicated above for further
instructions.
10. Requests for Assistance or Additional Copies.
Questions relating to the procedure for tendering, as well as requests for
additional copies of the Prospectus and this Letter, may be directed to the
Exchange Agent, at the address and telephone number indicated above.
-11-
<PAGE>
TO BE COMPLETED BY ALL TENDERING HOLDERS
(See Instruction 5)
PAYOR'S NAME: 21ST CENTURY TELECOM GROUP, INC.
<TABLE>
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Part 1-PLEASE PROVIDE YOUR TIN IN THE BOX TIN:
AT RIGHT AND CERTIFY BY SIGNING AND DATING BELOW. ---------------------------------
Social security number or
Employer identification number
-------------------------------------------------------------------------------------------------
SUBSTITUTE Part 2-TIN Applied For [_]
-------------------------------------------------------------------------------------------------
Form W-9 CERTIFICATION: UNDER THE PENALTIES OF PERJURY, I CERTIFY THAT:
Department of the Treasury (1) the number shown on this form is my correct Taxpayer Identification Number (or I am waiting
Internal Revenue Service for a number to be issued to me);
Payor's Request for Taxpayer (2) I am not subject to backup withholding either because: (a) I am exempt from backup
Identification Number (TIN) withholding, (b) I have not been notified by the Internal Revenue Service (the "IRS") that I am
and Certification subject to backup withholding as a result of a failure to report all interests or dividends, or
(c) the IRS has notified me that I am no longer subject to backup withholding; and
(3) any other information provided on this form is true and correct.
SIGNATURE _____________________ DATE _________________
- ------------------------------------------------------------------------------------------------------------------------------------
You must cross out item (2) of the above certification if you have been notified by the IRS that you are subject to backup
withholding because of underreporting of interest or dividends on your tax return and you have not been notified by the IRS that
you are no longer subject to backup withholding.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED
THE BOX IN PART 2 OF SUBSTITUTE FORM W-9
- --------------------------------------------------------------------------------
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number has
not been issued to me, and either (a) I have mailed or delivered an application
to receive a taxpayer identification number to the appropriate Internal Revenue
Service Center or Social Security Administration Office or (b) I intend to mail
or deliver an application in the near future. I understand that if I do not
provide a taxpayer identification number by the time of the exchange, 31 percent
of all reportable payments made to me thereafter will be withheld until I
provide a number.
Signature ______________________________ Date _______________________________
- --------------------------------------------------------------------------------
-12-
<PAGE>
EXHIBIT 99.2
LETTER OF TRANSMITTAL
21st Century Telecom Group, Inc.
Offer to Exchange its Registered
13-3/4% Senior Cumulative Exchangeable Preferred Stock Due 2010
for any and all of its Outstanding
13-3/4% Senior Cumulative Exchangeable Preferred Stock Due 2010
Pursuant to the Prospectus, dated March [__], 1998.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M. ON [__________, 1998], UNLESS
EXTENDED (THE "EXPIRATION DATE"). TENDERS MAY BE WITHDRAWN PRIOR TO 5:00 P.M.
ON THE EXPIRATION DATE.
By Registered or Certified Mail;
By Overnight Courier; or by Hand:
Boston EquiServe Trust Company, N.A.
Mail Stop 45-01-40
150 Royall Street
Canton, Massachusetts 02021
Attention: Corporate Reorganization Department
By Facsimile: (781) 575-2549
Attention: Corporate Reorganization Department
Telephone: (781) 575-4325
Delivery of this Letter of Transmittal to an address other than as set
forth above, or transmission of instructions via a facsimile number other than
the one listed above will not constitute a valid delivery. The instructions
accompanying this Letter of Transmittal should be read carefully before this
Letter of Transmittal is completed.
The undersigned acknowledges that he or she has received the Prospectus,
dated March [__], 1998 (the "Prospectus"), of 21st Century Telecom Group, Inc.,
an Illinois corporation (the "Company"), and this Letter of Transmittal (this
"Letter") which, together with the Prospectus, constitute the Company's offer
(the "Exchange Offer") to exchange shares of its 13-3/4% Senior Cumulative
Exchangeable Preferred Stock Due 2010 (the "New Preferred Stock") which have
been registered under the Securities Act of 1933, as amended (the "Securities
Act"), pursuant to a Registration Statement of which the Prospectus is a part,
for an equal number of shares of the Company's outstanding 13-3/4% Senior
Cumulative Exchangeable Preferred Stock Due 2010 (the "Old Preferred Stock").
For each share of Old Preferred Stock accepted for exchange, the holder of
such share of Old Preferred Stock will receive a share New Preferred Stock
having a liquidation preference equal to that of the surrendered Old Preferred
Stock. The Company reserves the right, at anytime or from time to time, to
extend the Exchange Offer at its discretion, in which event the term "Expiration
Date" shall mean the latest time and date to which the Exchange Offer is
extended. In order to extend the Expiration Date, the Company will notify the
Exchange Agent of any extension by oral or written notice and will mail to the
record holders of Old Preferred Stock an announcement thereof, each prior to
9:00 a.m., Eastern Standard Time, on the next business day after the
<PAGE>
previously scheduled Expiration Date. Such announcement may state that the
Company is extending the Exchange Offer for a specified period of time.
This Letter is to be completed by holders of Old Preferred Stock if (i)
certificates of the Old Preferred Stock are to be forwarded herewith or (ii)
delivery of Old Preferred Stock is to be made by book-entry transfer to the
account maintained by the Exchange Agent at The Depository Trust Company (the
"Book-Entry Transfer Facility") pursuant to the procedures set forth in "The
Exchange Offer" section of the Prospectus. Holders of Old Preferred Stock whose
certificates are not immediately available, or who are unable to deliver their
certificates or confirmation of the book-entry tender of their Old Preferred
Stock into the Exchange Agent's account at the Book-Entry Transfer Facility (a
"Book-Entry Confirmation") and all other documents required by this Letter to
the Exchange Agent on or prior to the Expiration Date, must tender their Old
Preferred Stock in accordance with the guaranteed delivery procedures set forth
in "The Exchange Offer--Guaranteed Delivery Procedures" section of the
Prospectus. See Instruction 1. Delivery of documents to the Book-Entry Transfer
Facility does not constitute delivery to the Exchange Agent.
The undersigned has completed the appropriate boxes below and signed this
Letter to indicate the action the undersigned desires to take with respect to
the Exchange Offer. Holders who wish to tender their Old Preferred Stock must
complete this Letter of Transmittal in its entirety.
List below the Old Preferred Stock to which this Letter relates. If the
space below is inadequate, the certificate numbers and number of shares of Old
Preferred Stock should be listed on a separate signed schedule affixed hereto.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
DESCRIPTION OF OLD PREFERRED STOCK
- --------------------------------------------------------------------------------------------------
Aggregate Number of
Number of Shares of Old
Shares of Old Preferred
Name(s) and Addresses of Registered Holder(s) Certificate Preferred Stock
(Please Fill in, if blank) Number(s)(1) Stock Tendered (2)
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
Total
- --------------------------------------------------------------------------------------------------
</TABLE>
(1) Need not be completed if Old Preferred Stock are being tendered by book-
entry transfer.
(2) Unless otherwise indicated in this column, a holder will be deemed to have
tendered ALL of the Old Preferred Stock represented by the Old Preferred
Stock indicated in column 2. See Instruction 2.
- --------------------------------------------------------------------------------
[_] CHECK HERE IF TENDERED SHARES OF OLD PREFERRED STOCK ARE ENCLOSED HEREWITH.
[_] CHECK HERE IF TENDERED SHARES OF OLD PREFERRED STOCK ARE BEING DELIVERED BY
BOOK-ENTRY TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT
WITH THE BOOK-ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING:
Name of Tendering Institution
---------------------------------------------------
Account Number Transaction Code Number
----------------------- --------------
[_] CHECK HERE IF TENDERED SHARES OF OLD PREFERRED STOCK ARE BEING DELIVERED
PURSUANT TO A NOTICE OF GUARANTEED DELIVERY ENCLOSED HEREWITH AND COMPLETE
THE FOLLOWING (For use by Eligible Institutions Only):
-2-
<PAGE>
Name(s) of Registered Old Preferred Stock Holder(s)
-----------------------------
Window Ticket Number (if any)
---------------------------------------------------
Date of Execution of Notice of Guaranteed Delivery
------------------------------
Name of Institution which guaranteed delivery
-----------------------------------
If Delivered by Book-Entry Transfer, Complete the Following:
Account Number Transaction Code Number
----------------------- -----------------
[_] CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENT OR SUPPLEMENTS
THERETO:
Name:
---------------------------------------------------------------------------
Address:
------------------------------------------------------------------------
------------------------------------------------------------------------
-3-
<PAGE>
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
Upon the terms and conditions of the Exchange Offer, the undersigned hereby
tenders to the Company the aggregate number of shares of Old Preferred Stock
indicated above. Subject to, and effective upon, the acceptance for exchange of
the Old Preferred Stock tendered in accordance with this Letter of Transmittal,
the undersigned sells, assigns and transfers to, or upon the order of, the
Company all rights, title and interest in and to the Old Preferred Stock
tendered hereby.
The undersigned hereby represents and warrants that (i) the undersigned is
the owner of the Old Preferred Stock tendered hereby, (ii) the undersigned has
full power and authority to tender, exchange, sell, assign and transfer the Old
Preferred Stock tendered hereby and (iii) the Company will acquire good and
unencumbered title thereto, free and clear of all liens, restrictions, charges
and encumbrances and not subject to any adverse claim when the same are accepted
by the Company. The undersigned hereby further represents to the Company that
(i) any New Preferred Stock acquired in exchange for Old Preferred Stock
tendered hereby will have been acquired in the ordinary course of business of
the undersigned or such other person receiving such New Preferred Stock, (ii)
neither the holder of such Old Preferred Stock nor any such other person is
engaged in, or intends to engage in a distribution of such New Preferred Stock,
or has an arrangement or understanding with any person to participate in the
distribution of such New Preferred Stock, and (iii) neither the holder of such
Old Preferred Stock nor any such other person is an "affiliate," as defined in
Rule 405 under the Securities Act of 1933, as amended (the "Securities Act"), of
the Company.
The undersigned also acknowledges that this Exchange Offer is being made by
the Company based upon the Company's understanding of an interpretation by the
staff of the Securities and Exchange Commission (the "Commission") as set forth
in no-action letters issued to third parties, that the New Preferred Stock
issued in exchange for the Old Preferred Stock pursuant to the Exchange Offer
may be offered for resale, resold and otherwise transferred by holders thereof
(other than any such holder that is an "affiliate" of the Company within the
meaning of Rule 405 under the Securities Act), without compliance with the
registration and prospectus delivery provisions of the Securities Act, provided
that: (1) such holders are not affiliates of the Company within the meaning of
Rule 405 under the Securities Act; (2) such New Preferred Stock is acquired in
the ordinary course of such holders' business; and (3) such holders are not
engaged in, and do not intend to engage in, a distribution of such New Preferred
Stock and have no arrangement or understanding with any person to participate in
the distribution of such New Preferred Stock. However, the staff of the
Commission has not considered the Exchange Offer in the context of a no-action
letter and there can be no assurance that the staff of the Commission would make
a similar determination with respect to the Exchange Offer as in other
circumstances. If a holder of Old Preferred Stock is an affiliate of the
Company, and is engaged in or intends to engage in a distribution of the New
Preferred Stock or has any arrangement or understanding with respect to the
distribution of the New Preferred Stock to be acquired pursuant to the Exchange
Offer, such holder could not rely on the applicable interpretations of the staff
of the Commission and must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any secondary resale
transaction. If the undersigned is a broker-dealer that will receive New
Preferred Stock for its own account in exchange for Old Preferred Stock, it
represents that the Old Preferred Stock to be exchanged for the New Preferred
Stock was acquired by it as a result of market-making activities or other
trading activities and acknowledges that it will deliver a prospectus in
connection with any resale of such New Preferred Stock; however, by so
acknowledging and by delivering a prospectus, the undersigned will not be deemed
to admit that it is an "underwriter" within the meaning of the Securities Act.
The undersigned will, upon request, execute and deliver any additional
documents deemed by the Company to be necessary or desirable to complete the
sale, assignment and transfer of the Old Preferred Stock tendered hereby. All
authority conferred or agreed to be conferred in this Letter and every
obligation of the undersigned hereunder shall be binding upon the successors,
assigns, heirs, executors, administrators, trustees in bankruptcy and legal
representatives of the undersigned and shall not be affected by, and shall
survive, the death or
<PAGE>
incapacity of the undersigned. This tender may be withdrawn only in accordance
with the procedures set forth in "The Exchange Offer--Withdrawal of Tenders"
section of the Prospectus.
Unless otherwise indicated herein in the box entitled "Special Issuance
Instructions" below, please deliver the New Preferred Stock (and, if applicable,
substitute certificates representing Old Preferred Stock for any Old Preferred
Stock not exchanged) in the name of the undersigned or, in the case of a book-
entry delivery of Old Preferred Stock, please credit the account indicated above
maintained at the Book-Entry Transfer Facility. Similarly, unless otherwise
indicated under the box entitled "Special Delivery Instructions" below, please
send the New Preferred Stock (and, if applicable, substitute certificates
representing Old Preferred Stock for any Old Preferred Stock not exchanged) to
the undersigned at the address shown above in the box entitled "Description of
Old Preferred Stock."
THE UNDERSIGNED, BY COMPLETING THE BOX ENTITLED "DESCRIPTION OF OLD
PREFERRED STOCK" ABOVE AND SIGNING THIS LETTER OF TRANSMITTAL, WILL BE DEEMED TO
HAVE TENDERED THE SHARES OF OLD PREFERRED STOCK AS SET FORTH IN SUCH BOX ABOVE.
- --------------------------------------------------------------------------------
SPECIAL ISSUANCE INSTRUCTIONS
(See Instructions 3 and 4)
To be completed ONLY if certificates for Old Preferred Stock not exchanged
and/or New Preferred Stock are to be issued in the name of and sent to someone
other than the person(s) whose signature(s) appear(s) on this Letter above, or
if Old Preferred Stock delivered by book-entry transfer which is not accepted
for exchange are to be returned by credit to an account maintained at the Book-
Entry Transfer Facility other than the account indicated above.
Issue New Preferred Stock and/or Old Preferred Stock to:
Name(s)
-------------------------------------------------------------------------
(Please Type or Print)
- --------------------------------------------------------------------------------
(Please Type or Print)
Address:
------------------------------------------------------------------------
(Including Zip Code)
(Complete accompanying Substitute Form W-9)*
[_] Credit unexchanged Old Preferred Stock delivered by book-entry transfer to
the Book-Entry Transfer Facility account set forth below.
- --------------------------------------------------------------------------------
(Book-Entry Transfer Facility
Account Number, if applicable)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SPECIAL DELIVERY INSTRUCTIONS
(See Instructions 3 and 4)
To be completed ONLY if certificates for Old Preferred Stock not exchanged
and/or New Preferred Stock are to be sent to someone other than the person(s)
whose signature(s) appear(s) on this Letter above, or to such person(s) at an
address other than shown in the box entitled "Description of Old Preferred
Stock" on this Letter above.
Mail New Preferred Stock and/or Old Preferred Stock to:
Name(s)
-------------------------------------------------------------------------
(Please Type or Print)
- --------------------------------------------------------------------------------
(Please Type or Print)
Address:
------------------------------------------------------------------------
(Including Zip Code)
- --------------------------------------------------------------------------------
-5-
<PAGE>
IMPORTANT: THIS LETTER OR A FACSIMILE HEREOF (TOGETHER WITH THE
CERTIFICATES FOR SHARES OF OLD PREFERRED STOCK OR A BOOK-ENTRY CONFIRMATION AND
ALL OTHER REQUIRED DOCUMENTS OR THE NOTICE OF GUARANTEED DELIVERY) MUST BE
RECEIVED BY THE EXCHANGE AGENT PRIOR TO 5:00 P.M., EASTERN STANDARD TIME, ON THE
EXPIRATION DATE.
PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL
CAREFULLY BEFORE COMPLETING ANY BOX ABOVE.
-6-
<PAGE>
PLEASE SIGN HERE
(TO BE COMPLETED BY ALL TENDERING HOLDERS)
(Complete accompanying Substitute Form W-9 on reverse side)
Dated: , 1998
----------------------------------------------------------------
, 1998
---------------------------- -----------------------
, 1998
---------------------------- -----------------------
(Signature of Owner) (Date)
Area Code and Telephone Number:
------------------------------------------------
If a holder is tendering any Old Preferred Stock, this Letter of
Transmittal must be signed by the registered holder(s) as the name(s) appear(s)
on the certificate(s) for the Old Preferred Stock or by an person(s) authorized
to become registered holder(s) by endorsements and documents transmitted
herewith. If signature is by a trustee, executor, administrator, guardian,
officer or other person acting in a fiduciary or representative capacity, please
set forth full title. See Instruction 3.
Name(s):
-------------------------------------------------------------------
-------------------------------------------------------------------
(Please Type or Print)
Capacity:
------------------------------------------------------------------
Address:
-------------------------------------------------------------------
-------------------------------------------------------------------
(Including Zip Code)
SIGNATURE GUARANTEE
(if required by Instruction 3)
Signature(s) Guaranteed by
an Eligible Institution:
---------------------------------------------------
(Authorized Signature)
- --------------------------------------------------------------------------------
(Title)
- --------------------------------------------------------------------------------
(Name and Firm)
Dated: , 1996
------------------------------------------------------------------
-7-
<PAGE>
INSTRUCTIONS
Forming Part of the Terms and Conditions of the Offer to Exchange
Registered 13-3/4% Senior Cumulative Exchangeable Preferred Stock Due 2010 for
any and all Outstanding 13-3/4% Senior Cumulative Exchangeable Preferred Stock
Due 2010 of 21st Century Telecom Group, Inc.
1. Delivery of this Letter and Old Preferred Stock; Guaranteed Delivery
Procedures.
This Letter is to be completed by holders of Old Preferred Stock either if
certificates are to be forwarded herewith or if tenders are to be made pursuant
to the procedures for delivery by book-entry set forth in "The Exchange Offer--
Book-Entry Transfer" section of the Prospectus. Certificates for all physically
tendered Old Preferred Stock, or Book-Entry Confirmation, as the case may be, as
well as a properly completed and duly executed Letter of Transmittal (or
facsimile thereof) and any other documents required by this Letter, must be
received by the Exchange Agent at the address set forth herein on or prior to
the Expiration Date, or the tendering holder must comply with the guaranteed
delivery procedures set forth below.
Holders of Old Preferred Stock whose certificates for Old Preferred Stock
are not immediately available or who cannot deliver their certificates and all
other required documents to the Exchange Agent on or prior to the Expiration
Date, or who cannot complete the procedure for book-entry transfer on a timely
basis, may tender their Old Preferred Stock pursuant to the guaranteed delivery
procedures set forth in "The Exchange Offer--Guaranteed Delivery Procedures"
section of the Prospectus. Pursuant to such procedures, (i) such tender must be
made through an Eligible Institution (as defined below), (ii) prior to the
Expiration Date, the Exchange Agent must receive from such Eligible Institution
a properly completed and duly executed Letter of Transmittal (or facsimile
thereof) and Notice of Guaranteed Delivery, substantially in the form provided
by the Company (by facsimile transmission, mail or hand delivery), setting forth
the name and address of the holder of Old Preferred Stock and the number of
shares of Old Preferred Stock tendered, stating that the tender is being made
thereby and guaranteeing that within five business days after the date of
execution of the Notice of Guaranteed Delivery, the certificates for all
physically tendered Old Preferred Stock, or a Book-Entry Confirmation, as the
case may be, and any other documents required by this Letter will be deposited
by the Eligible Institution with the Exchange Agent, and (iii) the certificates
for all physically tendered Old Preferred Stock, in proper form for transfer, or
Book-Entry Confirmation, as the case may be, and all other documents required by
this Letter, are received by the Exchange Agent within five business days after
the date of execution of the Notice of Guaranteed Delivery.
The method of delivery of this Letter, the Old Preferred Stock and all
other required documents is at the election and risk of tendering holders, but
the delivery will be deemed made only when actually received or confirmed by the
Exchange Agent. If shares of Old Preferred Stock are sent by mail, it is
suggested that the mailing be made sufficiently in advance of the Expiration
Date to permit delivery to the Exchange Agent prior to 5:00 p.m., Eastern
Standard Time, on the Expiration Date.
See "The Exchange Offer" section of the Prospectus.
2. Partial Tenders (not applicable to holders of Old Preferred Stock who tender
by book-entry transfer).
If less than all of the shares of Old Preferred Stock evidenced by a
submitted certificate are to be tendered, the tendering holder(s) should fill in
the aggregate number of shares of Old Preferred Stock to be tendered in the box
above entitled "Description of Old Preferred Stock--Number of Shares of Old
Preferred Stock Tendered." A reissued certificate representing the balance of
nontendered shares of Old Preferred Stock will be sent to such tendering holder,
unless otherwise provided in the appropriate box on this Letter, promptly after
the Expiration Date. All of the Old Preferred Stock delivered to the Exchange
Agent will be deemed to have been tendered unless otherwise indicated.
3. Signatures on this Letter; Bond Powers and Endorsements; Guarantee of
Signatures.
-8-
<PAGE>
If this Letter is signed by the registered holder of the Old Preferred
Stock tendered hereby, the signature must correspond with the name as written on
the face of the certificates without any change whatsoever.
If any shares of tendered Old Preferred Stock are owned of record by two or
more joint owners, all such owners must sign this Letter.
If any shares of tendered Old Preferred Stock are registered in different
names on several certificates, it will be necessary to complete, sign and submit
as many separate copies of this Letter as there are different registrations of
certificates.
When this Letter is signed by the registered holder of the Old Preferred
Stock specified herein and tendered hereby, no endorsements of certificates or
separate bond powers are required. If, however, New Preferred Stock is to be
issued, or any untendered Old Preferred Stock is to be reissued, to a person
other than the registered holder, then endorsements of any certificates
transmitted hereby or separate bond powers are required. Signatures on such
certificates must be guaranteed by an Eligible Institution.
If this Letter is signed by a person other than the registered holder of
any certificates specified herein, such certificates must be endorsed or
accompanied by appropriate bond powers, in either case signed exactly as the
name of the registered holder appears on the certificates and the signatures on
such certificates must be guaranteed by an Eligible Institution.
If this Letter or any certificates or bond powers are signed by trustees,
executors, administrators, guardians, attorney-in-fact, officers of corporations
or others acting in a fiduciary or representative capacity, such persons should
so indicate when signing, and, unless waived by the Company, proper evidence
satisfactory to the Company of their authority to so act must be submitted.
Endorsements on certificates for Old Preferred Stock or signatures on bond
powers required by this Instruction 3 must be guaranteed by a firm which is a
member of a registered national securities exchange or a member of the National
Association of Securities Dealers, Inc. or by a commercial bank or trust company
having an office or correspondent in the United States (an "Eligible
Institution").
Signatures on this Letter need not be guaranteed by an Eligible
Institution, provided the Old Preferred Stock are tendered: (i) by a registered
holder of Old Preferred Stock (which term, for purposes of the Exchange Offer,
includes any participant in the Book-Entry Transfer Facility system whose name
appears on a security position listing as the holder of such Old Preferred
Stock) tendered who has not completed the box entitled "Special Issuance
Instructions" or "Special Delivery Instructions" on this Letter, or (ii) for the
account of an Eligible Institution.
4. Special Issuance and Delivery Instructions.
Tendering holders of Old Preferred Stock should indicate in the applicable
box the name and address to which New Preferred Stock issued pursuant to the
Exchange Offer and/or substitute certificates evidencing Old Preferred Stock not
exchanged are to be issued or sent, if different from the name or address of the
person signing this Letter. In the case of issuance in a different name, the
employer identification or social security number of the person named must also
be indicated. A holder of Old Preferred Stock tendering Old Preferred Stock by
book-entry transfer may request that shares of Old Preferred Stock not exchanged
be credited to such account maintained at the Book-Entry Transfer Facility as
such holder of Old Preferred Stock may designate hereon. If no such
instructions are given, such shares of Old Preferred Stock not exchanged will be
returned to the name and address of the person signing this Letter.
5. Tax Identification Number.
-9-
<PAGE>
Federal income tax law generally requires that a tendering holder whose
shares of Old Preferred Stock are accepted for exchange must provide the Company
(as payor) with such holder's correct Taxpayer Identification Number ("TIN") on
Substitute Form W-9 below, which, in the case of a tendering holder who is an
individual, is his or her social security number. If the Company is not
provided with the current TIN or an adequate basis for as exemption, such
tendering holder may be subject to a $50 penalty imposed by the Internal Revenue
Service. In addition, delivery of New Preferred Stock to such tendering holder
may be subject to backup withholding in an amount equal to 31% of all reportable
payments made after the exchange. If withholding results in an overpayment of
taxes, a refund may be obtained.
Exempt holders of Old Preferred Stock (including, among others, all
corporations and certain foreign individuals) are not subject to these backup
withholding and reporting requirements. See the enclosed Guidelines of
Certification of Taxpayer Identification Number on Substitute Form W-9 (the "W-9
Guidelines") for additional instructions.
To prevent backup withholding, each tendering holder of Old Preferred Stock
must provide its correct TIN by completing the "Substitute Form W-9" set forth
below, certifying that the TIN provided is correct (or that such holder is
awaiting a TIN) and that (i) the holder is exempt from backup withholding, (ii)
the holder has not been notified by the Internal Revenue Service that such
holder is subject to a backup withholding as a result of a failure to report all
interest or dividends or (iii) the Internal Revenue Service has notified the
holder that such holder is no longer subject to backup withholding. If the
tendering holder of Old Preferred Stock is a nonresident, alien or foreign
entity not subject to backup withholding, such holder must give the Company a
completed Form W-8, Certificate of Foreign Status. These forms may be obtained
from the Exchange Agent. If the shares of Old Preferred Stock are in more than
one name or are not in the name of the actual owner, such holder should consult
the W-9 Guidelines for information on which TIN to report. If such holder does
not have a TIN, such holder should consult the W-9 Guidelines for instructions
on applying for a TIN, check the box in Part 2 of the Substitute Form W-9 and
write "applied for" in lieu of its TIN. Note: checking this box and writing
"applied for" on the form means that such holder has already applied for a TIN
or that such holder intends to apply for one in the near future. If such holder
does not provide its TIN to the Company within 60 days, backup withholding will
begin and continue until such holder furnishes its TIN to the Company.
6. Transfer Taxes.
The Company will pay all transfer taxes, if any, applicable to the transfer
of Old Preferred Stock to it or its order pursuant to the Exchange Offer. If,
however, shares of New Preferred Stock and/or substitute shares of Old Preferred
Stock not exchanged are to be delivered to, or are to be registered or issued in
the name of, any person other than the registered holder of the Old Preferred
Stock tendered hereby, or if tendered shares of Old Preferred Stock are
registered in the name of any person other than the person signing this Letter,
or if a transfer tax is imposed for any reason other than the transfer of Old
Preferred Stock to the Company or its order pursuant to the Exchange Offer, the
amount of any such transfer taxes (whether imposed on the registered holder or
any other persons) will be payable by the tendering holder. If satisfactory
evidence of payment of such taxes or exemption therefrom is not submitted
herewith, the amount of such transfer taxes will be billed directly to such
tendering holder.
Except as provided in this Instruction 6, it not be necessary for transfer
tax stamps to be affixed to the Old Preferred Stock specified in this Letter.
7. Waiver of Conditions.
The Company reserves the absolute right to waive satisfaction of any or all
conditions enumerated in the Prospectus.
-10-
<PAGE>
8. No Conditional Tenders.
No alternative, conditional, irregular or contingent tenders will be
accepted. All tending holders of Old Preferred Stock, by execution of this
Letter, shall waive any right to receive notice of the acceptance of their Old
Preferred Stock for exchange.
Neither the Company, the Exchange Agent nor any other person is obligated
to give notice of any defect or irregularity with respect to any tender of Old
Preferred Stock nor shall any of them incur any liability for failure to give
any such notice.
9. Mutilated, Lost, Stolen or Destroyed Old Preferred Stock.
Any holder whose Old Preferred Stock has been mutilated, lost, stolen or
destroyed should contact the Exchange Agent at the address indicated above for
further instructions.
10. Requests for Assistance or Additional Copies.
Questions relating to the procedure for tendering, as well as requests for
additional copies of the Prospectus and this Letter, may be directed to the
Exchange Agent, at the address and telephone number indicated above.
-11-
<PAGE>
TO BE COMPLETED BY ALL TENDERING HOLDERS
(See Instruction 5)
PAYOR'S NAME: 21ST CENTURY TELECOM GROUP, INC.
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Part 1-PLEASE PROVIDE YOUR TIN IN THE BOX TIN:
AT RIGHT AND CERTIFY BY SIGNING ------------------------------
AND DATING BELOW. Social security number or
Employer identification number
----------------------------------------------------------------------------------------------------
SUBSTITUTE Part 2-TIN Applied For [_]
----------------------------------------------------------------------------------------------------
Form W-9 CERTIFICATION: UNDER THE PENALTIES OF PERJURY, I CERTIFY THAT:
Department of the Treasury (1) the number shown on this form is my correct Taxpayer Identification Number (or I am waiting
Internal Revenue Service for a number to be issued to me);
(2) I am not subject to backup withholding either because: (a) I am exempt from backup
Payor's Request for Taxpayer withholding, (b) I have not been notified by the Internal Revenue Service (the "IRS") that I am
Identification Number (TIN) and subject to backup withholding as a result of a failure to report all interests or dividends, or
Certification (c) the IRS has notified me that I am no longer subject to backup withholding; and
(3) any other information provided on this form is true and correct.
SIGNATURE _____________________________________ DATE ____________________________________
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
You must cross out item (2) of the above certification if you have been notified
by the IRS that you are subject to backup withholding because of underreporting
of interest or dividends on your tax return and you have not been notified by
the IRS that you are no longer subject to backup withholding.
- --------------------------------------------------------------------------------
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED
THE BOX IN PART 2 OF SUBSTITUTE FORM W-9
- --------------------------------------------------------------------------------
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number has
not been issued to me, and either (a) I have mailed or delivered an application
to receive a taxpayer identification number to the appropriate Internal Revenue
Service Center or Social Security Administration Office or (b) I intend to mail
or deliver an application in the near future. I understand that if I do not
provide a taxpayer identification number by the time of the exchange, 31 percent
of all reportable payments made to me thereafter will be withheld until I
provide a number.
Signature ______________________________ Date ________________________________
- --------------------------------------------------------------------------------
-12-
<PAGE>
Exhibit 99.3
Form of
NOTICE OF GUARANTEED DELIVERY FOR
21ST CENTURY TELECOM GROUP, INC.
This form or one substantially equivalent thereto must be used to accept
the Exchange Offer of 21st Century Telecom Group, Inc. (the "Company") made
pursuant to the Prospectus, dated ___________, 1998 (the "Prospectus"), and the
enclosed Letter of Transmittal (the "Letter of Transmittal") if certificates for
Old Notes of the Company are not immediately available or if the procedure for
book-entry transfer cannot be completed on a timely basis or time will not
permit all required documents to reach the Company prior to 5:00 P.M., Eastern
Standard Time, on the Expiration Date of the Exchange Offer. Such form may be
delivered or transmitted by facsimile transmission, mail or hand delivery to
State Street Bank & Trust Company (the "Exchange Agent") as set forth below. In
addition, in order to utilize the guaranteed delivery procedure to tender Old
Notes pursuant to the Exchange Offer, a completed signed and dated Letter of
Transmittal (or facsimile thereof) must also be received by the Exchange Agent
prior to 5:00 P.M., Eastern Standard Time, on the Expiration Date. Capitalized
terms not defined herein are defined in the Prospectus.
Delivery To: State Street Bank & Trust Company
By Registered or Certified Mail;
By Overnight Courier; or By Hand:
State Street Bank and Trust Company
Two International Place, 4th Floor
Boston, Massachusetts 02110-2804
Attention: Corporate Trust Department
By Facsimile: (617) 664-5371
Attention: Corporate Trust Department
Telephone: (617) 664-5635
Delivery of this instrument to an address other than as set forth above, or
transmission of instructions via facsimile other than as set forth above, will
not constitute a valid delivery.
Ladies and Gentlemen:
Upon the terms and conditions set forth in the Prospectus and the
accompanying Letter of Transmittal, the undersigned hereby tenders to the
Company the principal amount of Old Notes set forth below, pursuant to the
guaranteed delivery procedure described in "The Exchange Offer Guaranteed
Delivery Procedures" section of the Prospectus.
Principal Amount of Old Notes Tendered:
$
---------------------------------- If Old Notes will be delivered by book
entry transfer to The Depository Trust
Certificate Nos. (if available) Company, provide account number.
- -----------------------------------
Total Principal Amount Represented
by Old Notes Certificate(s):
$ Account Number
---------------------------------- -------------------------
<PAGE>
- --------------------------------------------------------------------------------
All authority herein conferred or agreed to be conferred shall survive the
death or incapacity of the undersigned any every obligation of the undersigned
hereunder shall be binding upon the heirs, personal representatives, successors
and assigns of the undersigned.
- --------------------------------------------------------------------------------
PLEASE SIGN HERE
X
----------------------------------- ----------------------------------
X
----------------------------------- ----------------------------------
Signature(s) of Owner(s)
or Authorized Signatory
Area Code and Telephone Number:
Must be signed by the holder(s) of Old Notes as the name(s) of such
holder(s) appear(s) on the Old Notes certificate(s) or on a security position
listing, or by person(s) authorized to become registered holder(s) by
endorsement and documents transmitted with this Notice of Guaranteed Delivery.
If any signature is by a trustee, executor, administrator, guardian, attorney-
in-fact, officer or other person acting in a fiduciary or representative
capacity, such person must set forth his or her full title below.
Please print name(s) and address(s)
Name(s):
---------------------------------------------------------------
---------------------------------------------------------------
---------------------------------------------------------------
---------------------------------------------------------------
Capacity:
---------------------------------------------------------------
Address(es):
---------------------------------------------------------------
---------------------------------------------------------------
---------------------------------------------------------------
<PAGE>
GUARANTEE
The undersigned, a member of a registered national securities exchange, or
a member of the National Association of Securities Dealers, Inc., or a
commercial bank or trust company having an office or correspondent in the United
States, hereby guarantees that the certificates representing the principal
amount of Old Notes tendered hereby in proper form for transfer, or timely
confirmation of the book-entry transfer of such Old Notes into the Exchange
Agent's account at The Depository Trust Company pursuant to the procedures set
forth in "The Exchange Offer--Guaranteed Delivery Procedures" section of the
Prospectus, together with a properly completed and duly executed Letter of
Transmittal (or facsimile thereof) with any required signature guarantee and any
other documents required by the Letter of Transmittal, will be received by the
Exchange Agent at the address set forth above, no later than five business days
after the date of execution hereof.
- ----------------------------------- -------------------------------------
Name of Firm Authorized Signature
- ----------------------------------- -------------------------------------
Address Title
- ----------------------------------- -------------------------------------
Zip Code (Please Type or Print)
Area Code and Tel. No. Dated:
NOTE: DO NOT SEND CERTIFICATES FOR OLD NOTES WITH THIS FORM. CERTIFICATES FOR
OLD NOTES SHOULD ONLY BE SENT WITH YOUR LETTER OF TRANSMITTAL
<PAGE>
Exhibit 99.4
Form of
NOTICE OF GUARANTEED DELIVERY FOR
21ST CENTURY TELECOM GROUP, INC.
This form or one substantially equivalent thereto must be used to accept
the Exchange Offer of 21st Century Telecom Group, Inc. (the "Company") made
pursuant to the Prospectus, dated ___________, 1998 (the "Prospectus"), and the
enclosed Letter of Transmittal (the "Letter of Transmittal") if certificates for
Old Exchangeable Preferred Stock of the Company are not immediately available or
if the procedure for book-entry transfer cannot be completed on a timely basis
or time will not permit all required documents to reach the Company prior to
5:00 P.M., Eastern Standard Time, on the Expiration Date of the Exchange Offer.
Such form may be delivered or transmitted by facsimile transmission, mail or
hand delivery to Boston EquiServe Trust Company, N.A. (the "Exchange Agent") as
set forth below. In addition, in order to utilize the guaranteed delivery
procedure to tender Old Exchangeable Preferred Stock pursuant to the Exchange
Offer, a completed signed and dated Letter of Transmittal (or facsimile thereof)
must also be received by the Exchange Agent prior to 5:00 P.M., Eastern Standard
Time, on the Expiration Date. Capitalized terms not defined herein are defined
in the Prospectus.
Delivery To: Boston EquiServe Trust Company, N.A.
By Registered or Certified Mail;
By Overnight Courier; or By Hand:
Boston EquiServe Trust Company, N.A.
Mail Stop 45-02-71
150 Royall Street
Canton, Massachusetts 02021
Attention: Legal Department
By Facsimile: (781) 575-2549
Attention: Legal Department
Telephone: (781) 575-3538
Delivery of this instrument to an address other than as set forth above, or
transmission of instructions via facsimile other than as set forth above, will
not constitute a valid delivery.
Ladies and Gentlemen:
Upon the terms and conditions set forth in the Prospectus and the
accompanying Letter of Transmittal, the undersigned hereby tenders to the
Company the principal amount of Old Exchangeable Preferred Stock set forth
below, pursuant to the guaranteed delivery procedure described in "The Exchange
Offer--Guaranteed Delivery Procedures" section of the Prospectus.
Principal Amount of Old Exchangeable Preferred Stock Tendered:
$ If Old Exchangeable Preferred Stock will
----------------------------------
be delivered by book entry transfer
to The Depository Trust Company, provide
Certificate Nos. (if available) account number.
- -----------------------------------
Total Principal Amount Represented by Old Exchangeable Preferred Stock
Certificate(s):
<PAGE>
$ Account Number
---------------------------------- ---------------------------
<PAGE>
- --------------------------------------------------------------------------------
All authority herein conferred or agreed to be conferred shall survive the
death or incapacity of the undersigned any every obligation of the undersigned
hereunder shall be binding upon the heirs, personal representatives, successors
and assigns of the undersigned.
- --------------------------------------------------------------------------------
PLEASE SIGN HERE
X
---------------------------------- ------------------------------------
X
---------------------------------- ------------------------------------
Signature(s) of Owner(s)
or Authorized Signatory
Area Code and Telephone Number:
Must be signed by the holder(s) of Old Exchangeable Preferred Stock as the
name(s) of such holder(s) appear(s) on the Old Exchangeable Preferred Stock
certificate(s) or on a security position listing, or by person(s) authorized to
become registered holder(s) by endorsement and documents transmitted with this
Notice of Guaranteed Delivery. If any signature is by a trustee, executor,
administrator, guardian, attorney-in-fact, officer or other person acting in a
fiduciary or representative capacity, such person must set forth his or her full
title below.
Please print name(s) and address(s)
Name(s):
--------------------------------------------------------------
--------------------------------------------------------------
--------------------------------------------------------------
--------------------------------------------------------------
Capacity:
--------------------------------------------------------------
Address(es):
--------------------------------------------------------------
--------------------------------------------------------------
--------------------------------------------------------------
<PAGE>
GUARANTEE
The undersigned, a member of a registered national securities exchange, or
a member of the National Association of Securities Dealers, Inc., or a
commercial bank or trust company having an office or correspondent in the United
States, hereby guarantees that the certificates representing the principal
amount of Old Exchangeable Preferred Stock tendered hereby in proper form for
transfer, or timely confirmation of the book-entry transfer of such Old
Exchangeable Preferred Stock into the Exchange Agent's account at The Depository
Trust Company pursuant to the procedures set forth in "The Exchange
Offer--Guaranteed Delivery Procedures" section of the Prospectus, together with
a properly completed and duly executed Letter of Transmittal (or facsimile
thereof) with any required signature guarantee and any other documents required
by the Letter of Transmittal, will be received by the Exchange Agent at the
address set forth above, no later than five business days after the date of
execution hereof.
- ---------------------------------- ----------------------------------------
Name of Firm Authorized Signature
- ---------------------------------- ----------------------------------------
Address Title
- ---------------------------------- ----------------------------------------
Zip Code (Please Type or Print)
Area Code and Tel. No. Dated:
NOTE: DO NOT SEND CERTIFICATES FOR OLD EXCHANGEABLE PREFERRED STOCK WITH THIS
FORM. CERTIFICATES FOR OLD EXCHANGEABLE PREFERRED STOCK SHOULD ONLY BE
SENT WITH YOUR LETTER OF TRANSMITTAL
<PAGE>
Exhibit 99.5
Form of
21ST CENTURY TELECOM GROUP, INC.
Offer to Exchange its Registered
12 1/4% Senior Discount Notes Due 2008
for any and all of its Outstanding
12 1/4% Senior Discount Notes Due 2008
To: Brokers, Dealers, Commercial Banks,
Trust Companies and Other Nominees:
21st Century Telecom Group, Inc. (the "Company") is offering to exchange (the
"Exchange Offer"), upon and subject to the terms and conditions set forth in the
Prospectus, dated ________, 1998 (the "Prospectus"), and the enclosed Letter of
Transmittal (the "Letter of Transmittal"), its registered 12 1/4% Senior
Discount Notes Due 2008 (the "New Notes") for any and all of its outstanding 12
1/4% Senior Discount Notes Due 2008 (the "Old Notes"). The Exchange Offer is
being made in order to satisfy certain obligations of the Company contained in
the Registration Rights Agreement dated as of February 2, 1998, between the
Company and the Initial Purchasers.
We are requesting that you contact your clients for whom you hold Old Notes
regarding the Exchange Offer. For your information and for forwarding to your
clients for whom you hold Old Notes registered in your name or in the name of
your nominee, or who hold Old Notes registered in their own names, we are
enclosing the following documents:
1. Prospectus dated _________, 19__;
2. The Letter of Transmittal for your use and for the information of your
clients;
3. A Notice of Guaranteed Delivery to be used to accept the Exchange
Offer if certificates for Old Notes are not immediately available or time will
not permit all required documents to reach the Exchange Agent prior to the
Expiration Date (as defined below) or if the procedure for book-entry transfer
cannot be completed on a timely basis;
4. A form of letter which may be sent to your clients for whose account
you hold Old Notes registered in your name or the name of your nominee, with
space provided for obtaining such clients' instructions with regard to the
Exchange Offer;
5. Guidelines for Certification of Taxpayer identification Number on
Substitute Form W-9; and
6. Return envelopes addressed to State Street Bank and Trust Company, the
Exchange Agent for the Old Notes.
Your prompt action is requested. The Exchange Offer will expire at 5:00
p.m., Eastern Standard Time, on ___________, 19__ (the "Expiration Date") (20
business days following commencement of the Exchange Offer), unless extended by
the Company. The Old Notes tendered pursuant to the Exchange Offer may be
withdrawn at any time before 5:00 p.m., Eastern Standard Time, on the Expiration
Date.
To participate in the Exchange Offer, a duly executed and properly
completed Letter of Transmittal (or facsimile thereof), with any required
signature guarantees and any other required documents, should be sent to the
Exchange Agent and certificates representing the Old Notes should be delivered
to the Exchange Agent, all in accordance with the instructions set forth in the
Letter of Transmittal and the Prospectus.
<PAGE>
If holders of Old Notes wish to tender, but it is impracticable for them to
forward their certificates for Old Notes prior to the expiration of the Exchange
Offer or to comply with the book-entry transfer procedures on a timely basis, a
tender may be effected by following guaranteed delivery procedures described in
the Prospectus under "The Exchange Offer--Guaranteed Delivery Procedures."
The Company will, upon request, reimburse brokers, dealers, commercial
banks and trust companies for reasonable and necessary costs and expenses
incurred by them in forwarding the Prospectus and the related documents to the
beneficial owners of Old Notes held by them as nominee or in a fiduciary
capacity. The Company will pay or cause to be paid all stock transfer taxes
applicable to the exchange of Old Notes pursuant to the Exchange Offer, except
as set forth in Instruction 6 of the Letter of Transmittal.
Any inquiries you may have with respect to the Exchange Offer, or requests
for additional copies of the enclosed materials, should be directed to the
Exchange Agent for the Old Notes, at its address and telephone number set forth
on the front of the Letter of Transmittal.
Very truly yours,
21ST CENTURY TELECOM GROUP, INC.
NOTHING HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU OR ANY
OTHER PERSON AS AN AGENT OF THE COMPANY OR THE EXCHANGE AGENT, OR AUTHORIZE YOU
OR ANY OTHER PERSON TO USE ANY DOCUMENT OR MAKE ANY STATEMENTS ON BEHALF OF
EITHER OF THEM WITH RESPECT TO THE EXCHANGE OFFER, EXCEPT FOR STATEMENTS
EXPRESSLY MADE IN THE PROSPECTUS OR THE LETTER OF TRANSMITTAL.
<PAGE>
Exhibit 99.6
Form of
21ST CENTURY TELECOM GROUP, INC.
Offer to Exchange its Registered
13 3/4% Senior Cumulative Exchangeable Preferred Stock Due 2010
for any and all of its Outstanding
13 3/4% Senior Cumulative Exchangeable Preferred Stock Due 2010
To: Brokers, Dealers, Commercial Banks,
Trust Companies and Other Nominees:
21st Century Telecom Group, Inc. (the "Company") is offering to exchange (the
"Exchange Offer"), upon and subject to the terms and conditions set forth in the
Prospectus, dated ________, 1998 (the "Prospectus"), and the enclosed Letter of
Transmittal (the "Letter of Transmittal"), its registered 13 3/4% Senior
Cumulative Exchangeable Preferred Stock Due 2010 (the "New Exchangeable
Preferred Stock") for any and all of its outstanding 13 3/4% Senior Cumulative
Exchangeable Preferred Stock Due 2010 (the "Old Exchangeable Preferred Stock").
The Exchange Offer is being made in order to satisfy certain obligations of the
Company contained in the Registration Rights Agreement dated as of February 2,
1998, between the Company and the Initial Purchasers.
We are requesting that you contact your clients for whom you hold Old
Exchangeable Preferred Stock regarding the Exchange Offer. For your information
and for forwarding to your clients for whom you hold Old Exchangeable Preferred
Stock registered in your name or in the name of your nominee, or who hold Old
Exchangeable Preferred Stock registered in their own names, we are enclosing the
following documents:
1. Prospectus dated _________, 19__;
2. The Letter of Transmittal for your use and for the information of your
clients;
3. A Notice of Guaranteed Delivery to be used to accept the Exchange
Offer if certificates for Old Exchangeable Preferred Stock are not immediately
available or time will not permit all required documents to reach the Exchange
Agent prior to the Expiration Date (as defined below) or if the procedure for
book-entry transfer cannot be completed on a timely basis;
4. A form of letter which may be sent to your clients for whose account
you hold Old Exchangeable Preferred Stock registered in your name or the name of
your nominee, with space provided for obtaining such clients' instructions with
regard to the Exchange Offer;
5. Guidelines for Certification of Taxpayer identification Number on
Substitute Form W-9; and
6. Return envelopes addressed to State Street Bank and Trust Company, the
Exchange Agent for the Old Exchangeable Preferred Stock.
Your prompt action is requested. The Exchange Offer will expire at 5:00
p.m., Eastern Standard Time, on ___________, 19__ (the "Expiration Date") (20
business days following commencement of the Exchange Offer), unless extended by
the Company. The Old Exchangeable Preferred Stock tendered pursuant to the
Exchange Offer may be withdrawn at any time before 5:00 p.m., Eastern Standard
Time, on the Expiration Date.
To participate in the Exchange Offer, a duly executed and properly
completed Letter of Transmittal (or facsimile thereof), with any required
signature guarantees and any other required documents, should be sent to the
<PAGE>
Exchange Agent and certificates representing the Old Exchangeable Preferred
Stock should be delivered to the Exchange Agent, all in accordance with the
instructions set forth in the Letter of Transmittal and the Prospectus.
If holders of Old Exchangeable Preferred Stock wish to tender, but it is
impracticable for them to forward their certificates for Old Exchangeable
Preferred Stock prior to the expiration of the Exchange Offer or to comply with
the book-entry transfer procedures on a timely basis, a tender may be effected
by following guaranteed delivery procedures described in the Prospectus under
"The Exchange Offer--Guaranteed Delivery Procedures."
The Company will, upon request, reimburse brokers, dealers, commercial
banks and trust companies for reasonable and necessary costs and expenses
incurred by them in forwarding the Prospectus and the related documents to the
beneficial owners of Old Exchangeable Preferred Stock held by them as nominee or
in a fiduciary capacity. The Company will pay or cause to be paid all stock
transfer taxes applicable to the exchange of Old Exchangeable Preferred Stock
pursuant to the Exchange Offer, except as set forth in Instruction 6 of the
Letter of Transmittal.
Any inquiries you may have with respect to the Exchange Offer, or requests
for additional copies of the enclosed materials, should be directed to the
Exchange Agent for the Old Exchangeable Preferred Stock, at its address and
telephone number set forth on the front of the Letter of Transmittal.
Very truly yours,
21ST CENTURY TELECOM GROUP, INC.
NOTHING HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU OR ANY
OTHER PERSON AS AN AGENT OF THE COMPANY OR THE EXCHANGE AGENT, OR AUTHORIZE YOU
OR ANY OTHER PERSON TO USE ANY DOCUMENT OR MAKE ANY STATEMENTS ON BEHALF OF
EITHER OF THEM WITH RESPECT TO THE EXCHANGE OFFER, EXCEPT FOR STATEMENTS
EXPRESSLY MADE IN THE PROSPECTUS OR THE LETTER OF TRANSMITTAL.
<PAGE>
Exhibit 99.7
Form of
21ST CENTURY TELECOM GROUP, INC.
Offer to Exchange its Registered
12 1/4% Senior Discount Notes Due 2008
for any and all of its Outstanding
12 1/4% Senior Discount Notes Due 2008
To: Our Clients
Enclosed for your consideration is a Prospectus, dated ______________, 19__
(the "Prospectus"), and the enclosed Letter of Transmittal (the "Letter of
Transmittal"), relating to the offer (the "Exchange Offer") of 21st Century
Telecom Group, Inc. (the "Company") to exchange its registered 12 1/4% Senior
Discount Notes Due 2008 (the "New Notes") for any and all of its outstanding
12 1/4% Senior Discount Notes Due 2008 (the "Old Notes"), upon the terms and
subject to the conditions described in the Prospectus. The Exchange Offer is
being made in order to satisfy certain obligations of the Company contained in
the Registration Rights Agreement dated as of February 2, 1998, between the
Company and the Initial Purchasers thereto.
This material is being forwarded to you as the beneficial owner of the Old
Notes carried by us in your account but not registered in your name. A tender
of such Old Notes may only be made by us as the holder of record and pursuant to
your instructions.
Accordingly, we request instructions as to whether you wish us to tender on
your behalf the Old Notes held by us for your account, pursuant to the terms and
conditions set forth in the enclosed Prospectus and Letter of Transmittal.
Your instructions should be forwarded to us as promptly as possible in
order to permit us to tender the Old Notes on your behalf in accordance with the
provisions of the Exchange Offer. The Exchange Offer will expire at 5:00 p.m.,
Eastern Standard Time, on _______________, 19__ (the "Expiration Date") (20
business days following the commencement of the Exchange Offer) unless extended
by the Company. Any Old Notes tendered pursuant to the Exchange Offer may be
withdrawn at any time before 5:00 p.m., Eastern Standard Time, on the Expiration
Date.
Your attention is directed to the following:
1. The Exchange Offer is for any and all Old Notes.
2. The Exchange Offer is subject to certain conditions set forth in the
Prospectus in the section captioned "The Exchange Offer--Conditions."
3. Any transfer taxes incident to the transfer of Old Notes from the
holder to the Company will be paid by the Company, except as otherwise provided
in the Instructions in the Letter of Transmittal.
4. The Exchange Offer expires at 5:00 p.m., Eastern Standard Time, on the
Expiration Date, unless extended by the Company.
If you wish to have us tender your Old Notes, please so instruct us by
completing, executing and returning to us the instruction form on the back of
this letter. The Letter of Transmittal is furnished to you for your information
only and may not be used directly by you to tender Old Notes.
<PAGE>
INSTRUCTIONS WITH RESPECT TO
EXCHANGE OFFER
This undersigned acknowledge(s) receipt of your letter and the enclosed
material referred to therein relating to the Exchange Offer made by the Company
with respect to the Old Notes.
This will instruct you to tender the Old Notes held by you for the account
of the undersigned, upon and subject to the terms and conditions set forth in
the Prospectus and the related Letter of Transmittal.
Aggregate Principal Amount of Old Notes
---------------------------------------
12 1/4% Senior Notes Due 2008.........
---------------------------------------
Please do not tender any Old Notes
held by you for my account
Dated: , 1998 ---------------------------------------
---------------------
---------------------------------------
Signature(s)
---------------------------------------
---------------------------------------
---------------------------------------
Please print name(s) here
---------------------------------------
---------------------------------------
Address(es)
---------------------------------------
Area Code(s) and Telephone Number(s)
---------------------------------------
Tax identification or
Social Security No(s).
None of the Old Notes held by us for your account will be tendered unless we
receive written instructions from you to do so. Unless a specific contrary
instruction is given in the space provided, your signature(s) hereon shall
constitute an instruction to us to tender all the Old Notes held by us for your
account.
<PAGE>
Exhibit 99.8
Form of
21ST CENTURY TELECOM GROUP, INC.
Offer to Exchange its Registered
13 3/4% Senior Cumulative Exchangeable Preferred Stock Due 2010
for any and all of its Outstanding
13 3/4% Senior Cumulative Exchangeable Preferred Stock Due 2010
To: Our Clients
Enclosed for your consideration is a Prospectus, dated ______________, 19__
(the "Prospectus"), and the enclosed Letter of Transmittal (the "Letter of
Transmittal"), relating to the offer (the "Exchange Offer") of 21st Century
Telecom Group, Inc. (the "Company") to exchange its registered 13 3/4% Senior
Cumulative Exchangeable Preferred Stock Due 2010 (the "New Exchangeable
Preferred Stock") for any and all of its outstanding 13 3/4% Senior Cumulative
Exchangeable Preferred Stock Due 2010 (the "Old Exchangeable Preferred Stock"),
upon the terms and subject to the conditions described in the Prospectus. The
Exchange Offer is being made in order to satisfy certain obligations of the
Company contained in the Registration Rights Agreement dated as of February 2,
1998, between the Company and the Initial Purchasers thereto.
This material is being forwarded to you as the beneficial owner of the Old
Exchangeable Preferred Stock carried by us in your account but not registered in
your name. A tender of such Old Exchangeable Preferred Stock may only be made
by us as the holder of record and pursuant to your instructions.
Accordingly, we request instructions as to whether you wish us to tender on
your behalf the Old Exchangeable Preferred Stock held by us for your account,
pursuant to the terms and conditions set forth in the enclosed Prospectus and
Letter of Transmittal.
Your instructions should be forwarded to us as promptly as possible in
order to permit us to tender the Old Exchangeable Preferred Stock on your behalf
in accordance with the provisions of the Exchange Offer. The Exchange Offer
will expire at 5:00 p.m., Eastern Standard Time, on _______________, 19__ (the
"Expiration Date") (20 business days following the commencement of the Exchange
Offer) unless extended by the Company. Any Old Exchangeable Preferred Stock
tendered pursuant to the Exchange Offer may be withdrawn at any time before 5:00
p.m., Eastern Standard Time, on the Expiration Date.
Your attention is directed to the following:
1. The Exchange Offer is for any and all Old Exchangeable Preferred
Stock.
2. The Exchange Offer is subject to certain conditions set forth in the
Prospectus in the section captioned "The Exchange Offer--Conditions."
3. Any transfer taxes incident to the transfer of Old Exchangeable
Preferred Stock from the holder to the Company will be paid by the Company,
except as otherwise provided in the Instructions in the Letter of Transmittal.
4. The Exchange Offer expires at 5:00 p.m., Eastern Standard Time, on the
Expiration Date, unless extended by the Company.
If you wish to have us tender your Old Exchangeable Preferred Stock, please
so instruct us by completing, executing and returning to us the instruction form
on the back of this letter. The Letter of Transmittal is
<PAGE>
furnished to you for your information only and may not be used directly by you
to tender Old Exchangeable Preferred Stock.
<PAGE>
INSTRUCTIONS WITH RESPECT TO
EXCHANGE OFFER
This undersigned acknowledge(s) receipt of your letter and the enclosed
material referred to therein relating to the Exchange Offer made by the Company
with respect to the Old Exchangeable Preferred Stock.
This will instruct you to tender the Old Exchangeable Preferred Stock held
by you for the account of the undersigned, upon and subject to the terms and
conditions set forth in the Prospectus and the related Letter of Transmittal.
Preferred Stock
- ---------------
13 3/4% Senior Exchangeable Preferred Stock Due 2010
Please do not tender any Old Exchangeable Preferred Stock held by
you for my account
Dated: ____________________, 1998
Aggregate Principal Amount of Old Exchangeable
----------------------------------------------
-------------------------------------------
-------------------------------------------
-------------------------------------------
Signature(s)
-------------------------------------------
-------------------------------------------
-------------------------------------------
Please print name(s) here
-------------------------------------------
-------------------------------------------
Address(es)
-------------------------------------------
Area Code(s) and Telephone Number(s)
--------------------------------------------
Tax identification or Social Security No(s).
None of the Old Exchangeable Preferred Stock held by us for your account will
be tendered unless we receive written instructions from you to do so. Unless a
specific contrary instruction is given in the space provided, your signature(s)
hereon shall constitute an instruction to us to tender all the Old Exchangeable
Preferred Stock held by us for your account.
<PAGE>
EXHIBIT 99.9
INSTRUCTION TO REGISTERED HOLDER AND/OR
BOOK-ENTRY TRANSFER FACILITY PARTICIPANT FROM OWNER
OF
21ST CENTURY TELECOM GROUP, INC.
12-1/4% Senior Discount Notes Due 2008
(CUSIP #90130PAB4)
To Registered Holder and/or Participant of the Book-Entry Transfer Facility:
The undersigned hereby acknowledges receipt of the Prospectus dated
________, 1998 (the "Prospectus") of 21st Century Telecom Group, Inc., an
Illinois corporation (the "Company"), and the accompanying Letter of Transmittal
(the "Letter of Transmittal"), that together constitute the Company's offer (the
"Exchange Offer") to exchange its registered 12-1/4% Senior Discount Notes Due
2008 (the "New Notes") for any outstanding 12-1/4% Senior Discount Notes Due
2008 (the "Old Notes"). Capitalized terms used but not defined herein have the
meaning as ascribed to them in the Prospectus.
This will instruct you, the registered holder and/or book-entry transfer
facility participant, as to the action to be taken by you relating to the
Exchange Offer with respect to the Old Notes held by you for the account of the
undersigned.
The aggregate face amount of the Old Notes held by you for the account of
the undersigned is (fill in amount):
$___________ of the 12-1/4% Senior Discount Notes due 2008
(CUSIP #90130PAB4).
With respect to the Exchange Offer, the undersigned hereby instructs you
(check appropriate box):
[ ] To TENDER the following Old Notes held by you for the account of the
undersigned (insert principal amount of Old Notes to be tendered, if any):
$___________ of the 12-1/4% Senior Discount Notes Due 2008
(CUSIP #90130PAB4).
[ ] NOT to TENDER any Old Notes held by you for the account of the
undersigned.
If the undersigned instructs you to tender the Old Notes held by you for
the account of the undersigned, it is understood that you are authorized to
make, on behalf of the undersigned (and
<PAGE>
the undersigned, by its signature below, hereby makes to you), the
representations and warranties contained in the Letter of Transmittal that are
to be made with respect to the undersigned as a beneficial owner, including but
not limited to the representations, that (i) the holder is not an "affiliate" of
the Company, (ii) any New Notes acquired pursuant to the Exchange Offer are
being acquired in the ordinary course of business of the person receiving such
New Notes, whether or not such person is the holder and (iii) neither the holder
nor any such other person has an arrangement or understanding with any person to
participate in the distribution of such New Notes. If the undersigned is a
broker-dealer that will receive New Notes for its own account in exchange for
Old Notes, it represents that such Old Notes were acquired as a result of
market-making activities or other trading activities, and it acknowledges that
it will deliver a prospectus meeting the requirements of the Securities Act in
connection with any resale of such New Notes. By acknowledging that it will
deliver and by delivering a prospectus meeting the requirements of the
Securities Act in connection with any resale of such New Notes, such broker-
dealer is not deemed to admit that it is an "underwriter" within the meaning of
the Securities Act of 1933, as amended.
SIGN HERE
Name of beneficial owner(s):
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Signature(s):
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Name(s) (please print):
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Address:
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Telephone Number:
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Taxpayer Identification or Social Security Number:
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Date:
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<PAGE>
EXHIBIT 99.10
INSTRUCTION TO REGISTERED HOLDER AND/OR
BOOK-ENTRY TRANSFER FACILITY PARTICIPANT FROM OWNER
OF
21ST CENTURY TELECOM GROUP, INC.
13-3/4% Senior Cumulative Preferred Stock Due 2010
(CUSIP #90130P603)
To Registered Holder and/or Participant of the Book-Entry Transfer Facility:
The undersigned hereby acknowledges receipt of the Prospectus dated
__________, 1998 (the "Prospectus") of 21st Century Telecom Group, Inc., an
Illinois corporation (the "Company"), and the accompanying Letter of Transmittal
(the "Letter of Transmittal"), that together constitute the Company's offer (the
"Exchange Offer") to exchange its registered 13-3/4% Senior Cumulative Preferred
Stock Due 2010 (the "New Preferred Stock") for any outstanding 13-3/4% Senior
Cumulative Preferred Stock Due 2010 (the "Old Preferred Stock"). Capitalized
terms used but not defined herein have the meaning as ascribed to them in the
Prospectus.
This will instruct you, the registered holder and/or book-entry transfer
facility participant, as to the action to be taken by you relating to the
Exchange Offer with respect to the Old Preferred Stock held by you for the
account of the undersigned.
The aggregate number of shares of Old Preferred Stock held by you for the
account of the undersigned is (fill in amount):
___________ of shares of 13-3/4% Senior Cumulative Exchangeable
Preferred Stock Due 2010 (CUSIP #90130P603).
With respect to the Exchange Offer, the undersigned hereby instructs you
(check appropriate box):
[_] To TENDER the following shares of Old Preferred Stock held by you for
the account of the undersigned (insert number of shares of Old
Preferred Stock to be tendered, if any):
___________ of shares of 13-3/4% Senior Cumulative Exchangeable
Preferred Stock Due 2010 (CUSIP #90130P603).
[_] NOT to TENDER any Old Preferred Stock held by you for the account of
the undersigned.
<PAGE>
If the undersigned instructs you to tender the Old Preferred Stock held by
you for the account of the undersigned, it is understood that you are authorized
to make, on behalf of the undersigned (and the undersigned, by its signature
below, hereby makes to you), the representations and warranties contained in the
Letter of Transmittal that are to be made with respect to the undersigned as a
beneficial owner, including but not limited to the representations, that (i) the
holder is not an "affiliate" of the Company, (ii) any New Preferred Stock
acquired pursuant to the Exchange Offer is being acquired in the ordinary course
of business of the person receiving such New Preferred Stock, whether or not
such person is the holder and (iii) neither the holder nor any such other person
has an arrangement or understanding with any person to participate in the
distribution of such New Preferred Stock. If the undersigned is a broker-dealer
that will receive New Preferred Stock for its own account in exchange for Old
Preferred Stock, it represents that such Old Preferred Stock was acquired as a
result of market-making activities or other trading activities, and it
acknowledges that it will deliver a prospectus meeting the requirements of the
Securities Act in connection with any resale of such New Preferred Stock, such
broker-dealer is not deemed to admit that it is an "underwriter" within the
meaning of the Securities Act of 1933, as amended.
SIGN HERE
Name of beneficial owner(s):
----------------------------------------------------
Signature(s):
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Name(s) (please print):
---------------------------------------------------------
Address:
------------------------------------------------------------------------
Telephone Number:
---------------------------------------------------------------
Taxpayer Identification or Social Security Number:
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Date:
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