AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 12, 2001
REGISTRATION NO. 333-49818
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
--------------------
TIME WARNER TELECOM INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 84-1500624
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER IDENTIFICATION No.)
OR INCORPORATION OR ORGANIZATION)
10475 PARK MEADOWS DRIVE
LITTLETON, COLORADO 80124
(303) 566-1000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING ARE CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
--------------------
PAUL B. JONES
SENIOR VICE PRESIDENT AND GENERAL COUNSEL
TIME WARNER TELECOM INC.
10475 PARK MEADOWS DRIVE
LITTLETON, COLORADO 80124
(303) 566-1000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
---------------------
COPIES TO:
WILLIAM P. ROGERS, JR. JAMES S. SCOTT, SR.
CRAVATH, SWAINE & MOORE WILLIAM T. BYRNE, JR.
WORLDWIDE PLAZA SHEARMAN & STERLING
825 EIGHTH AVENUE 599 LEXINGTON AVENUE
NEW YORK, NEW YORK 10019 NEW YORK, NEW YORK 10022-6069
(212) 474-1270 (212) 848-4000
---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: From time to
time after the effective date of this Registration Statement, as determined by
the Registrant.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box. [ ]
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, as amended (the "Securities Act"), other than securities offered only
in connection with dividend or interest reinvestment plans, check the
following box. [x]
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(c)
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. [ ]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
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 OR UNTIL THIS REGISTRATION STATEMENT SHALL
BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTION PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
<PAGE>
PROSPECTUS
TIME WARNER TELECOM INC.
From time to time, we may sell any of the following securities:
- Debt Securities, including Convertible Debt Securities
- Preferred Stock, including Convertible Preferred Stock
- Class A Common Stock
We will provide the specific terms of these securities in one or more
supplements to this prospectus. You should read this prospectus and any
prospectus supplement carefully before you invest. The aggregate of the
offering prices of securities covered by this prospectus will not exceed
$700,000,000.
Our Class A common stock is traded over-the-counter on the NASDAQ Stock
Market's National Market under the trading symbol "TWTC." The applicable
prospectus supplement will contain information, where applicable, as to any
other listing (if any) on the NASDAQ Stock Market's National Market or any
securities exchange of the securities covered by the prospectus supplement.
The securities may be sold to investors, through agents designated from
time to time or to or through underwriters or dealers. See "Plan of
Distribution." If any underwriters are involved in the sale of any securities
in respect of which this prospectus is being delivered, the names of such
underwriters and any applicable commissions or discounts will be set forth in
a prospectus supplement. The net proceeds we expect to receive from such sale
also will be set forth in a prospectus supplement.
INVESTING IN THE SECURITIES INVOLVES CERTAIN RISKS. SEE "RISK FACTORS"
BEGINNING ON PAGE 4.
This prospectus may not be used to offer or sell any securities unless
accompanied by a prospectus supplement.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THE SECURITIES TO BE ISSUED UNDER THIS
PROSPECTUS OR DETERMINED IF THIS PROSPECTUS IS ACCURATE OR ADEQUATE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS JANUARY 12, 2001
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1
TABLE OF CONTENTS
Page
ABOUT THIS PROSPECTUS........................................................2
WHERE YOU CAN FIND MORE INFORMATION..........................................2
INCORPORATION OF INFORMATION WE FILE WITH THE SEC............................2
FORWARD-LOOKING STATEMENTS...................................................3
THE COMPANY..................................................................4
RISK FACTORS.................................................................4
RATIO OF EARNINGS TO FIXED CHARGES...........................................4
USE OF PROCEEDS.............................................................18
DESCRIPTION OF DEBT SECURITIES..............................................19
DESCRIPTION OF CAPITAL STOCK................................................63
PLAN OF DISTRIBUTION........................................................68
VALIDITY OF SECURITIES......................................................69
EXPERTS.....................................................................69
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2
ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement that we filed with
the SEC utilizing a "shelf" registration process. Under this shelf process, we
may sell any combination of the securities described in this prospectus in one
or more offerings up to an aggregate offering price of $700,000,000.
This prospectus provides you with a general description of the securities
we may offer. Each time we sell securities, we will provide a prospectus
supplement that will contain specific information about the terms of that
offering. The prospectus supplement may also add, update or change information
contained in this prospectus. You should read both this prospectus and any
prospectus supplement together with additional information described
immediately below under the heading "Where You Can Find More Information."
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the SEC. Our SEC filings are available to the public over the
Internet at the SEC's website at http://www.sec.gov. You may also read and
copy any document we file with the SEC at the SEC's following public reference
facilities:
Public Reference Room New York Regional Office Chicago Regional Office
450 Fifth Street, N.W. 7 World Trade Center Citicorp Center
Room 1024 Suite 1300 500 West Madison Street
Washington, D.C. 20549 New York, New York 10048 Suite 1400
Chicago, Illinois 60661-2511
You may also obtain copies of the documents at prescribed rates by
writing to the Public Reference Section of the SEC at 450 Fifth Street, N.W.,
Room 1024, Washington, D.C. 20549. Please call 1-800-SEC-0330 for further
information on the operations of the public reference facilities. Our SEC
filings are also available at the offices of The NASDAQ Stock Market at 1735 K
Street, N.W., Washington, D.C. 20006.
INCORPORATION OF INFORMATION WE FILE WITH THE SEC
The SEC allows us to "incorporate by reference" the information we file
with them, which means:
o incorporated documents are considered part of this prospectus;
o we can disclose important information to you by referring you to
those documents; and
o information that we file with the SEC will automatically update and
supersede this incorporated information.
We incorporate by reference the documents listed below:
(1) Our Annual Report on Form 10-K for the year ended on December 31,
1999.
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3
(2) Our Quarterly Reports on Form 10-Q for the quarters ended on March
31, 2000, June 30, 2000 and September 30, 2000.
(3) The description of our common stock contained in the Registration
Statement on Form S-1, as amended (file No. 333-33166), filed April
26, 2000.
(4) Our Current Reports on Form 8-K dated September 18, 2000, November
1, 2000, January 12, 2001 and on Form 8-K/A dated November 8, 2000.
We also incorporate by reference each of the following documents that we
will file with the SEC after the date of the initial filing of the
registration statement and prior to the time we sell all of the securities
offered by this prospectus:
o Reports filed under Section 13(a) and (c) of the Exchange Act;
o Definitive proxy or information statements filed under Section 14 of
the Exchange Act in connection with any subsequent stockholders
meeting; and
o Any reports filed under Section 15(d) of the Exchange Act.
You can obtain any of the filings incorporated by reference in this
document through us, or from the SEC through the SEC's web site or at the
addresses listed above. Documents incorporated by reference are available from
us without charge, excluding any exhibits to those documents unless the
exhibit is specifically incorporated by reference as an exhibit in this
prospectus. You can obtain documents incorporated by reference in this
prospectus by requesting them in writing or by telephone from us at the
following address:
Time Warner Telecom Inc.
10475 Park Meadows Drive
Littleton, CO 80124
Telephone: (303) 566-1000
If you request any incorporated documents from us, we will mail them to
you by first class mail, or another equally prompt means, within one business
day after we receive your request.
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements, including statements
regarding, among other items, our business and operating strategy, operations,
economic performance and financial condition. These forward-looking statements
are subject to risks, uncertainties and assumptions, some of which are beyond
our control. Actual results may differ materially from those expressed or
implied by such forward-looking statements. Factors that could cause such
differences include, but are not limited to, those discussed under "Risk
Factors." We undertake no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise. In light of these risks, uncertainties and assumptions,
the forward-looking events and circumstances discussed in this prospectus
might not occur.
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THE COMPANY
We are a leading fiber facilities-based integrated communications
provider offering local businesses "last mile" broadband connections for data,
high-speed internet access, local voice and long distance services. We offer a
wide range of business telephony services, primarily to medium- and
large-sized telecommunications-intensive business end-users, long distance
carriers, internet service providers, wireless communications companies and
governmental entities. These business telephony services include dedicated
transmission, local switched, long distance, data and video transmission
services and high-speed dedicated internet access.
As of January 9, 2001, we operated networks in 24 metropolitan markets in
the United States. On January 10, 2001, we substantially expanded our
geographic coverage by acquiring substantially all of the assets of GST
Telecommunications, Inc. out of bankruptcy. As a result of this acquisition,
we added 15 markets in the western United States. We expect to activate
networks in five additional markets by the end of 2001. As of September 30,
2000, our networks covered 9,457 route miles, contained 363,644 fiber miles
and offered service to 7,228 on-net and off-net buildings. The acquisition of
the GST assets added to our network 4,210 route miles, 227,674 fiber miles and
service to 345 on-net buildings.
Our principal executive offices are located at 10475 Park Meadows Drive,
Littleton, Colorado 80124, and our telephone number is (303) 566-1000.
RISK FACTORS
An investment in the securities is risky. You should carefully consider
the following risks, as well as the other information contained in this
prospectus. If any of the following risks actually occurs, our business could
be harmed. The risks and uncertainties described below are not the only ones
facing us. Additional risks and uncertainties not presently known to us, or
that we currently see as immaterial, may also harm our business.
RISKS RELATING TO US AND OUR BUSINESS
OUR LIMITED OPERATING HISTORY MAY NOT BE A RELIABLE BASIS FOR EVALUATING OUR
PROSPECTS.
Time Warner Cable began our business in 1993. Subsequently, we
spun-off to become an independent company in July 1998. Since the beginning
of 1997, our business has changed substantially as it has rapidly expanded
into switched services. As a result, prospective purchasers have limited
historical financial information available to evaluate our likely future
performance. When making a decision to invest in the securities,
prospective purchasers should consider the risks, expenses and difficulties
frequently encountered by companies that are in their development stage.
WE HAVE A HISTORY OF OPERATING LOSSES AND EXPECT TO EXPERIENCE OPERATING LOSSES
FOR THE FORSEEABLE FUTURE.
We have incurred operating losses for most of our history, net of the
effect of non-recurring reciprocal compensation settlements. For the year
ended December 31, 1999 and the nine months ended September 30, 2000, we
had operating losses of $38.6 million and operating income of $3.5 million,
net of the effect of non-recurring reciprocal settlements of $7.6 million
and $27.3 million, respectively. After giving effect to the acquisition of
the assets of GST and
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5
associated financings, we would have had operating losses of $102.7 million
and $63.7 million for the year ended December 31, 1999 and the nine months
ended September 30, 2000, net of the effect of non-recurring reciprocal
compensation settlements of $7.6 million and $27.3 million, respectively. We
expect to continue to incur, and perhaps increase, operating losses as we
build our networks, expand our customer base and as we integrate the acquired
assets of GST. Operating losses will reduce our ability to meet working
capital needs and increase our need for external financing.
The development of our business requires substantial capital
expenditures. As described below, we plan to increase our annual capital
expenditures during 2001 to expand our operations. We expect to incur a
substantial part of these expenditures in new markets before we realize any
related revenue. We also expect that capital expenditures and other operating
expenditures will result in negative cash flow and operating losses for our
new markets until and unless we develop an adequate customer base and revenue
stream from those markets. We expect that each network will produce negative
cash flow for at least two and a half years after it begins operations.
Moreover, we may never develop an adequate customer base, sustain
profitability, or generate sufficient cash flow.
WE MAY COMPLETE A SIGNIFICANT BUSINESS COMBINATION OR OTHER TRANSACTION THAT
COULD AFFECT OUR LEVERAGE, RESULT IN A CHANGE IN CONTROL OR BOTH.
We continually evaluate potential business combinations, joint ventures
and other transactions that would extend our geographic markets, expand our
products and services and/or enlarge the capacity of our networks. To that
end, we have had exploratory discussions with several other companies in our
industry regarding potentially material transactions. If we enter into a
definitive agreement with respect to any material transaction, it could result
in an increase in our leverage or issuing additional common stock or both, or
it could result in a change of control. There can be no assurance, however,
that we will enter into any transaction or, if we do, on what terms.
A change of control could result in a requirement
that we offer to purchase certain indebtedness and the acceleration of other
indebtedness. There can be no assurance that we will have sufficient funds
available to make that repurchase and repay any accelerated indebtedness.
THE INDENTURE FOR THE 9 3/4% SENIOR NOTES, AND THE INDENTURE FOR ANY
NON-CONVERTIBLE DEBT SECURITIES OFFERED UNDER THIS PROSPECTUS, CONTAIN
RESTRICTIVE COVENANTS THAT MAY LIMIT OUR FLEXIBILITY.
The indentures limit, and in some circumstances prohibit, our ability to:
o incur additional debt;
o pay dividends;
o make investments or other restricted payments;
o engage in transactions with stockholders and affiliates;
o create liens;
o sell assets;
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6
o issue or sell capital stock of subsidiaries; and
o engage in mergers and acquisitions.
These covenants may limit our financial and operating flexibility. In
addition, if we do not comply with these covenants, the holders of the 9 3/4%
Senior Notes may accelerate our debt under the 9 3/4% Senior Notes and the
holders of the debt securities may accelerate our debt under the debt
securities.
WE WILL REQUIRE SUBSTANTIAL CAPITAL TO EXPAND OUR OPERATIONS.
The development and expansion of our networks requires substantial
capital investment. If this capital is not available when needed, our business
will be adversely affected. Including the effects of the GST acquisition, we
expect our principal capital requirements for 2001 to be:
o approximately $550 million to purchase and install switches,
electronics, fiber and other technologies in existing, acquired and
future networks; and
o approximately $50 million for capital expenditures for our
management information system infrastructure.
We also expect to have substantial capital expenditures in subsequent
periods.
We recently executed agreements with various financial institutions
for $1.25 billion of additional financing, including $525 million of
secured term loan financing available to our subsidiaries, and a $700
million unsecured bridge financing available to us. The GST acquisition was
initially financed with borrowings under the unsecured bridge
loan facility. We expect to apply some or all of the proceeds of
offerings under this prospectus to refinance borrowings under these credit
facilities. We may be required to seek additional financing if:
o our business plans and cost estimates prove to be inaccurate;
o we decide to further accelerate the expansion of our business and
existing networks;
o we consummate further acquisitions or joint ventures that require
capital; or
o we are not able to generate sufficient cash flow from operations.
When we seek additional financing, the terms offered may place
significant limits on our financial and operating flexibility, or may not be
acceptable to us. The failure to raise sufficient funds when needed and on
reasonable terms may require us to modify or significantly curtail our
business expansion plans. This could have a material adverse impact on our
growth, ability to compete, and ability to service our existing debt.
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OUR SUBSTANTIAL INDEBTEDNESS, AND SERVICING OUR INDEBTEDNESS, MAY IMPAIR OUR
FINANCIAL AND OPERATING FLEXIBILITY.
We have a substantial amount of debt outstanding and we incurred
substantial additional debt to acquire GST. This substantial indebtedness may
have an adverse impact on us. For example:
o our ability to obtain additional financing may be limited;
o a substantial portion of our cash flow will be dedicated to pay
interest and principal on our debt;
o our ability to satisfy our debt obligations may be diminished
including obligations under the debt securities;
o we may be more vulnerable to economic downturns; and
o our ability to withstand competitive pressure may decrease.
As of September 30, 2000, we had approximately $400 million of
consolidated total debt and after giving effect to the acquisition of the
assets of GST and related borrowings under the new credit facilities and bridge
loan facility, we would have had approximately $1.35 billion of consolidated
total debt as of that date.
TO SERVICE OUR INDEBTEDNESS, WE WILL REQUIRE A SIGNIFICANT AMOUNT OF CASH, AND
OUR ABILITY TO GENERATE CASH DEPENDS ON MANY FACTORS BEYOND OUR CONTROL.
Our ability to make payments on our indebtedness, including the debt
securities, and to fund planned capital expenditures will depend on our
ability to generate cash in the future.
Our historical financial results have been, and our future financial
results might be, subject to substantial fluctuations. We cannot assure you
that our business will generate sufficient cash flow from operations, that
currently anticipated cost savings and operating improvements will be
realized on schedule or that future borrowings will be available to us in
an amount sufficient to enable us to pay our indebtedness, including the
debt securities, or to fund our other liquidity needs. If we are unable to
pay our debts, we will be required to pursue one or more alternative
strategies, such as selling assets, refinancing or restructuring our
indebtedness or selling equity capital. However, we cannot assure you that
any alternative strategies will be feasible at the time due to market
conditions or other factors or prove adequate. Also, certain alternative
strategies will require the consent of our senior secured lenders before we
engage in any such strategy.
OUR BUSINESS MAY BE ADVERSELY AFFECTED IF WE DO NOT SUCCESSFULLY MANAGE OUR
EXPANSION INTO NEW MARKETS AND SERVICES.
We plan to offer new communications services, expand service in our
existing markets, interconnect our existing markets and enter new markets.
If we are not successful in implementing these changes on-time and
on-budget, our results of operations will likely be adversely affected.
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Our ability to manage this expansion depends on many factors, including
the ability to:
o attract new customers and sell new services to existing customers;
o design, acquire and install transmission and switching facilities;
o employ new technologies;
o obtain any required governmental permits and rights-of-way;
o implement interconnection with local exchange carriers;
o expand, train and manage our employee base;
o enhance our financial, operating and information systems to
effectively manage our growth; and
o accurately predict and manage the cost and timing of our capital
expenditure programs.
Even if we are successful in completing the infrastructure to support our
expanded business, that business may not be profitable and may not generate
positive cash flow for us.
OUR BUSINESS MAY BE LIMITED IF THE CAPACITY LICENSE WITH TIME WARNER CABLE
EXPIRES OR IS TERMINATED.
If the capacity license with Time Warner Cable is not renewed on
expiration in 2028 or is terminated prior to that time, we may need to build,
lease or otherwise obtain fiber optic capacity. The terms of those
arrangements may be materially less favorable to us than the terms of our
existing capacity license.
At expiration of the capacity license, Time Warner Cable is obligated to
negotiate a renewal in good faith, but we may be unable to reach agreement
with Time Warner Cable on acceptable terms. In addition, Time Warner Cable may
terminate the capacity license before expiration upon:
o a material impairment of Time Warner Cable's ability to provide the
license by law;
o a material breach of the capacity license by us; or
o the institution of any proceedings to impose any public utility or
common carrier status or obligations on Time Warner Cable, or any
other proceedings challenging Time Warner Cable's operating
authority as a result of the services provided to us under the
capacity license.
The capacity license prohibits us from offering residential services or
content services with the capacity licensed from Time Warner Cable.
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WE MAY LOSE THE RIGHT TO USE THE "TIME WARNER" NAME.
We believe the "Time Warner" brand name is valuable and its loss could
have an adverse effect on us. Under a license agreement with Time Warner, we
are required to discontinue use of the "Time Warner" name in the following
circumstances:
o the license agreement expires after an initial term ending July 2002
or any permitted renewal;
o Time Warner no longer owns at least 30% of our common stock;
o Time Warner no longer has the right to nominate at least three
members of our board of directors;
o we violate covenants in the capacity license with Time Warner Cable
relating to residential services and content services; or
o a Class B Stockholder transfers its Class B common stock and its
rights to designate nominees to the board of directors to a third
party.
Under these circumstances, we may change our name to "TW Telecom Inc." or
some other name. Such name change, and the inability to use the "Time Warner"
name, could have an adverse effect on our ability to conduct our business and
on our financial condition and results of operations.
SEVERAL CUSTOMERS ACCOUNT FOR A SIGNIFICANT AMOUNT OF OUR REVENUE.
We have substantial business relationships with a few large customers.
For the nine months ended September 30, 2000, our top ten customers accounted
for approximately 46% of our total revenue. Our largest customer for the nine
months ended September 30, 2000, MCI Worldcom, Inc. and its affiliates,
accounted for more than 10% of our total revenue. However, a substantial
portion of that revenue results from traffic that is directed to us by
customers that have selected that long distance carrier. No other customer,
including customers who direct their business through long distance carriers,
accounted for 10% or more of revenue.
SOME OF OUR CUSTOMER AGREEMENTS MAY NOT CONTINUE.
Some of our customer agreements are subject to termination on short
notice and do not require the customer to maintain its agreements at current
levels, and we cannot assure you that such customers will continue to purchase
the same services or level of services. We believe that certain interexchange
carriers are pursuing alternatives to their current practices with regard to
obtaining local telecommunications services, including acquisition or
construction of their own facilities. In addition, interexchange carriers may
be able to provide local service by reselling the facilities or services of an
incumbent local exchange carrier, which may be more cost-effective for an
interexchange carrier than using our services or another competitive access
provider or competitive local exchange carrier.
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WE ARE DEPENDENT ON TIME WARNER CABLE'S PERMITS, LICENSES AND RIGHTS-OF-WAY.
We currently license a significant portion of our fiber optic capacity
from Time Warner Cable. Municipalities that regulate Time Warner Cable may or
may not seek to impose additional franchise fees or otherwise charge Time
Warner Cable. We must reimburse Time Warner Cable for any new fees or
increases. Time Warner Cable or Time Warner Telecom may not be able to obtain
all necessary permits, licenses or agreements from governmental authorities or
private rights-of-way providers necessary to effect future license
transactions. This would hinder our ability to expand our existing networks or
develop new networks successfully in locations served by Time Warner Cable.
OUR QUARTERLY OPERATING RESULTS WILL FLUCTUATE.
As a result of the limited revenue and significant expenses associated
with the expansion and development of our networks and services, we anticipate
that our operating results could vary significantly from quarter to quarter.
In fact, we expect our recurring EBITDA margins to decrease in 2001 as
compared to 2000 due to the acquisition and expected commencement of services
in five additional markets. Changes in the usage or payment patterns of
significant customers may also cause operating results to vary.
WE DEPEND ON THIRD PARTY VENDORS FOR INFORMATION SYSTEMS.
We have entered into agreements with vendors that provide for the
development and operation of back office systems, such as ordering,
provisioning and billing systems. The failure of those vendors to perform
their services in a timely and effective manner at acceptable costs could have
a material adverse effect on our growth and our ability to monitor costs, bill
customers, provision customer orders and achieve operating efficiencies.
IF WE DO NOT ADAPT TO RAPID CHANGES IN THE TELECOMMUNICATIONS INDUSTRY, WE
COULD LOSE CUSTOMERS OR MARKET SHARE.
The telecommunications industry will continue to experience rapid changes
in technology. Our future success may depend on our ability to adapt to any
changes in the industry. Our failure to adopt new technology, or our choice of
one technological innovation over another, may have an adverse impact on our
ability to compete or meet customer demands.
WE ARE CONTROLLED BY THE CLASS B STOCKHOLDERS.
Time Warner Inc., AT&T Corporation (as successor by merger to MediaOne
Group, Inc.) and Time Warner Entertainment-Advance/Newhouse Partnership, the
Class B stockholders, hold all the outstanding shares of Class B common stock.
The Class B stockholders generally have the collective ability to control all
matters requiring stockholder approval, including the nomination and election
of directors. The Class B common stock is not subject to any mandatory
conversion provisions other than pursuant to certain transfer restrictions.
The disproportionate voting rights of the Class B common stock relative to the
Class A common stock may delay or prevent a change in control of Time Warner
Telecom, and may make us a less attractive takeover target.
Our board of directors consists of seven directors. Under the
Stockholders Agreement, Time Warner has the right to designate three nominees
for the board of directors and Advance/Newhouse Partnership has the right to
designate one nominee. Under the Stockholders Agreement, Class B stockholders
agree to vote in favor of all nominees selected by the Class B stockholders.
Class B stockholders will also have the power to elect the other members of
our board of directors.
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EACH OF THE CLASS B STOCKHOLDERS HAS VETO RIGHTS OVER CERTAIN ACTIONS.
Under our restated certificate of incorporation, as long as the
outstanding Class B common stock represents at least 50% of the aggregate
voting power of both classes of common stock outstanding, the approval of 100%
of the Class B stockholders is required:
o to permit us to provide residential services or content services
prior to May 2004;
o to amend our restated certificate of incorporation, other than in
connection with certain ministerial actions; or
o for any direct or indirect disposition by us of capital stock of
subsidiaries or assets that in either case represents substantially
all our assets on a consolidated basis.
The approval of 100% of the Class B stockholders is also required for the
issuance of any additional shares of Class B common stock or any capital stock
having more than one vote per share.
THE HOLDERS OF CLASS B COMMON STOCK CAN SELL CONTROL OF TIME WARNER TELECOM AT
A TIME WHEN THEY DO NOT HAVE A MAJORITY ECONOMIC INTEREST IN TIME WARNER
TELECOM, AND EXCLUDE THE HOLDERS OF CLASS A COMMON STOCK FROM PARTICIPATING IN
THE SALE.
The Stockholders Agreement provides that, subject to the rights of first
refusal of the other holders of Class B common stock, the Class B stockholders
may transfer their Class B common stock. If a holder sells all, but not less
than all, of its Class B common stock as shares of Class B common stock, such
holder may transfer its right to nominate Class B nominees for election to the
board of directors. In addition, all of the holders of Class B common stock
have the right to participate in certain sales by Time Warner of its Class B
common stock. Accordingly, majority control of Time Warner Telecom could be
transferred by one or more holders of Class B common stock at a time when such
holder or holders of Class B common stock do not have a majority of the
economic interest in Time Warner Telecom and with no assurance that the
holders of Class A common stock would be given the opportunity to participate
in the transaction or, if they were permitted to participate in the
transaction, to receive the same amount and type of consideration for their
stock in Time Warner Telecom as the holders of Class B common stock.
In addition, we have elected not to be subject to Section 203 of the
Delaware General Corporation Law, which would otherwise provide certain
restrictions on "business combinations" between us and any person acquiring a
significant, 15% or greater, interest in us other than in a transaction
approved by our board of directors and in certain cases by our stockholders.
THE CLASS B STOCKHOLDERS MAY COMPETE WITH US.
The Class B stockholders are in the cable television business. There is
no restriction on the Class B stockholders' ability to compete with us. They
may, now or in the future, provide the same or similar services to those that
we provide.
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SOME OF OUR BUSINESS ACTIVITIES ARE RESTRICTED.
Our restated certificate of incorporation restricts our business
activities. These restrictions limit our ability to expand our business and
could deprive us of valuable future opportunities. Under the restated
certificate of incorporation, we may not, directly or through a subsidiary or
affiliate:
o provide residential services; or
o produce or otherwise provide entertainment, information, or any
other content services, with certain limited exceptions.
We may engage in these activities with the affirmative vote of all the
holders of the Class B common stock or on the earlier of:
o five years from the date of our restated certificate of
incorporation, which is May 2004; or
o the date the Class B common stock represents less than 50% of our
voting power (as of September 30, 2000, Class B common stock
represented approximately 95.6% of our voting power).
We are subject to the same restrictions under the capacity license with
Time Warner Cable, except that those restrictions apply only to our use of the
leased capacity but last until the capacity license expires in 2028 or is
terminated. We believe these restrictions will not materially affect our
ability to operate our business as currently planned.
SOME OF OUR DIRECTORS MAY HAVE CONFLICTS OF INTEREST.
Some of our directors are also directors, officers or employees of the
Class B stockholders or their affiliates. Although these directors have
fiduciary obligations to Time Warner Telecom under Delaware law, they may face
conflicts of interest. For example, conflicts of interest may arise with
respect to certain business opportunities available to, and certain
transactions involving, Time Warner Telecom. The Class B stockholders have not
adopted any special voting procedures to deal with such conflicts of interest.
The resolution of these conflicts may be unfavorable to us. Our restated
certificate of incorporation provides for the allocation of corporate
opportunities between us and the Class B stockholders. See "Description of
Capital Stock."
Risks Relating to our Acquisition of the Assets of GST
OUR ACQUISITION OF THE GST ASSETS INCREASES OUR LEVERAGE AND POSES OTHER RISKS.
Our acquisition of the GST assets increases our geographic presence,
expands our products and services and enlarges the capacity of our networks.
This transaction is considerably larger than the transactions we have
completed in the past.
This transaction involves the following operating risks to us:
o the difficulty of assimilating the acquired operations and
personnel;
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13
o the potential disruption of our ongoing business;
o the diversion of resources;
o the possible inability of management to maintain uniform standards,
controls, procedures and policies;
o the possible difficulty of managing our growth and information
systems;
o the risks of entering markets in which we have little or no
experience;
o the potential impairment of relationships with employees or
customers; and
o the possibility that the liabilities we assumed to complete
performance under GST contracts may prove to be more burdensome
than anticipated.
WE MAY HAVE DIFFICULTY INTEGRATING THE ACQUIRED ASSETS AND BUSINESSES OF GST.
We purchased substantially all of the assets of GST with the expectation
that the asset purchase would result in certain benefits, including expansion
of the markets we serve and increasing our operational efficiencies. Achieving
the benefits of the asset purchase will depend upon the successful integration
of the acquired businesses into our existing operations. We cannot assure you
that we will be successful in integrating the acquired GST assets into our
current businesses. The integration risks associated with the acquisition
include but are not limited to:
o the diversion of our management's attention as integrating the GST
operations and assets will require a substantial amount of our
management's attention,
o difficulties associated in assimilating GST's technology, including
billing and customer information systems, and
o any significant loss of key GST personnel could lead to
interruptions in our billing, accounting, information technologies
and engineering capabilities.
We cannot assure you that we will be able to successfully overcome the
risks associated with integrating the assets we acquired from GST. There is a
risk that the costs of integration could have a material adverse effect on our
operating results.
Risks Relating to our Industry
WE DEPEND ON INTERCONNECTION WITH INCUMBENT LOCAL EXCHANGE CARRIERS.
Our services may be less attractive if we cannot obtain high quality,
reliable and reasonably priced interconnection from incumbent local exchange
carriers. The Telecommunications Act of 1996 requires incumbent local exchange
carriers to allow us to connect to their networks, thereby connecting to end
users not on our networks, which is commonly referred to as "interconnection"
within our industry. However, negotiating interconnection agreements with the
incumbent local exchange carriers takes considerable time, effort and expense.
The agreements are also subject to state regulation. We may be unable to
obtain interconnection at rates that are both competitive and profitable.
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14
THE LOCAL SERVICES MARKET IS HIGHLY COMPETITIVE, AND MANY OF OUR COMPETITORS
HAVE SIGNIFICANT ADVANTAGES THAT MAY ADVERSELY AFFECT OUR ABILITY TO COMPETE
WITH THEM.
We operate in an increasingly competitive environment and some companies
may have competitive advantages over us. Most incumbent local exchange
carriers offer substantially the same services as we offer. Incumbent local
exchange carriers benefit from:
o longstanding relationships with their customers;
o greater financial and technical resources;
o the ability to subsidize local services from revenue in unrelated
businesses; and
o recent regulations that relax price restrictions and decrease
regulatory oversight of incumbent local exchange carriers.
We also face competition from new entrants into the local services
business who may also be better established and have greater financial
resources. These advantages may impair our ability to compete in price and
service offerings or require us to sustain prolonged periods of operating
losses in order to retain customers. The current trend of consolidation of
telecommunications companies and strategic alliances within the industry could
give rise to significant new or stronger competitors for us. Some long
distance carriers who are our customers are pursuing alternative ways to
obtain local telecommunications services, including by acquiring local
exchange carriers or constructing their own facilities.
COMPETITION IN LOCAL SERVICES HAS ALSO INCREASED AS A RESULT OF CHANGING
GOVERNMENT REGULATIONS.
The Telecommunications Act of 1996 has increased competition in the local
telecommunications business. The Telecommunications Act of 1996:
o requires incumbent local exchange carriers to interconnect their
networks with those of requesting telecommunications carriers and to
allow requesting carriers to collocate equipment at the premises of
the incumbent local exchange carriers;
o requires all local exchange providers to offer their services for
resale;
o allows long distance carriers to resell local services;
o requires incumbent local exchange carriers to offer to requesting
telecommunications carriers network elements on an unbundled basis;
and
o requires incumbent local exchange carriers to offer to requesting
telecommunications carriers the services they provide to end-users
to other carriers at wholesale rates.
However, under the Telecommunications Act of 1996, the FCC and some state
regulatory authorities may provide incumbent local exchange carriers with
increased flexibility to reprice their services as competition develops and as
incumbent local exchange carriers allow competitors to interconnect to their
networks. In addition, some new entrants in the local market may price certain
<PAGE>
15
services to particular customers or for particular routes below the prices we
charge for services to those customers or for those routes. If the incumbent
local exchange carriers and other competitors lower their rates and can
sustain significantly lower prices over time, this may adversely affect our
revenue if we are required by market pressure to price at or below the
incumbent local exchange carriers' prices.
Competition may also increase as a result of a recent World Trade
Organization agreement on telecommunications services. As a result of the
agreement, the FCC has made it easier for foreign companies to enter the U.S.
telecommunications market.
Recently, a number of competitive local carriers have filed for
bankruptcy protection, due to high leverage, substantial price competition,
technical difficulties and other problems faced by new market entrants.
WE ARE SUBJECT TO SIGNIFICANT FEDERAL AND STATE REGULATIONS THAT CAN
SIGNIFICANTLY AFFECT PRICING AND PROFITABILITY.
Existing federal and state regulations, or new regulations, could have a
material impact on our prices and revenue. Certain rates that we charge to our
customers must be filed with the FCC and/or state regulators, which provides
price transparency to customers and competitors.
In addition, when we provide local exchange services in a market, the
Telecommunications Act of 1996 and FCC rules require us to:
o not unreasonably limit the resale of our services;
o provide telephone number portability if technically feasible;
o provide dialing parity to competing providers;
o provide access to poles, ducts and conduits that we own; and
o establish reciprocal compensation arrangements for the transport and
termination of telecommunications.
WE MAY RECEIVE LESS REVENUE IF INCUMBENT LOCAL EXCHANGE CARRIERS SUCCESSFULLY
CHALLENGE RECIPROCAL COMPENSATION.
We currently receive compensation from incumbent local exchange
carriers for terminating local calls at the premises of internet service
providers. Some companies have challenged our right and the right of others
to receive this compensation. Determinations by the FCC or by state utility
commissions that such traffic should not be subject to termination
compensation could adversely affect our revenue. The FCC may issue rules or
an order that may have the effect of reducing reciprocal compensation
revenue.
WE MAY EXPERIENCE A REDUCTION IN SWITCHED ACCESS REVENUE AS A RESULT
OF REGULATORY RATE REFORM.
The FCC has established a framework for the eventual deregulation of
incumbent local exchange carrier interstate access charges, which will exert a
downward pressure on our interstate access rates. We cannot assure you that we
will be able to compensate for the reduction in switched access revenue from
regulatory rate reform with other revenue sources or increased volume.
<PAGE>
16
WE DEPEND ON GOVERNMENTAL AND OTHER AUTHORIZATIONS.
The development, expansion and maintenance of our networks will depend
on, among other things, our ability to obtain rights-of-way and other required
governmental authorizations and permits. Any increase in the difficulty or
cost of obtaining these authorizations and permits could adversely affect us,
particularly where we must compete with companies that already have the
necessary permits. In order to compete effectively, we must obtain these
authorizations in a timely manner, at reasonable costs and on satisfactory
terms and conditions. In certain of the cities or municipalities where we
provide network services, we pay license or franchise fees. The
Telecommunications Act of 1996 permits municipalities to charge these fees
only if they are competitively neutral and nondiscriminatory, but certain
municipalities may not conform their practices to the requirements of the
Telecommunications Act of 1996 in a timely manner or without legal challenge.
We also face the risks that other cities may start imposing fees, fees will be
raised or franchises will not be renewed. Some of our franchise agreements
also provide for increases or renegotiation of fees at certain intervals. Any
increases in these fees may have a negative impact on our financial condition.
Risks Relating to an Investment in the Debt Securities
BECAUSE THE DEBT SECURITIES RANK BELOW OUR SENIOR SECURED DEBT, YOU MAY NOT
RECEIVE FULL PAYMENT ON YOUR DEBT SECURITIES.
Before paying principal and interest on the debt securities, we must
first make payments on our existing and future senior secured debt, including
any outstanding amounts under our existing $475 million senior bank credit
facility. In connection with our acquisition of the assets of GST, we replaced
this existing credit facility with a new $1 billion amended and restated
senior secured credit facility. As of September 30, 2000, after giving effect
to the acquisition of substantially all the assets of GST and the borrowings
we drew down under the credit facilities which consisted of $250 million under
the new credit facility and $700 million under the bridge loan facility, we
would have had approximately $250 million of senior secured indebtedness and
$1.1 billion of senior unsecured indebtedness. We would have had the ability
to incur $750 million of additional debt under our new senior credit facility,
subject to certain conditions.
Our obligations under the new senior credit facility are secured by
substantially all of our assets. If we are unable to repay amounts due on our
secured debt, the lenders could proceed against the collateral securing the
debt and we may not have enough assets left to pay you. In addition, the new
senior credit facility prohibits us from paying amounts due on the debt
securities that represent senior unsecured or subordinated debt. This facility
also prohibits us from purchasing, redeeming or otherwise acquiring the debt
securities, if a default exists under our senior secured debt.
The debt securities, whether they be senior unsecured or subordinated
indebtedness, are not secured by any of our assets. If we become insolvent or
are liquidated, or if our debt under the new senior credit facility is
accelerated as a result of a cross-default provision in our outstanding debt
or otherwise, the lenders under such facility would be entitled to exercise
the remedies available to secured lenders under applicable law. Our bank
lenders have a claim on substantially all our assets. Accordingly there may be
no assets or sufficient assets to pay in full holders of our senior unsecured
debt or holders of our subordinated indebtedness. You should also be aware
that holders of our subordinated debt securities rank behind holders of our
senior unsecured indebtedness, and as such, if we become insolvent, then
holders of our subordinated
<PAGE>
17
debt will not be eligible for payment until all holders of our senior
unsecured debts are satisfied in full.
None of our subsidiaries are guaranteeing the debt securities. Our
subsidiary, Time Warner Telecom Holdings is the borrower under the new
credit facility. Furthermore, all of our direct and indirect subsidiaries
have guaranteed or will guarantee our obligations under our existing senior
credit facility or new senior credit facility, respectively. As a result,
the debt securities are effectively subordinated in right of payment to all
other debt and other liabilities, including trade payables and guarantees,
of our subsidiaries. As of September 30, 2000, after giving effect to the
acquisition of substantially all the assets of GST and related borrowings
under the new credit facility and bridge loan facility, we would have had
approximately $278 million in other liabilities. Substantially all of our
consolidated assets are held by our subsidiaries. Any right we may have to
receive assets of our subsidiaries upon their liquidation or
reorganization, and your resulting rights to participate in those assets,
would be effectively subordinated to the claims of our subsidiaries'
creditors and to our senior secured creditors.
We depend upon our subsidiaries for the cash flow necessary to service
our debt obligations, including the debt securities.
The debt securities are obligations exclusively of Time Warner Telecom,
which is a holding company. We derive substantially all of our revenue from
our operating subsidiaries and do not have significant operations of our own.
As a result, we are depending upon the ability of our subsidiaries to provide
us with cash, in the form of dividends, intercompany credits, loans or
otherwise, to meet our debt service obligations, including our obligations
under the debt securities. These subsidiaries are separate and distinct legal
entities and have no obligations to pay any amounts due on the debt securities
or to make any funds available. In addition, dividends, loans or other
distributions to us from our subsidiaries may be subject to contractual or
other restrictions, will depend upon the results of operations of such
subsidiaries and may be subject to other business considerations.
YOUR RIGHTS TO BE REPAID WOULD BE ADVERSELY AFFECTED IF A COURT DETERMINED THAT
WE ISSUED THE DEBT SECURITIES FOR INADEQUATE CONSIDERATION OR WITH INTENT TO
DEFRAUD OUR CREDITORS.
Our ability to repay the debt securities may be adversely affected if it
is determined in a bankruptcy, insolvency or similar proceeding that:
o we issued the debt securities with intent to delay or defraud any
creditor;
o we contemplated insolvency with a design to prefer some creditors to
the exclusion of others; or
o we issued the debt securities for less than reasonably equivalent
value and were insolvent at the time the debt securities were
originally issued.
In such event, a court could, among other things, void all or a portion
of our obligations to you. In this case, you may not be repaid in full. A
court may also subordinate our obligations to you to our other debt to a
greater extent than would otherwise be the case. In this case, other creditors
would be entitled to be paid in full before any payment could be made on the
debt securities. We cannot assure you that, after providing for all prior
claims, there would be sufficient assets to satisfy your claims.
<PAGE>
18
RATIO OF EARNINGS TO FIXED CHARGES AND EARNINGS TO COMBINED
FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
The following table sets forth our consolidated ratio of earnings to fixed
charges (in thousands).
<TABLE>
<CAPTION>
Nine Months Ended
Years Ended December 31, September 30
----------------------------------------------------------- ------------------------
Historical Pro Forma Historical Pro Forma
--------- ---------- ---------
------------------------------------------------
1995 1996 1997 1998 1999 1999(b) 2000 2000(b)
---- ---- ---- ---- ---- ------- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Ratio of Earnings to Fixed Charge (a) (a) (a) (a) (a) (a) 1.18 (a)
</TABLE>
----------------------------
(a) The deficiency of earnings to cover fixed charges was $51,105, $86,116,
$70,656, $92,927 and $59,714 for the years ended December 31, 1995, 1996, 1997,
1998 and 1999, respectively, and $259,300 and $147,240 for the pro forma year
ended December 31, 1999 and the nine months ended September 30, 2000,
respectively.
(b) The pro forma data for the nine months ended September 30, 2000 and the
year ended December 31, 1999 give effect to the acquisition of substantially all
of the assets of GST and related borrowings under the new credit facility and
bridge loan facility.
For purposes of computing the ratio of earnings to fixed charges and the
deficiency of earnings to cover fixed charges, earnings were calculated by
adding (i) net income (loss) before income taxes and (ii) interest expense,
including the portion of rents representative of an interest factor. Fixed
charges consist of interest expense, capitalized interest and the portion of
rents representative of an interest factor.
Because we do not have any preferred stock outstanding, the ratio of
earnings to fixed charges and preferred stock dividends, and the deficiency of
earnings to cover fixed charges and preferred stock dividends were the same as
the ratio of earnings to fixed charges and the deficiency of earnings to cover
fixed charges.
USE OF PROCEEDS
We will use the net proceeds from our sale of the securities to repay the
borrowings under the unsecured bridge loan facility that we used to purchase the
assets of GST. In addition, we may use the proceeds from our sale of any debt
securities or preferred stock that are not convertible into common stock for
capital expenditures and other corporate purposes.
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19
DESCRIPTION OF DEBT SECURITIES
The following description of the terms of the debt securities sets forth
certain general terms and provisions of the debt securities to which any
prospectus supplement may relate. The particular terms of the debt securities
offered by any prospectus supplement and the extent, if any, to which such
general provisions may apply to the debt securities so offered will be described
in the prospectus supplement relating to such debt securities. Accordingly, for
a description of the terms of a particular issue of debt securities, reference
must be made to both the prospectus supplement relating thereto and to the
following description.
The debt securities will be our general obligations. In the event that any
series of debt securities will be subordinated to other securities, that we have
outstanding or may incur, the terms of the subordination will be set forth in
the prospectus supplement relating to the subordinated debt securities. Debt
securities will be issued under one or more indentures between us and one or
more commercial banks to be selected as trustees (collectively, the "Trustee").
A copy of the form of indenture has been filed as an exhibit to the registration
statement filed with the SEC. Set forth below is a summary of the material terms
of the indenture.
General
The indenture does not limit the aggregate principal amount of debt
securities that can be issued under it. The debt securities may be issued in one
or more series as we may authorize from time to time. You should refer to the
applicable prospectus supplement for the following terms of the debt securities
of the series with respect to which that prospectus supplement is being
delivered:
(1) the title of the debt securities of the series;
(2) any limit on the aggregate principal amount of the debt securities of
the series that may be authenticated and delivered under the indenture;
(3) the date or dates on which the principal and premium with respect to
the debt securities of the series are payable;
(4) the rate or rates (which may be fixed or variable) at which the debt
securities of the series shall bear interest (if any) or the method of
determining such rate or rates, the date or dates from which such interest shall
accrue, the interest payment dates on which such interest shall be payable or
the method by which such dates will be determined, the record dates for the
determination of holders thereof to whom such interest is payable (in the case
of Registered Securities (as defined below)), and the basis upon which interest
will be calculated if other than that of a 360-day year of twelve 30-day months;
(5) the currency or currencies in which debt securities of the series shall
be denominated, if other than U.S. dollars, the place or places, if any, in
addition to or instead of the corporate trust office of the Trustee (in the case
of Registered Securities) or the principal New York office of the Trustee (in
the case of Bearer Securities (as defined below)), where the principal, premium,
and interest with respect to debt securities of the series shall be payable;
<PAGE>
20
(6) the price or prices at which, the period or periods within which, and
the terms and conditions upon which debt securities of the series may be
redeemed, in whole or in part at our option or otherwise;
(7) whether debt securities of the series are to be issued as Registered
Securities or Bearer Securities or both and, if Bearer Securities are to be
issued, whether coupons will be attached to them, whether Bearer Securities of
the series may be exchanged for Registered Securities of the series, and the
circumstances under which and the places at which any such exchanges, if
permitted, may be made;
(8) if any debt securities of the series are to be issued as Bearer
Securities or as one or more Global Securities (as defined below) representing
individual Bearer Securities of the series, whether certain provisions for the
payment of additional interest or tax redemptions shall apply; whether interest
with respect to any portion of a temporary Bearer Security of the series payable
with respect to any interest payment date prior to the exchange of such
temporary Bearer Security for definitive Bearer Securities of the series shall
be paid to any clearing organization with respect to the portion of such
temporary Bearer Security held for its account and, in such event, the terms and
conditions (including any certification requirements) upon which any such
interest payment received by a clearing organization will be credited to the
Persons entitled to interest payable on such interest payment date; and the
terms upon which a temporary Bearer Security may be exchanged for one or more
definitive Bearer Securities of the series;
(9) our obligation, if any, to redeem, purchase, or repay debt securities
of the series under any sinking fund or analogous provisions or at the option of
a holder of such debt securities and the price or prices at which, the period or
periods within which, and the terms and conditions upon which debt securities of
the series shall be redeemed, purchased, or repaid, in whole or in part, under
such obligations;
(10) the terms, if any, upon which the debt securities of the series may be
convertible into or exchanged for our or any other issuer's or obligor's common
stock, preferred stock, other debt securities or warrants for common stock,
preferred stock, indebtedness or other securities of any kind and the terms and
conditions upon which such conversion or exchange shall be effected, including
the initial conversion or exchange price or rate, the conversion or exchange
period and any other additional provisions;
(11) if other than denominations of $1,000 or any integral multiple
thereof, the denominations in which debt securities of the series shall be
issuable;
(12) if the amount of principal, premium or interest with respect to the
debt securities of the series may be determined with reference to an index or
pursuant to a formula, the manner in which such amounts will be determined;
(13) if the principal amount payable at the Stated Maturity (as defined
below) of debt securities of the series will not be determinable as of any one
or more dates prior to such Stated Maturity, the amount that will be deemed to
be such principal amount as of any such date for any purpose, including the
principal amount thereof which will be due and payable upon any maturity other
than the Stated Maturity or which will be deemed to be outstanding as of any
such date (or, in any such case, the manner in which such deemed principal
amount is to be determined), and if necessary, the manner of determining the
equivalent thereof in United States currency;
(14) any changes or additions to the provisions of the indenture dealing
with defeasance;
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21
(15) if other than the principal amount thereof, the portion of the
principal amount of debt securities of the series that shall be payable upon
declaration of acceleration of the maturity thereof or provable in bankruptcy;
(16) the terms, if any, of the transfer, mortgage, pledge or assignment as
security for the debt securities of the series of any properties, assets,
moneys, proceeds, securities or other collateral, including whether certain
provisions of the Trust Indenture Act of 1939, as amended, are applicable and
any corresponding changes to provisions of the indenture as then in effect;
(17) any addition to or change in the Events of Default (as defined below)
with respect to the debt securities of the series and any change in the right of
the Trustee or the holders to declare the principal, premium and interest with
respect to such debt securities due and payable;
(18) if the debt securities of the series shall be issued in whole or in
part in the form of a global security, the terms and conditions, if any, upon
which such global security may be exchanged in whole or in part for other
individual debt securities in definitive registered form, the depositary for
such global security, if different from The Depositary Trust Company, and the
form of any legend or legends to be borne by any such global security in
addition to or in lieu of the legend referred to in the indenture;
(19) any authenticating or paying agents, transfer agents or registrars;
(20) the applicability of, and any addition to or change in, the covenants
and definitions then set forth in the indenture or in the terms then set forth
in the indenture relating to permitted consolidations, mergers, or sales of
assets;
(21) the terms, if any, of any guarantee of the payment of principal,
premium, and interest with respect to debt securities of the series and any
corresponding changes to the provisions of the indenture as then in effect;
(22) the subordination, if any, of the debt securities of the series
pursuant to the indenture and any changes or additions to the provisions of the
indenture relating to subordination;
(23) with regard to debt securities of the series that do not bear
interest, the dates for certain required reports to the Trustee; and
(24) any other terms of the debt securities of the series (which terms
shall not be prohibited by the provisions of the indenture).
The prospectus supplement will also describe any material United States
federal income tax consequences or other special considerations applicable to
the series of debt securities to which such prospectus supplement relates,
including those applicable to:
(1) Bearer Securities;
(2) debt securities with respect to which payments of principal, premium or
interest are determined with reference to an index or formula (including changes
in prices of particular securities, currencies or commodities);
(3) debt securities with respect to which principal, or interest is payable
in a foreign or composite currency;
<PAGE>
22
(4) debt securities that are issued at a discount below their stated
principal amount, bearing no interest or interest at a rate that at the time of
issuance is below market rates ("Original Issue Discount Debt Securities"); and
(5) variable rate debt securities that are exchangeable for fixed rate debt
securities.
Unless otherwise provided in the applicable prospectus supplement,
Registered Securities may be transferred or exchanged at the office of the
Trustee at which its corporate trust business is principally administered in the
United States or at the office of the Trustee or the Trustee's agent in the
Borough of Manhattan, the City and State of New York, at which its corporate
agency business is conducted, subject to the limitations provided in the
indenture, without the payment of any service charge, other than any tax or
governmental charge payable in connection therewith. Bearer Securities will be
transferable only by delivery. Provisions with respect to the exchange of Bearer
Securities will be described in the prospectus supplement relating to such
Bearer Securities.
All funds which we pay to a paying agent for the payment of principal,
premium or interest with respect to any debt securities that remain unclaimed at
the end of two years after such principal, premium or interest shall have become
due and payable will be repaid to us, and the holders of such debt securities or
any coupons appertaining thereto will thereafter look only to us for payment
thereof.
GLOBAL SECURITIES
The debt securities of a series may be issued in whole or in part in the
form of one or more global securities. A global security is a debt security that
represents, and is denominated in an amount equal to the aggregate principal
amount of, all outstanding debt securities of a series, or any portion thereof,
in either case having the same terms, including the same original issue date,
date or dates on which principal and interest are due, and interest rate or
method of determining interest. A global security will be deposited with, or on
behalf of, a depositary, which will be The Depositary Trust Company, New York,
New York (the "Depositary").
The Depositary has advised us that it is a limited purpose trust company
organized under the laws of the State of New York, a "banking organization"
within the meaning of the New York banking law, 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 its participants and to facilitate the clearance and settlement of
securities transactions among its participants through electronic book-entry
changes in accounts of the participants, thereby eliminating the need for
physical movement of securities certificates. The Depositary's participants
include securities brokers and dealers, banks, trust companies, clearing
corporations, and certain other organizations, some of which (and/or their
representatives) own the Depositary. Access to the Depositary's book-entry
system is also available to others, such as banks, brokers, dealers and trust
companies that clear through or maintain a custodial relationship with a
participant, either directly or indirectly.
Global securities may be issued in either registered or bearer form and in
either temporary or definitive form. Unless and until it is exchanged in whole
or in part for the individual debt securities represented thereby, a global
security may not be transferred except as a whole by the Depositary to a nominee
of the Depositary, by a nominee of the Depositary to the Depositary or
<PAGE>
23
another nominee of the Depositary, or by the Depositary or any nominee of the
Depositary to a successor Depositary or any nominee of such successor.
Upon the issuance of a global security, the Depositary will credit, on its
book entry registration and transfer system, the respective principal amounts of
the individual debt securities represented by such global security to the
accounts of persons that have accounts with the Depositary ("Participants").
Such accounts will be designated by the dealers or underwriters with respect to
such debt securities or, if such debt securities are offered and sold directly
by us or through one or more agents, by us or such agents. Ownership of
beneficial interests in a global security will be limited to Participants or
persons that hold beneficial interests through Participants. Ownership of
beneficial interests in such global security will be shown on, and the transfer
of that ownership will be effected only through, records maintained by the
Depositary (with respect to interests of Participants) or records maintained by
Participants (with respect to interests of persons other than Participants). The
laws of some states require that certain purchasers of securities take physical
delivery of such securities in definitive form. Such limitations and laws may
impair the ability to transfer beneficial interests in a global security.
So long as the Depositary or its nominee is the registered owner or holder
of such global security, such Depositary or nominee, as the case may be, will be
considered the sole owner or holder of the individual debt securities
represented by such global security for all purposes under the indenture. Except
as provided below, owners of beneficial interests in a global security will not
be entitled to have any of the individual debt securities represented by such
global security registered in their names, will not receive or be entitled to
receive physical delivery of any of such debt securities in definitive form, and
will not be considered the owners or holders thereof under the indenture.
Subject to the restrictions applicable to Bearer Securities described in an
applicable prospectus supplement (see "Limitations on Issuance of Bearer
Securities" below), payments of principal, premium, and interest with respect to
individual debt securities represented by a global security will be made to the
Depositary or its nominee, as the case may be, as the registered owner or holder
of such global security. Neither we, the Trustee, any paying agent or registrar
for such debt securities or any agent of ours or the Trustee's will have any
responsibility or liability for (1) any aspect of the records relating to or
payments made by the Depositary, its nominee or any Participants on account of
beneficial interests in the global security or for maintaining, supervising or
reviewing any records relating to such beneficial interests, (2) the payment to
the owners of beneficial interests in the global security of amounts paid to the
Depositary or its nominee or (3) any other matter relating to the actions and
practices of the Depositary, its nominee or its Participants. Neither we, the
Trustee, any paying agent or registrar for such debt securities or any agent of
ours or the Trustee will be liable for any delay by the Depositary, its nominee
or any of its participants in identifying the owners of beneficial interests in
the global security, and we and the Trustee may conclusively rely on, and will
be protected in relying on, instructions from the Depositary or its nominee for
all purposes.
We have been advised by the Depositary that the Depositary or its nominee,
upon receipt of any payment of principal, premium or interest with respect to a
definitive global security representing any of such debt securities, will
immediately credit Participants' accounts with payments in amounts proportionate
to their respective beneficial interests in the principal amount of such global
security, as shown on the records of the Depositary or its nominee. We expect
that payments by Participants to owners of beneficial interests in such global
security 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 and registered in "street name." Such payments
will be the responsibility of such Participants. Receipt by owners of beneficial
interests
<PAGE>
24
in a temporary global security of payments of principal, premium or
interest with respect thereto will be subject to the restrictions described in
an applicable prospectus supplement (see "Limitation on Issuance of Bearer
Securities" below).
If the Depositary for a series of debt securities is at any time unwilling,
unable or ineligible to continue as depositary, we shall appoint a successor
depositary. If a successor depositary is not appointed by us within 90 days, we
will issue individual debt securities of such series in exchange for the global
security representing such series of debt securities. In addition, we may at any
time and in our sole discretion, subject to any limitations described in the
prospectus supplement relating to such debt securities, determine to no longer
have debt securities of a series represented by a global security and, in such
event, will issue individual debt securities of such series in exchange for the
global security representing such series of debt securities. Furthermore, if we
so specify with respect to the debt securities of a series, an owner of a
beneficial interest in a global security representing debt securities of such
series may, on terms acceptable to us, the Trustee, and the Depositary, receive
individual debt securities of such series in exchange for such beneficial
interests, subject to any limitations described in the prospectus supplement
relating to such debt securities. In any such instance, an owner of a beneficial
interest in a global security will be entitled to physical delivery of
individual debt securities of the series represented by such global security
equal in principal amount to such beneficial interest and to have such debt
securities registered in its name (if the debt securities are issuable as
Registered Securities). Individual debt securities of such series so issued will
be issued (1) as Registered Securities in denominations, unless otherwise
specified by us, of $1,000 and integral multiples thereof if the debt securities
are issuable as Registered Securities, (2) as Bearer Securities in the
denomination or denominations specified by us if the debt securities are
issuable as Bearer Securities or (3) as either Registered Securities or Bearer
Securities as described above if the debt securities are issuable in either
form.
LIMITATIONS ON ISSUANCE OF BEARER SECURITIES
The debt securities of a series may be issued as Registered Securities
(which will be registered as to principal and interest in the register
maintained by the registrar for such debt securities) or Bearer Securities
(which will be transferable only by delivery). If such debt securities are
issuable as Bearer Securities, the applicable prospectus supplement will
describe certain special limitations and considerations that will apply to such
debt securities.
CERTAIN COVENANTS
The following covenants will apply to any senior non-convertible
indebtedness issued under the indenture.
LIMITATION ON INDEBTEDNESS
A. We will not, and will not permit any of our Restricted Subsidiaries
to, Incur any Indebtedness (other than Indebtedness existing on the
Existing High Yield Closing Date); provided that we may Incur Indebtedness
if, after giving effect to the Incurrence of such Indebtedness and the
receipt and application of the proceeds therefrom, the Consolidated
Leverage Ratio would be greater than zero and less than 6.0:1.
Notwithstanding the foregoing, we and any Restricted Subsidiary may Incur
each and all of the following:
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25
(1) Indebtedness outstanding at any time in an aggregate principal
amount not to exceed $300 million, less any amount of such Indebtedness
permanently repaid as provided under the "Limitation on Asset Sales" covenant;
(2) Indebtedness owed:
(A) to us evidenced by a promissory note; or
(B) to any Restricted Subsidiary; provided that any event which
results in any such Restricted Subsidiary ceasing to be a Restricted
Subsidiary or any subsequent transfer of such Indebtedness (other than to
us or another Restricted Subsidiary) shall be deemed, in each case, to
constitute an Incurrence of such Indebtedness not permitted by this
paragraph (2);
(3) Indebtedness issued in exchange for, or the net proceeds of which are
used to refinance or refund, then outstanding Indebtedness (other than
Indebtedness incurred under paragraph (1), (2), (4), (6), (8) or (9) of this
paragraph) and any refinancings thereof in an amount not to exceed the amount so
refinanced or refunded (plus premiums, accrued interest, fees and expenses);
provided that Indebtedness the proceeds of which are used to refinance or refund
any series of debt securities under the indenture or Indebtedness that is pari
passu with, or subordinated in right of payment to, such debt securities shall
only be permitted under this paragraph (3) if:
(A) in case any series of debt securities under the indenture are
refinanced in part or the Indebtedness to be refinanced is pari passu with
such debt securities, such new Indebtedness, by its terms or by the terms
of any agreement or instrument pursuant to which such new Indebtedness is
outstanding, is expressly made pari passu with, or subordinate in right of
payment to, such debt securities that remain outstanding;
(B) in case the Indebtedness to be refinanced is subordinated in right
of payment to such debt securities such new Indebtedness, by its terms or
by the terms of any agreement or instrument pursuant to which such new
Indebtedness is issued or remains outstanding, is expressly made
subordinate in right of payment to such debt securities at least to the
extent that the Indebtedness to be refinanced is subordinated to such debt
securities; and
(C) such new Indebtedness, determined as of the date of Incurrence of
such new Indebtedness, does not mature prior to the Stated Maturity of the
Indebtedness to be refinanced or refunded, and the Average Life of such new
Indebtedness is at least equal to the remaining Average Life of the
Indebtedness to be refinanced or refunded; and provided further that in no
event may our Indebtedness be refinanced by means of any Indebtedness of
any Restricted Subsidiary pursuant to this paragraph (3);
(4) Indebtedness:
(A) in respect of performance, surety or appeal bonds provided in the
ordinary course of business;
(B) under Currency Agreements and Interest Rate Agreements; provided
that such agreements are:
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26
(i) designed solely to protect us or our Restricted Subsidiaries
against fluctuations in foreign currency exchange rates or interest
rates; and
(ii) do not increase our Indebtedness outstanding at any time
other than as a result of fluctuations in foreign currency exchange
rates or interest rates or by reason of fees, indemnities and
compensation payable thereunder; and
(C) arising from agreements providing for indemnification, adjustment
of purchase price or similar obligations, or from Guarantees or letters of
credit, surety bonds or performance bonds securing any of our obligations
or those of a Restricted Subsidiary pursuant to such agreements, in any
case Incurred in connection with the disposition of any business, assets or
Restricted Subsidiary (other than Guarantees of Indebtedness Incurred by
any Person acquiring all or any portion of such business, assets or
Restricted Subsidiary for the purpose of financing such acquisition), in a
principal amount not to exceed the gross proceeds actually received by us
or any Restricted Subsidiary in connection with such disposition;
(5) our Indebtedness, to the extent the net proceeds thereof are promptly:
(A) used to purchase debt securities tendered in an Offer to Purchase
made as a result of a Change of Control; or
(B) deposited to defease any series of debt securities under the
indenture as described below under "Defeasance";
(6) Guarantees of any series of debt securities under the indenture and
Guarantees of Indebtedness of us by any Restricted Subsidiary provided the
Guarantee of such Indebtedness is permitted by and made in accordance with the
"Limitation on Issuance of Guarantees by Restricted Subsidiaries" covenant;
(7) Indebtedness Incurred to finance the cost (including the cost of
design, development, acquisition, construction, installation, improvement,
transportation or integration and all transaction costs related to the
foregoing) to acquire equipment, inventory or network assets (including
acquisitions by way of Capitalized Lease and acquisitions of the Capital Stock
of a Person that becomes a Restricted Subsidiary to extent of the fair market
value of the equipment, inventory or network assets so acquired, plus associated
goodwill) by us or a Restricted Subsidiary after the date of the indenture;
(8) our Indebtedness not to exceed, at any one time, outstanding, two
times:
(A) the Net Cash Proceeds received by us after the Existing High
Yield Closing Date from the issuance and sale of our Capital Stock (other
than Disqualified Stock) to a Person that is not our Subsidiary, to the
extent:
(i) such Net Cash Proceeds have not been used pursuant to
(4)(C)(2) of the first paragraph or clauses (3), (4), (6) or (7) of
the second paragraph of the "Limitation on Restricted Payments"
covenant to make a Restricted Payment; and
(ii) if such Net Cash Proceeds are used to consummate a
transaction pursuant to which we Incur Acquired Indebtedness, the
amount of such Net Cash Proceeds exceeds one-half of the amount of
Acquired Indebtedness so Incurred; and
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27
(B) 80% of the fair market value of property (other than cash and cash
equivalents) received by us after the Existing High Yield Closing Date
from the sale of our Capital Stock (other than Disqualified Stock) to a
Person that is not our Subsidiary, to the extent:
(i) such sale of Capital Stock has not been used pursuant to
clauses (3), (4), (6) or (7) of the second paragraph of the
"Limitation on Restricted Payments" covenant to make a Restricted
Payment; and
(ii) if such Capital Stock is used to consummate a transaction
pursuant to which we Incur Acquired Indebtedness, 80% of the fair
market value of the property received exceeds one-half of the amount
of Acquired Indebtedness so Incurred; provided that such Indebtedness
does not mature prior to the longest Stated Maturity of any debt
securities outstanding under the indenture and has an Average Life
longer than the Average Life of all debt securities outstanding under
the indenture;
(9) Acquired Indebtedness;
(10) Strategic Subordinated Indebtedness; and
(11) our subordinated Indebtedness (in addition to Indebtedness permitted
under clauses (1) through (10) above) in an aggregate principal amount
outstanding at any time not to exceed $200 million, less any amount of such
Indebtedness permanently repaid as provided under the "Limitation on Asset
Sales" covenant.
B. Notwithstanding any other provision of this "Limitation on Indebtedness"
covenant, the maximum amount of Indebtedness that we or a Restricted Subsidiary
may Incur pursuant to this "Limitation on Indebtedness" covenant shall not be
deemed to be exceeded, with respect to any outstanding Indebtedness due solely
to the result of fluctuations in the exchange rate of currencies.
C. For purposes of determining any particular amount of Indebtedness under
this "Limitation on Indebtedness" covenant:
(1) Guarantees, Liens or obligations with respect to letters of credit
supporting Indebtedness otherwise included in the determination of such
particular amount shall not be included; and
(2) any Liens granted pursuant to the equal and ratable provisions referred
to in the "Limitation on Liens" covenant shall not be treated as Indebtedness.
For purposes of determining compliance with this "Limitation on
Indebtedness" covenant, in the event that an item of Indebtedness meets the
criteria of more than one of the types of Indebtedness described in the above
clauses, we, in our sole discretion, shall classify, and from time to time may
reclassify, such item of Indebtedness and only be required to include the amount
and type of such Indebtedness in one of such clauses.
D. For purposes of determining compliance with any Dollar-denominated
restriction on the Incurrence of Indebtedness denominated in a foreign currency,
the Dollar-equivalent principal amount of such Indebtedness Incurred pursuant
thereto shall be calculated based on the relevant currency exchange rate in
effect on the date that such Indebtedness was Incurred, provided that:
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28
(1) the Dollar-equivalent principal amount of any such Indebtedness
outstanding on the Existing High Yield Closing Date shall be calculated based
on the relevant currency exchange rate in effect on the Existing High Yield
Closing Date; and
(2) if such Indebtedness is Incurred to refinance other Indebtedness
denominated in a foreign currency, and such refinancing would cause the
applicable Dollar-denominated restriction to be exceeded if calculated at the
relevant currency exchange rate in effect on the date of such refinancing, such
Dollar-denominated restriction shall be deemed not to have been exceeded so long
as the principal amount of such refinancing Indebtedness, converted into the
currency in which the Indebtedness being refinanced is denominated at the
currency exchange rate in effect on the date of such refinancing, does not
exceed the principal amount of such Indebtedness being refinanced (plus
premiums, accrued interest, fees and expenses). The principal amount of any
Indebtedness Incurred to refinance other Indebtedness, if Incurred in a
different currency from the Indebtedness being refinanced, shall be calculated
based on the foreign currency exchange rate applicable to the currencies in
which such respective Indebtedness is denominated that is in effect on the date
of such refinancing.
LIMITATION ON RESTRICTED PAYMENTS
We will not, and will not permit any Restricted Subsidiary to directly or
indirectly:
(1) declare or pay any dividend or make any distribution on or with respect
to its Capital Stock (other than (A) dividends or distributions payable solely
in shares of our Capital Stock (other than Disqualified Stock) or in options,
warrants or other rights to acquire such shares of Capital Stock and (B) pro
rata dividends or distributions on Common Stock of Restricted Subsidiaries held
by minority stockholders) held by Persons other than us or any of our Restricted
Subsidiaries;
(2) purchase, redeem, retire or otherwise acquire for value any shares of
Capital Stock of:
(A) us or an Unrestricted Subsidiary (including options, warrants or
other rights to acquire such shares of Capital Stock) held by any Person;
or
(B) a Restricted Subsidiary (including options, warrants or other
rights to acquire such shares of Capital Stock) held by an Affiliate of us
(other than a Wholly Owned Restricted Subsidiary) or any holder (or any
Affiliate of such holder) of 5% or more of our Capital Stock;
(3) make any voluntary or optional principal payment, or voluntary or
optional redemption, repurchase, defeasance, or other acquisition or retirement
for value, of our Indebtedness that is subordinated in right of payment to the
debt securities outstanding under the indenture; or
(4) make any Investment, other than a Permitted Investment, in any Person
(all such payments or other actions described in clauses (1) through (4) above
are collectively called "Restricted Payments") if, at the time of, and after
giving effect to, the proposed Restricted Payment:
(A) a Default or Event of Default shall have occurred and be
continuing;
(B) we could not Incur at least $1.00 of Indebtedness under the first
paragraph of the "Limitation on Indebtedness" covenant; or
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29
(C) the aggregate amount of all Restricted Payments (the amount, if
other than in cash, to be determined in good faith by the Board of
Directors, whose determination shall be conclusive and evidenced by a board
resolution) made after the date of the indenture shall exceed the sum of:
(i) the amount by which Consolidated EBITDA exceeds 150% of
Consolidated Interest Expense, in each case, determined on a
cumulative basis during the period (taken as one accounting
period) beginning on the first day of the fiscal quarter
immediately following the Existing High Yield Closing Date and
ending on the last day of the last fiscal quarter preceding the
Transaction Date for which reports have been filed with the SEC
or provided to the Trustee pursuant to the "SEC Reports and
Reports to Holders" covenant; plus
(ii) the aggregate Net Cash Proceeds received by us after the
Existing High Yield Closing Date from the issuance and sale permitted
by the indenture of our Capital Stock (other than Disqualified
Stock) to a Person who is not our Subsidiary, including an
issuance or sale permitted by our indenture of Indebtedness for
cash subsequent to the Existing High Yield Closing Date upon the
conversion of such Indebtedness into our Capital Stock (other than
Disqualified Stock), or from the issuance to a Person who is not
our Subsidiary of any options, warrants or other rights to
acquire our Capital Stock (in each case, exclusive of any
Disqualified Stock or any options, warrants or other rights that
are redeemable at the option of the holder, or are required to be
redeemed, prior to the Stated Maturity of any series of debt
securities under the indenture), in each case except to the
extent such Net Cash Proceeds are used to Incur Indebtedness
pursuant to clauses (8) or (9) of the "Limitation on
Indebtedness" covenant; plus
(iii) an amount equal to the net reduction in Investments (other
than reductions in Permitted Investments) in any Person resulting from
payments of interest on Indebtedness, dividends, repayments of loans
or advances, or other transfers of assets, in each case to us or any
Restricted Subsidiary or from the Net Cash Proceeds from the sale of
any such Investment (except, in each case, to the extent any such
payment or proceeds are included in the calculation of Adjusted
Consolidated Net Income), or from redesignations of Unrestricted
Subsidiaries as Restricted Subsidiaries (valued in each case as
provided in the definition of "Investments"), not to exceed, in each
case, the amount of Investments previously made by us or any
Restricted Subsidiary in such Person or Unrestricted Subsidiary.
The foregoing provisions shall not be violated by reason of:
(1) the payment of any dividend within 60 days after the date of
declaration thereof if, at said date of declaration, such payment would comply
with the foregoing paragraph;
(2) the redemption, repurchase, defeasance or other acquisition or
retirement for value of Indebtedness that is subordinated in right of payment to
any series of debt securities under the indenture including premium, if any, and
accrued and unpaid interest, with the proceeds of, or in exchange for,
Indebtedness Incurred under clause (a)(3) of the "Limitation on Indebtedness"
covenant;
(3) the repurchase, redemption or other acquisition of our Capital Stock or
that of an Unrestricted Subsidiary (or options, warrants or other rights to
acquire such Capital Stock) in
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30
exchange for, or out of the proceeds of a substantially concurrent offering of,
shares of our Capital Stock (other than Disqualified Stock) (or options,
warrants or other rights to acquire such Capital Stock);
(4) the making of any principal payment or the repurchase, redemption,
retirement, defeasance or other acquisition for value of our Indebtedness which
is subordinated in right of payment to any series of debt securities under the
indenture (including, without limitation, Parent Company Debt) in exchange for,
or out of the proceeds of a substantially concurrent sale of, shares of our
Capital Stock (other than Disqualified Stock) (or options, warrants or other
rights to acquire such Capital Stock);
(5) payments or distributions, to dissenting stockholders pursuant to
applicable law, pursuant to or in connection with a consolidation, merger or
transfer of assets that complies with the provisions of the indenture applicable
to mergers, consolidations and transfers of all or substantially all of our
property and assets;
(6) Investments in any Person the primary business of which is related,
ancillary or complementary to our business and that of our Restricted
Subsidiaries on the date of such Investments; provided that the aggregate amount
of Investments made pursuant to this clause (6) does not exceed the sum of:
(A) $10 million; and
(B) the amount of Net Cash Proceeds received by us after the
Existing High Yield Closing Date from the sale of our Capital Stock
(other than Disqualified Stock) to a Person who is not our Subsidiary,
except to the extent such Net Cash Proceeds are used to Incur
Indebtedness pursuant to clause (a)(8) under the "Limitation on
Indebtedness" covenant or to make Restricted Payments pursuant to clause
(4)(C)(2) of the first paragraph, or clauses (3) or (4) of this
paragraph, of this "Limitation on Restricted Payments" covenant; and
(C) the net reduction in Investments made pursuant to this clause (6)
resulting from distributions on or repayments of such Investments or from
the Net Cash Proceeds from the sale of any such Investment (except in each
case to the extent any such payment or proceeds is included in the
calculation of Adjusted Consolidated Net Income) or from such Person
becoming a Restricted Subsidiary (valued in each case as provided in the
definition of "Investments"), provided that the net reduction in any
Investment shall not exceed the amount of such Investment;
(7) Investments acquired in exchange for our Capital Stock (other than
Disqualified Stock);
(8) other Restricted Payments in an aggregate amount not to exceed $10
million;
(9) for so long as we are treated as a pass-through entity for United
States Federal income tax purposes, distributions to our equity holders in an
amount not to exceed the Tax Amount for such period; and
(10) the repurchase, redemption or other acquisition of our Capital Stock
(or options, warrants, or other rights to acquire such Capital Stock) from
Persons who are or were formerly our directors, officers or employees or those
of our Restricted Subsidiaries, provided that the
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31
aggregate amount of all such repurchases made in any calendar year pursuant to
this clause (10) shall not exceed $2.0 million;
provided that, except in the case of clauses (1) and (3) of this paragraph no
Default or Event of Default shall have occurred and be continuing or occur as a
consequence of the actions or payments set forth therein.
Each Restricted Payment permitted pursuant to the preceding paragraph
(other than the Restricted Payment referred to in (2) thereof, an exchange of
Capital Stock for Capital Stock or Indebtedness referred to in clause (3) or (4)
thereof and an Investment referred to in clause (6) thereof), and the Net Cash
Proceeds from any issuance of Capital Stock referred to in clauses (3), (4) and
(6), shall be included in calculating whether the conditions of clause (4)(C) of
the first paragraph of this "Limitation on Restricted Payments" covenant have
been met with respect to any subsequent Restricted Payments. In the event the
proceeds of an issuance of our Capital Stock are used for the redemption,
repurchase or other acquisition of any series of debt securities under the
indenture, or Indebtedness that is pari passu with such debt securities, then
the Net Cash Proceeds of such issuance shall be included in clause (4)(C) of the
first paragraph of this "Limitation on Restricted Payments" covenant only to the
extent such proceeds are not used for such redemption, repurchase or other
acquisition of Indebtedness.
LIMITATION ON DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING RESTRICTED
SUBSIDIARIES
We will not, and will not permit any Restricted Subsidiary to, create or
otherwise cause or suffer to exist or become effective any consensual
encumbrance or restriction of any kind on the ability of any Restricted
Subsidiary to:
(1) pay dividends or make any other distributions permitted by applicable
law on any Capital Stock of such Restricted Subsidiary owned by us or any other
Restricted Subsidiary;
(2) pay any Indebtedness owed to us or any other Restricted Subsidiary;
(3) make loans or advances to us or any other Restricted Subsidiary; or
(4) transfer any of our or its property or assets to us or any other
Restricted Subsidiary.
The foregoing shall not restrict any encumbrances or restrictions:
(1) existing on the date of the indenture or any other agreements in
effect on the Existing High Yield Closing Date, and any extensions,
refinancings, renewals or replacements of such agreements; provided that
the encumbrances and restrictions in any extensions, refinancings, renewals
or replacements are no less favorable in any material respect to the
Holders than those encumbrances or restrictions that are then in effect and
that are being extended, refinanced, renewed or replaced;
(2) existing under or by reason of applicable law or required by any
regulatory authority having jurisdiction over us or any Restricted Subsidiary;
(3) existing with respect to any Person or the property or assets of such
Person acquired by us or any Restricted Subsidiary, existing at the time of such
acquisition and not incurred in contemplation thereof, which encumbrances or
restrictions are not applicable to any Person or the property or assets of any
Person other than such Person or the property or assets of such
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32
Person so acquired, and any extensions, renewals or replacements of such
encumbrances or restrictions; provided that the encumbrances and restrictions in
any such extensions, renewals or replacements are no less favorable in any
material respect to the Holders than those encumbrances or restrictions that are
then in effect and that are being extended, renewed or replaced;
(4) in the case of clause (4) of the first paragraph of this "Limitation on
Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries"
covenant:
(A) that restrict in a customary manner the subletting, assignment or
transfer of any property or asset that is a lease, license, conveyance or
contract or similar property or asset;
(B) existing by virtue of any transfer of, agreement to transfer,
option or right with respect to, or Lien on any of our property or assets
or those of a Restricted Subsidiary not otherwise prohibited by the
indenture; or
(C) arising or agreed to in the ordinary course of business, not
relating to any Indebtedness, and that do not, individually or in the
aggregate, detract from the value of our property or assets of those of a
Restricted Subsidiary in any manner material to us or any Restricted
Subsidiary;
(5) with respect to a Restricted Subsidiary and imposed pursuant to an
agreement that has been entered into for the sale or disposition of all or
substantially all of the Capital Stock of, or property and assets of, such
Restricted Subsidiary; or
(6) contained in the terms of any Indebtedness or any agreement pursuant to
which such Indebtedness was issued if:
(A) the encumbrance or restriction either:
(i) applies only in the event of a payment default or
non-compliance with respect to a financial covenant contained in such
Indebtedness or agreement; or
(ii) is contained in a Credit Agreement;
(B) the encumbrance or restriction is not materially more
disadvantageous to the Holders of debt securities than is customary in
comparable financing (as determined by us); and
(C) we determine on the date of the Incurrence of such Indebtedness
that any such encumbrance or restriction would not be expected to
materially impair either our ability to make principal or interest payments
on any series of debt securities under the indenture.
Nothing contained in this "Limitation on Dividend and Other Payment
Restrictions Affecting Restricted Subsidiaries" covenant shall prevent us or any
Restricted Subsidiary from:
(1) creating, incurring, assuming or suffering to exist any Liens otherwise
permitted in the "Limitation on Liens" covenant; or
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33
(2) restricting the sale or other disposition of our property or assets of
those of any of our Restricted Subsidiaries that secure our Indebtedness or that
of any of our Restricted Subsidiaries.
LIMITATION ON THE ISSUANCE AND SALE OF CAPITAL STOCK OF RESTRICTED
SUBSIDIARIES
We will not sell, and will not permit any Restricted Subsidiary, directly
or indirectly, to issue or sell, any shares of Capital Stock of a Restricted
Subsidiary (including options, warrants or other rights to purchase shares of
such Capital Stock) except:
(1) to us or a Wholly Owned Restricted Subsidiary;
(2) issuances of director's qualifying shares or sales to foreign nationals
of shares of Capital Stock of foreign Restricted Subsidiaries, to the extent
required by applicable law;
(3) if, immediately after giving effect to such issuance or sale, such
Restricted Subsidiary would no longer constitute a Restricted Subsidiary and any
Investment in such Person remaining after giving effect to such issuance or sale
would have been permitted to be made under the "Limitation on Restricted
Payments" covenant if made on the date of such issuance or sale; or
(4) issuances or sales of Common Stock of a Restricted Subsidiary, provided
that we or such Restricted Subsidiary applies the Net Cash Proceeds, if any, of
any such sale in compliance with the "Limitation on Asset Sales" covenant.
LIMITATION ON ISSUANCES OF GUARANTEES BY RESTRICTED SUBSIDIARIES
We will not permit any Restricted Subsidiary, directly or indirectly, to
Guarantee any of our Indebtedness which is pari passu with or subordinate in
right of payment to any series of debt securities under the indenture
("Guaranteed Indebtedness"), unless:
(1) such Restricted Subsidiary simultaneously executes and delivers a
supplemental indenture to the indenture providing for a Guarantee (a "Subsidiary
Guarantee") of payment of such debt securities by such Restricted Subsidiary;
and
(2) such Restricted Subsidiary waives and will not in any manner whatsoever
claim or take the benefit or advantage of, any rights of reimbursement,
indemnity or subrogation or any other rights against us or any other Restricted
Subsidiary as a result of any payment by such Restricted Subsidiary under its
Subsidiary Guarantee; provided that this paragraph shall not be applicable to
any Guarantee of any Restricted Subsidiary that existed at the time such Person
became a Restricted Subsidiary and was not Incurred in connection with, or in
contemplation of, such Person becoming a Restricted Subsidiary.
If the Guaranteed Indebtedness is (1) pari passu with any series of debt
securities under the indenture, then the Guarantee of such Guaranteed
Indebtedness shall be pari passu with, or subordinated to, the Subsidiary
Guarantee or (2) subordinated to any series of debt securities under the
indenture, then the Guarantee of such Guaranteed Indebtedness shall be
subordinated to the Subsidiary Guarantee at least to the extent that the
Guaranteed Indebtedness is subordinated to such debt securities.
Notwithstanding the foregoing, any Subsidiary Guarantee by a Restricted
Subsidiary may provide by its terms that it shall be automatically and
unconditionally released and discharged upon:
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(1) any sale, exchange or transfer, to any Person not an Affiliate of us,
of all of our and each Restricted Subsidiary's Capital Stock in, or all or
substantially all the assets of, such Restricted Subsidiary (which sale,
exchange or transfer is not prohibited by the indenture); or
(2) the release or discharge of the Guarantee which resulted in the
creation of such Subsidiary Guarantee, except a discharge or release by or as a
result of payment under such Guarantee.
LIMITATION ON TRANSACTIONS WITH SHAREHOLDERS AND AFFILIATES
We will not, and will not permit any Restricted Subsidiary to, directly or
indirectly, enter into, renew or extend any transaction (including, without
limitation, the purchase, sale, lease or exchange of property or assets, or the
rendering of any service) with a Related Person or with any of our Affiliates or
any Restricted Subsidiary, except upon fair and reasonable terms no less
favorable to us or such Restricted Subsidiary than could be obtained, at the
time of such transaction or, if such transaction is pursuant to a written
agreement, at the time of the execution of the agreement providing therefor, in
a comparable arm's-length transaction with a Person that is not such a Related
Person or an Affiliate.
The foregoing limitation does not limit and shall not apply to:
(1) transactions:
(A) approved by a majority of the disinterested members of the Board
of Directors; or
(B) for which we or a Restricted Subsidiary delivers to the Trustee a
written opinion of a nationally recognized investment banking firm stating
that the transaction is fair to us or such Restricted Subsidiary from a
financial point of view;
(2) any transaction solely between us and any of our Wholly Owned
Restricted Subsidiaries or solely between Wholly Owned Restricted Subsidiaries;
(3) the payment of reasonable and customary regular fees to our directors
who are not our employees;
(4) any payments or other transactions pursuant to any tax-sharing
agreement between us and any other Person with which we file a consolidated tax
return or with which we are part of a consolidated group for tax purposes;
(5) any transaction with respect to the lease or sharing or other use of
cable or fiber lines, equipment, transmission capacity, right-of-way or other
access rights, between us or any Restricted Subsidiary and any other Person;
provided that such transaction is on terms that:
(A) are consistent with our past practice and those of our Restricted
Subsidiaries; and
(B) are no less favorable, taken as a whole, to us or the relevant
Restricted Subsidiary than those that could have been obtained in a
comparable transaction by us or such Restricted Subsidiary with an
unrelated Person or, in the event that there are no comparable transactions
involving unrelated Persons to apply for comparative purposes,
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35
is otherwise on terms that, taken as a whole, we have determined to be fair to
us or the relevant Restricted Subsidiary; or
(6) any Restricted Payments not prohibited by the "Limitation on Restricted
Payments" covenant.
Notwithstanding the foregoing, any transaction or series of related
transactions covered by the first paragraph of this "Limitation on Transactions
with Shareholders and Affiliates" covenant and not covered by (2) and (6) of
this paragraph, the aggregate amount of which exceeds $10 million in value, must
be determined to be fair in the manner provided for in clause (1)(A) or (B)
above.
LIMITATION ON LIENS
Under the indenture, we will not, and will not permit any Restricted
Subsidiary to, create, incur, assume or suffer to exist any Lien on any of our
assets or properties of any character (including, without limitation, licenses),
or any shares of Capital Stock or Indebtedness of any Restricted Subsidiary,
without making effective provision for any series of debt securities under the
indenture and all other amounts due under the indenture to be directly secured
equally and ratably with (or, if the obligation or liability to be secured by
such Lien is subordinated in right of payment to such debt securities, prior to)
the obligation or liability secured by such Lien.
This restriction will not apply to:
(1) Liens existing on the Existing High Yield Closing Date;
(2) Liens granted after the Existing High Yield Closing Date on any of
our or any Restricted Subsidiary's assets or Capital Stock created in favor
of the Holders;
(3) Liens with respect to the assets of a Restricted Subsidiary granted by
such Restricted Subsidiary to us or a Wholly Owned Restricted Subsidiary to
secure Indebtedness owing to us or such other Restricted Subsidiary;
(4) Liens securing Indebtedness which is Incurred to refinance secured
Indebtedness which is permitted to be Incurred under (3) of the "Limitation on
Indebtedness" covenant; provided that such Liens do not extend to or cover any
of our or a Restricted Subsidiary's property or assets securing the Indebtedness
being refinanced;
(5) Liens on the Capital Stock of, or any property or assets of, a
Restricted Subsidiary securing Indebtedness of such Restricted Subsidiary
permitted under the "Limitation on Indebtedness" covenant; or
(6) Permitted Liens.
LIMITATION ON SALE-LEASEBACK TRANSACTIONS
We will not, and will not permit any Restricted Subsidiary to, enter into
any sale-leaseback transaction involving any of our assets or properties or
those of a Restricted Subsidiary whether now owned or hereafter acquired,
whereby we sell or transfer and a Restricted Subsidiary sells or transfers such
assets or properties and then or thereafter we lease assets or properties or a
Restricted Subsidiary leases such assets or properties or any part thereof or
any
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36
other assets or properties which we or such Restricted Subsidiary, as the
case may be, intends to use for substantially the same purpose or purposes as
the assets or properties sold or transferred.
The foregoing restriction does not apply to any sale-leaseback transaction
if:
(1) the lease is for a period, including renewal rights, of not in excess
of three years;
(2) the lease secures or relates to industrial revenue or pollution control
bonds;
(3) the transaction is solely between us and any Wholly Owned Restricted
Subsidiary or solely between Wholly Owned Restricted Subsidiaries; or
(4) we or such Restricted Subsidiary applies an amount not less than the
net proceeds received from such sale in compliance with the "Limitation on Asset
Sales" covenant.
LIMITATION ON ASSET SALES
We will not, and will not permit any Restricted Subsidiary to, consummate
any Asset Sale, unless:
(1) the consideration received by us or our Restricted Subsidiary is at
least equal to the fair market value of the assets sold or disposed of; and
(2) at least 75% of the consideration received consists of cash, Temporary
Cash Investments or the assumption of Indebtedness by us (other than
Indebtedness that is subordinated to any series of debt securities under the
indenture) or of a Restricted Subsidiary and unconditional release of us and our
Restricted Subsidiaries from all liability on the Indebtedness assumed;
provided, however, that this clause shall not apply to long-term assignments of
capacity in a telecommunications network.
In the event and to the extent that the Net Cash Proceeds received by us or
any of our Restricted Subsidiaries from one or more Asset Sales occurring on or
after the date of the indenture in any period of 12 consecutive months exceed
10% of Adjusted Consolidated Net Tangible Assets (determined as of the date
closest to the commencement of such 12-month period for which our consolidated
balance sheet and those of our Subsidiaries has been filed with the SEC pursuant
to the "SEC Reports and Reports to Holders" covenant), then we shall or shall
cause the relevant Restricted Subsidiary to:
(1) within 12 months after the date Net Cash Proceeds so received exceed
10% of Adjusted Consolidated Net Tangible Assets:
(A) apply an amount equal to such excess Net Cash Proceeds less any
amounts invested within 6 months prior to such Asset Sale in property or
assets of a nature or type or that are used in a business (or in a company
having property and assets of a nature or type, or engaged in a business)
similar or related to the nature or type of the property and assets of, or
the business of, us and our Restricted Subsidiaries on the date of such
Asset Sale (the "Adjusted Net Cash Proceeds") to permanently repay our
unsubordinated Indebtedness or that of any Restricted Subsidiary providing
a Subsidiary Guarantee pursuant to the "Limitation on Issuances of
Guarantees by Restricted Subsidiaries" covenant or Indebtedness of any
other Restricted Subsidiary, in each case owing to a Person other than us
or our Restricted Subsidiaries;
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(B) invest an equal amount, or the amount of Adjusted Net Cash
Proceeds not so applied pursuant to clause (A) (or enter into a definitive
agreement committing to so invest within 12 months after the date of such
agreement), in property or assets (other than current assets) of a nature
or type or that are used in a business (or in a company having property and
assets of a nature or type, or engaged in a business) similar or related to
the nature or type of the property and assets of, or the business of, us
and our Restricted Subsidiaries existing on the date of such investment (as
determined in good faith by the Board of Directors, whose determination
shall be conclusive and evidenced by a board resolution); and
(2) apply (no later than the end of the 12-month period referred to in the
above paragraph (1)) such excess Adjusted Net Cash Proceeds (to the extent not
applied pursuant to the above paragraph as provided in the following paragraph
of this "Limitation on Asset Sales" covenant):
The amount of such excess Adjusted Net Cash Proceeds required to be applied
(or to be committed to be applied) during such 12-month period as set forth in
clause (1) of the preceding sentence and not applied as so required by the end
of such period shall constitute "Excess Proceeds".
If, as of the first day of any calendar month, the aggregate amount of
Excess Proceeds not theretofore subject to an Offer to Purchase pursuant to this
"Limitation on Asset Sales" covenant totals at least $10 million, we must
commence, not later than the fifteenth Business Day of such month, and
consummate an Offer to Purchase from the Holders on a pro rata basis an
aggregate principal amount of all the debt securities issued under the indenture
and to the extent permitted or required by the terms thereof, any other of our
Indebtedness that is pari passu with any series of debt securities under the
indenture, equal to the Excess Proceeds on such date, at a purchase price equal
to 100% of the principal amount of the debt securities and such other
Indebtedness, if applicable, on the relevant Payment Date, plus, in each case,
accrued interest (if any) to the Payment Date.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
covenants and other provisions of the indenture. Reference is made to the
indenture for the definition of any other capitalized terms used herein for
which no definition is provided.
"ACQUIRED INDEBTEDNESS" means Indebtedness of a Person existing at the time
such Person becomes a Restricted Subsidiary or assumed in connection with an
Asset Acquisition by a Restricted Subsidiary and not Incurred in connection
with, or in anticipation of, such Person becoming a Restricted Subsidiary or
such Asset Acquisition; provided that Indebtedness of such Person which is
redeemed, defeased, retired or otherwise repaid at the time of or immediately
upon consummation of the transactions by which such Person becomes a Restricted
Subsidiary or such Asset Acquisition shall not be Acquired Indebtedness.
"ADJUSTED CONSOLIDATED NET INCOME" means, for any period, aggregate net
income (or loss) of us and our Restricted Subsidiaries for such period
determined in conformity with GAAP; provided that the following items shall be
excluded in computing Adjusted Consolidated Net Income (without duplication):
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(1) the net income (or loss) of any Person that is not a Restricted
Subsidiary, except (A) with respect to net income, to the extent of the amount
of dividends or other distributions actually paid to us or any of our Restricted
Subsidiaries by such Person during such period and (B) with respect to net
losses, to the extent of the amount of Investments made by us or any Restricted
Subsidiary in such Person during such period;
(2) solely for the purposes of calculating the amount of Restricted
Payments that may be made pursuant to clause 4(C) of the first paragraph of the
"Limitation on Restricted Payments" covenant (and in such case, except to the
extent includable pursuant to clause (1) above), the net income (or loss) of any
Person accrued prior to the date it becomes a Restricted Subsidiary or is merged
into or consolidated with us or any of our Restricted Subsidiaries or all or
substantially all of the property and assets of such Person are acquired by us
or any of our Restricted Subsidiaries;
(3) the net income of any Restricted Subsidiary to the extent that the
declaration or payment of dividends or similar distributions by such Restricted
Subsidiary of such net income is not at the time permitted by the operation of
the terms of its charter or any agreement, instrument, judgment, decree, order,
statute, rule or governmental regulation applicable to such Restricted
Subsidiary;
(4) any gains or losses (on an after-tax basis) attributable to Asset
Sales;
(5) except for purposes of calculating the amount of Restricted Payments
that may be made pursuant to clause 4(C) of the first paragraph of the
"Limitation on Restricted Payments" covenant, any amount paid or accrued as
dividends (other than dividends to the extent paid or payable in shares of
Capital Stock (other than our Disqualified Stock)) on our Preferred Stock or any
Restricted Subsidiary owned by Persons other than us and any of our Restricted
Subsidiaries;
(6) all extraordinary gains and extraordinary losses; and
(7) any compensation expense paid or payable solely with Capital Stock
(other than our Disqualified Stock) or any options, warrants or other rights to
acquire Capital Stock (other than Disqualified Stock).
"ADJUSTED CONSOLIDATED NET TANGIBLE ASSETS" means the total amount of our
assets and those of our Restricted Subsidiaries (less applicable depreciation,
amortization and other valuation reserves), except to the extent resulting from
write-ups of capital assets (excluding write-ups in connection with accounting
for acquisitions in conformity with GAAP), after deducting therefrom:
(1) all our current liabilities and those of our Restricted Subsidiaries
(excluding intercompany items); and
(2) all goodwill, trade names, trademarks, patents, unamortized debt
discount and expense and other like intangibles, all as set forth on our most
recent quarterly or annual consolidated balance sheet and those of our
Restricted Subsidiaries, prepared in conformity with GAAP and filed with the SEC
or provided to the Trustee pursuant to the "SEC Reports and Reports to Holders"
covenant.
"AFFILIATE" means, as applied to any Person, any other Person directly or
indirectly controlling, controlled by, or under direct or indirect common
control with, such Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms
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39
"controlling," "controlled by" and "under common control with"), as applied
to any Person, means the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of such Person,
whether through the ownership of voting securities, by contract or otherwise.
"ASSET ACQUISITION" means:
(1) an investment by us or any of our Restricted Subsidiaries in any other
Person pursuant to which such Person shall become a Restricted Subsidiary or
shall be merged into or consolidated with us or any of our Restricted
Subsidiaries; provided that such Person's primary business is related, ancillary
or complementary to our businesses and those of our Restricted Subsidiaries on
the date of such investment; or
(2) an acquisition by us or any of our Restricted Subsidiaries of the
property and assets of any Person other than us or any of our Restricted
Subsidiaries that constitute substantially all of a division or line of business
of such Person; provided that the property and assets acquired are related,
ancillary or complementary to our businesses and those of our Restricted
Subsidiaries on the date of such acquisition.
"ASSET DISPOSITION" means the sale or other disposition by us or any of our
Restricted Subsidiaries (other than to us or another Restricted Subsidiary) of:
(1) all or substantially all of the Capital Stock of any Restricted
Subsidiary; or
(2) all or substantially all of the assets that constitute a division or
line of business of us or any of our Restricted Subsidiaries.
"ASSET SALE" means any sale, transfer or other disposition (including by
way of merger, consolidation or sale-leaseback transaction) in one transaction
or a series of related transactions by us or any of our Restricted Subsidiaries
to any Person other than us or any of our Restricted Subsidiaries of:
(1) all or any of the Capital Stock of any Restricted Subsidiary;
(2) all or substantially all of the property and assets of an operating
unit or business of us or any of our Restricted Subsidiaries; or
(3) any other property and assets (other than the Capital Stock or other
Investment in an Unrestricted Subsidiary) of us or any of our Restricted
Subsidiaries outside the ordinary course of our business or that of such
Restricted Subsidiary and, in each case, that is not governed by the provisions
of the indenture applicable to mergers, consolidations and sales of all or
substantially all of our assets; provided that "Asset Sale" shall not include:
(A) sales or other dispositions of inventory, receivables and other
current assets;
(B) sales, transfers or other dispositions of assets constituting a
Restricted Payment permitted to be made under the "Limitation on Restricted
Payments" covenant;
(C) sales, transfers or other dispositions of assets with a fair
market value (as certified in an Officer's Certificate) not in excess of $5
million in any transaction or series of related transactions; or
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(D) sales or other dispositions of assets for consideration at least
equal to the fair market value of the assets sold or disposed of, to the
extent that the consideration received would constitute property, assets or
securities of the kind described in clause (1)(B) of the "Limitation on
Asset Sales" covenant.
"AVERAGE LIFE" means, at any date of determination with respect to any debt
security, the quotient obtained by dividing (1) the sum of the products of (A)
the number of years from such date of determination to the dates of each
successive scheduled principal payment of such debt security and (B) the amount
of such principal payment by (2) the sum of all such principal payments.
"BOARD OF DIRECTORS" means our Board of Directors.
"CAPITAL STOCK" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated, whether
voting or non-voting) in equity of such Person, whether outstanding on the date
of the indenture or issued thereafter, including, without limitation, all Common
Stock and Preferred Stock.
"CAPITALIZED LEASE" means, as applied to any Person, any lease of any
property (whether real, personal or mixed) of which the discounted present value
of the rental obligations of such Person as lessee, in conformity with GAAP, is
required to be capitalized on the balance sheet of such Person.
"CAPITALIZED LEASE OBLIGATIONS" means the discounted present value of the
rental obligations under a Capitalized Lease.
"CHANGE OF CONTROL" means such time as:
(1) the Former Parent Companies as a group cease to have the ability to
elect a majority of the members of the Board of Directors (other than our chief
executive officer and independent directors; provided that independent directors
shall be included in calculating whether the foregoing majority requirement is
satisfied if the directors nominated by the Former Parent Companies do not
constitute a majority of the committee that selects the Board of Directors'
nominees for independent directors) and a "person" or "group" (within the
meaning of Sections 13(d) and 14(d)(2) of the Exchange Act) (other than the
Former Parent Companies) has become the ultimate "beneficial owner" (as defined
in Rule 13d-3 under the Exchange Act) of more than 35% of the total voting power
of our Voting Stock, on a fully diluted basis and such ownership represents a
greater percentage of the total voting power of our Voting Stock, on a fully
diluted basis, than is held by the Former Parent Companies as a group on such
date; or
(2) individuals who on the date of the indenture constitute the Board of
Directors (together with any new directors whose election by the Board of
Directors or whose nomination by the Board of Directors for election by our
stockholders or members, as the case may be, was approved by a vote of at least
two-thirds of the members of the Board of Directors then in office who either
were members of the Board of Directors on the date of the indenture or whose
election or nomination for election was previously so approved) cease for any
reason to constitute a majority of the members of the Board of Directors then in
office.
"CHANGE OF CONTROL PERIOD" means, with respect to a Change of Control, the
period of 60 days commencing on the date of the earlier to occur of (1) public
notice of the occurrence of a Change of Control or of our intention to effect a
Change of Control and (2) the Change of Control.
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"COMMON STOCK" means, with respect to any Person, such Person's equity
other than Preferred Stock of such Person, whether outstanding on the date of
the indenture or issued thereafter including, without limitation, all series and
classes of such Common Stock, including any and all shares, interests,
participations or other equivalents (however designated, whether voting or
non-voting) thereof.
"CONSOLIDATED EBITDA" means, for any period, Adjusted Consolidated Net
Income for such period:
(1) plus, to the extent such amount was deducted in calculating such
Adjusted Consolidated Net Income:
(A) Consolidated Interest Expense;
(B) income taxes (other than income taxes (either positive or
negative) attributable to extraordinary and non-recurring gains or losses
or sales of assets);
(C) depreciation expense;
(D) amortization expense; and
(E) all other non-cash items reducing Adjusted Consolidated Net Income
(other than items that will require cash payments and for which an accrual
or reserve is, or is required by GAAP to be, made), less all non-cash items
increasing Adjusted Consolidated Net Income, all as determined on a
consolidated basis for us and our Restricted Subsidiaries in conformity
with GAAP; and
(2) solely for purposes of calculating the amount of Restricted
Payments that may be made pursuant to clause (4)(C) of the first paragraph
of the "Limitation on Restricted Payments" covenant, less (to the extent
not otherwise reduced in accordance with GAAP) the aggregate amount of
deposits made by us and our Restricted Subsidiaries after the Existing High
Yield Closing Date in connection with proposed Asset Acquisitions that are
forfeited by us or any of our Restricted Subsidiaries; provided that, if
any Restricted Subsidiary is not a Wholly Owned Restricted Subsidiary,
Consolidated EBITDA shall be reduced (to the extent not otherwise reduced
in accordance with GAAP) by an amount equal to:
(A) the amount of the Adjusted Consolidated Net Income attributable to
such Restricted Subsidiary multiplied by;
(B) the percentage ownership interest in the income of such Restricted
Subsidiary not owned on the last day of such period by us or any of our
Restricted Subsidiaries.
"CONSOLIDATED INTEREST EXPENSE" means, for any period, the aggregate amount
of interest in respect of Indebtedness (including, without limitation,
amortization of Original Issue Discount on any Indebtedness and the interest
portion of any deferred payment obligation, calculated in accordance with the
effective interest method of accounting; all commissions, discounts and other
fees and charges owed with respect to letters of credit and bankers' acceptance
financing; the net costs associated with Interest Rate Agreements; and interest
on Indebtedness that is Guaranteed or secured by us or any of our Restricted
Subsidiaries) and all but the principal component of rentals in respect of
Capitalized Lease Obligations, in each case that is paid, accrued or scheduled
to be paid or to be accrued by us and our Restricted Subsidiaries during such
period: excluding, however:
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(1) in calculating Consolidated EBITDA, any amount of such interest of any
Restricted Subsidiary if the net income of such Restricted Subsidiary is
excluded in the calculation of Adjusted Consolidated Net Income pursuant to
clause (3) of the definition thereof (but only in the same proportion as the net
income of such Restricted Subsidiary is excluded from the calculation of
Adjusted Consolidated Net Income pursuant to clause (3) of the definition
thereof); and
(2) any premiums, fees and expenses (and any, amortization thereof) payable
in connection with offering of any series of debt securities under the
indenture, all as determined on a consolidated basis, (without taking into
account Unrestricted Subsidiaries) in conformity with GAAP.
"CONSOLIDATED LEVERAGE RATIO" means, on any Transaction Date, the ratio of:
(1) the aggregate amount of Indebtedness of us and our Restricted
Subsidiaries on a consolidated basis outstanding on such Transaction Date to;
(2) the aggregate amount of Consolidated EBITDA for the then most recent
four fiscal quarters for which our financial statements have been filed with the
SEC or provided to the Trustee pursuant to the "SEC Reports and Reports to
Holders" covenant (such four fiscal quarter period being the "Four Quarter
Period"); provided that, in making the foregoing calculation:
(A) pro forma effect shall be given to any Indebtedness to be Incurred
or repaid on the Transaction Date;
(B) pro forma effect shall be given to Asset Dispositions and Asset
Acquisitions (including giving pro forma effect to the application of
proceeds of any Asset Disposition) that occur from the beginning of the
Four Quarter Period through the Transaction Date (the "Reference Period"),
as if they had occurred and such proceeds had been applied on the first day
of such Reference Period; and
(C) pro forma effect shall be given to asset dispositions and asset
acquisitions (including giving pro forma effect to the application of
proceeds of any asset disposition) that have been made by any Person that
has become a Restricted Subsidiary or has been merged with or into us or
any Restricted Subsidiary during such Reference Period and that would have
constituted Asset Dispositions or Asset Acquisitions had such transactions
occurred when such Person was a Restricted Subsidiary as if such asset
dispositions or asset acquisitions were Asset Dispositions or Asset
Acquisitions that occurred on the first day of such Reference Period;
provided that to the extent that clause (B) or (C) of this sentence requires
that pro forma effect be given to an Asset Acquisition or Asset Disposition,
such pro forma calculation shall be based upon the four full fiscal quarters
immediately preceding the Transaction Date of the Person, or division or line of
business of the Person, that is acquired or disposed of for which financial
information is available.
"CONSOLIDATED NET WORTH" means, at any date of determination, stockholders'
equity as set forth on our most recently available quarterly or annual
consolidated balance sheet and those of our Restricted Subsidiaries (which shall
be as of a date not more than 90 days prior to the date of such computation, and
which shall not take into account Unrestricted Subsidiaries), less any amounts
attributable to Disqualified Stock or any equity security convertible into or
exchangeable for Indebtedness, the cost of treasury stock and the principal
amount of any
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promissory notes receivable from the sale of our Capital Stock or any of our
Restricted Subsidiaries, each item to be determined in conformity with GAAP
(excluding the effects of foreign currency exchange adjustments under Financial
Accounting Standards Board Statement of Financial Accounting Standards No. 52).
"CREDIT AGREEMENT" means credit agreements, vendor financings, or similar
facilities or arrangements made available from time to time to us and our
Restricted Subsidiaries from banks, other financial institutions and/or
equipment manufacturers for the Incurrence of Indebtedness, including letters of
credit and any related notes, guarantees, collateral documents, instruments and
agreements executed in connection therewith, as the same may be amended,
supplemented, modified or restated from time to time.
"CURRENCY AGREEMENT" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement.
"DEFAULT" means any event that is, or after notice or passage of time or
both would be, an Event of Default.
"DISQUALIFIED STOCK" means any class or series of Capital Stock of any
Person that by its terms or otherwise is:
(1) required to be redeemed prior to the Stated Maturity of the debt
securities of a series;
(2) redeemable at the option of the holder of such class or series of
Capital Stock at any time prior to the Stated Maturity of the debt securities of
a series; or
(3) convertible into or exchangeable for Capital Stock referred to in
clause (1) or (2) above or Indebtedness having a scheduled maturity prior to the
Stated Maturity of the debt securities of a series;
provided that any Capital Stock that would not constitute Disqualified Stock but
for provisions thereof giving holders thereof the right to require such Person
to repurchase or redeem such Capital Stock upon the occurrence of an Asset Sale
or Change of Control occurring prior to the Stated Maturity of the debt
securities of a series shall not constitute Disqualified Stock if the Asset Sale
or Change of Control provisions applicable to such Capital Stock are no more
favorable to the holders of such Capital Stock than the provisions contained in
"Limitation on Asset Sales" and "Repurchase of Debt Securities Upon a Change of
Control" covenants and such Capital Stock, or the agreements or instruments
governing the redemption rights thereof, specifically provides, that such Person
will not repurchase or redeem any such stock pursuant to such provision prior to
our repurchase of such debt securities as are required to be repurchased
pursuant to the "Limitation on Asset Sales" and "Repurchase of Debt Securities
Upon a Change of Control" covenant.
"EQUITY OFFERING" means an offering of our Common Stock for cash pursuant
to an effective registration statement under the Securities Act or an exemption
from the registration requirements contained therein.
"EXISTING HIGH YIELD CLOSING DATE" means July 21, 1998.
"FAIR MARKET VALUE" means the price that would be paid in an arm's length
transaction between an informed and willing seller under no compulsion to sell
and an informed and willing buyer under no compulsion to buy, as determined in
good faith by the Board of Directors, whose determination shall be conclusive if
evidenced by a board resolution; provided that for purposes of clause (8) of the
second paragraph of "Limitation on Indebtedness" covenant,
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44
(1) the fair market value of any security registered under the Exchange Act
shall be the average of the closing prices, regular way, of such security for
the 20 consecutive trading days immediately preceding the sale of Capital Stock
and
(2) in the even the aggregate fair market value of any other property
(other than cash or cash equivalents) received by us exceeds $15 million, the
fair market value of such property shall be determined by a nationally
recognized investment banking firm and set forth in their written opinion which
shall be delivered to the Trustee.
"FORMER PARENT COMPANIES" means Time Warner Inc., MediaOne Group, Inc.
(since acquired by AT&T), Advance/Newhouse Partnership and the Affiliates of
each of the foregoing.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect as of the date of the indenture, including, without
limitation, those set forth in the opinions and pronouncements of the Accounting
Principles Board of the American Institute of Certified Public Accountants and
statements and pronouncements of the Financial Accounting Standards Board or in
such other statements by such other entity as approved by a significant segment
of the accounting profession. All ratios and computations contained or referred
to in the indenture shall be computed in conformity with GAAP applied on a
consistent basis, except that calculations made for purposes of determining
compliance with the terms of the covenants and with other provisions of the
indentures shall be made without giving effect to:
(1) the amortization of any expenses incurred in connection with the
offering of any series of debt securities under the indenture; and
(2) except as otherwise provided, the amortization of any amounts required
or permitted by Accounting Principles Board Opinion Nos. 16 and 17.
"GUARANTEE" means, any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness of any other Person and,
without limiting the generality of the foregoing, any obligation, direct or
indirect, contingent or otherwise, of such Person
(1) to purchase or pay (or advance or supply funds for the purchase or
payment of) such Indebtedness of such other Person (whether arising by virtue of
partnership arrangements, or by agreements to keep-well, to purchase assets,
goods, securities or services (unless such purchase arrangements are on arm's
length terms and are entered into in the ordinary course of business), to
take-or-pay, or to maintain financial statement conditions or otherwise); or
(2) entered into for purposes of assuring in any other manner the obligee
of such Indebtedness of payment thereof or to protect such obligee against loss
in respect thereof (in whole or in part); provided 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.
"INCUR" means, with respect to Indebtedness, to incur, create, issue,
assume, Guarantee or otherwise become liable for or with respect to, or become
responsible for, the payment of, contingently or otherwise, such Indebtedness,
including an "Incurrence" of Acquired Indebtedness; provided that neither the
accrual of interest nor the accretion of original issue discount shall be
considered an Incurrence of Indebtedness.
"INDEBTEDNESS" means, with respect to any Person at any date of
determination (without duplication):
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45
(1) all indebtedness of such Person for borrowed money;
(2) all obligations of such Person evidenced by bonds, debentures, notes or
other similar instruments;
(3) all obligations of such Person in respect of letters of credit or other
similar instruments (including reimbursement obligations with respect thereto,
but excluding obligations with respect to letters of credit (including trade
letters of credit) securing obligations (other than obligations described in (1)
or (2) above or (5), (6) or (7) below) entered into in the ordinary course of
business of such Person to the extent such letters of credit are not drawn upon
or, if drawn upon, to the extent such drawing is reimbursed no later than the
third business day following receipt by such Person of a demand for
reimbursement);
(4) all obligations of such Person to pay the deferred and unpaid purchase
price of property or services, which purchase price is due more than six months
after the date of placing such property in service or taking delivery and title
thereto or the completion of such services, except Trade Payables;
(5) all Capitalized Lease Obligations of such Person;
(6) all Indebtedness of other Persons secured by a Lien on any asset of
such Person, whether or not such Indebtedness is assumed by such Person;
provided that the amount of such Indebtedness shall be the lesser of (A) the
fair market value of such asset at such date of determination and (B) the amount
of such Indebtedness;
(7) all Indebtedness of other Persons Guaranteed by such Person to the
extent such Indebtedness is Guaranteed by such Person; and
(8) to the extent not otherwise included in this definition, obligations
under Currency Agreements and Interest Rate Agreements.
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, with respect to contingent obligations, the maximum liability upon
the occurrence of the contingency giving rise to the obligation, provided
(A) that the amount outstanding at any time of any Indebtedness issued with
Original Issue Discount is the face amount of such Indebtedness less the
remaining unamortized portion of the Original Issue Discount of such
Indebtedness at the time of its issuance as determined in conformity with GAAP;
(B) that money borrowed and set aside at the time of the Incurrence of any
Indebtedness in order to prefund the payment of the interest on such
Indebtedness shall not be deemed to be "Indebtedness" so long as such money is
held to secure the payment of such interest; and
(C) that Indebtedness shall not include any liability for federal, state,
local or other taxes.
"INTEREST RATE AGREEMENT" means any interest rate protection agreement,
interest rate future agreement, interest rate option agreement, interest rate
swap agreement, interest rate cap agreement, interest rate collar agreement,
interest rate hedge agreement, option or future contract or other similar
agreement or arrangement.
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46
"INVESTMENT" in any Person means any direct or indirect advance, loan or
other extension of credit (including, without limitation, by way of Guarantee or
similar arrangement; but excluding advances to customers in the ordinary course
of business that are, in conformity with GAAP, recorded as accounts receivable
on our balance sheet or those of any Restricted Subsidiaries) 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, bonds, notes, debentures or other
similar instruments issued by, such Person and shall include;
(1) the designation of a Restricted Subsidiary as an Unrestricted
Subsidiary; and
(2) the fair market value of the Capital Stock (or any other Investment),
held by us or any of our Restricted Subsidiaries, of (or in) any Person that has
ceased to be a Restricted Subsidiary, including without limitation, by reason of
any transaction permitted by clause (3) of the "Limitation on the Issuance and
Sale of Capital Stock of Restricted Subsidiaries" covenant; provided that the
fair market value of the Investment remaining in any Person that has ceased to
be a Restricted Subsidiary shall not exceed the aggregate amount of Investments
previously made in such Person valued at the time such Investments were made
less the net reduction of such Investments.
For purposes of the definition of "Unrestricted Subsidiary" and the
"Limitation on Restricted Payments" covenant:
(1) "Investment" shall include the fair market value of the assets (net of
liabilities (other than liabilities of us or any of our Restricted
Subsidiaries)) of any Restricted Subsidiary at the time that such Restricted
Subsidiary is designated an Unrestricted Subsidiary;
(2) the fair market value of the assets (net of liabilities (other than
liabilities of us or any of our Restricted Subsidiaries)) of any Unrestricted
Subsidiary at the time that such Unrestricted Subsidiary is designated a
Restricted Subsidiary shall be considered a reduction in outstanding
Investments; and
(3) any property transferred to or from an Unrestricted Subsidiary shall be
valued at its fair market value at the time of such transfer.
"INVESTMENT GRADE" means a rating of any series of debt securities under
the indenture by both S&P and Moody's, each such rating being in one of such
agency's four highest generic rating categories that signifies investment grade
(i.e., BBB- (or the equivalent) or higher by S&P and Baa3 (or the equivalent) or
higher by Moody's) provided, in each case, such ratings are publicly available;
provided further, that in the event Moody's or S&P is no longer in existence,
for purposes of determining whether such debt securities are rated "Investment
Grade", such organization may be replaced by a nationally recognized statistical
rating organization (as defined in Rule 436 under the Securities Act) designated
by us, notice of which designation shall be given to the Trustee.
"LIEN" means any mortgage, pledge, security interest, encumbrance, Lien or
charge of any kind (including without limitation, any conditional sale or other
title retention agreement or lease in the nature thereof or any agreement to
give any security interest).
"MOODY'S" means Moody's Investors Service, Inc. and its successors.
"NET CASH PROCEEDS" means;
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47
(1) with respect to any Asset Sale, the proceeds of such Asset 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 the form of cash or cash
equivalents (except to the extent such obligations are financed or sold with
recourse to us or any Restricted Subsidiary) and proceeds from the conversion of
other property received when converted to cash or cash equivalents, net of
(A) brokerage commissions and other fees and expenses (including
fees and expenses of counsel and investment bankers) related to such
Asset Sale,
(B) provisions for all taxes (whether or not such taxes will
actually be paid or are payable) as a result of such Asset Sale without
regard to our consolidated results of operations and those of our
Restricted Subsidiaries, taken as a whole,
(C) payments made to repay Indebtedness or any other obligation
outstanding at the time of such Asset Sale that either (A) is secured by
a Lien on the property or assets sold or (B) is required to be paid as a
result of such sale, and
(D) appropriate amounts to be provided by us or any Restricted
Subsidiary as reserve against any liabilities associated with such Asset
Sale, including, without limitation, pension and other post employment
benefit liabilities, liabilities related to environmental matters and
liabilities under any indemnification obligations associated with such
Asset Sale, all as determined in conformity with GAAP and
(2) with respect to any issuance or sale of Capital Stock, 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 the form of cash or cash equivalents (except to the extent such
obligations are financed or sold with recourse to us or any Restricted
Subsidiary) and proceeds from the conversion of other property received when
converted to cash or cash equivalents, net of attorney's fees, accountants'
fees, underwriters' or placement agents' fees, discounts or commissions and
brokerage, consultant and other fees incurred in connection with such issuance
or sale and net of taxes paid or payable as a result thereof.
"OFFER TO PURCHASE" means an offer to purchase by us from the Holders
commenced by mailing a notice to the Trustee and each Holder stating:
(1) the covenant pursuant to which the offer is being made and that all
debt securities of a series validly tendered will be accepted for payment on a
pro rata basis;
(2) the purchase price and the date of purchase (which shall be a
Business Day no earlier than 30 days nor later than 60 days from the date such
notice is mailed) (the "Payment Date");
(3) that any debt securities of a series not tendered will continue to
accrue interest pursuant to their terms;
(4) that, unless we default in the payment of the purchase price, any
debt securities of a series accepted for payment pursuant to the Offer to
Purchase shall cease to accrue interest on and after the Payment Date;
(5) that Holders electing to have debt securities of a series purchased
pursuant to the Offer to Purchase will be required to surrender such debt
securities, together with the form entitled "Option of the Holder to Elect
Purchase" on the reverse side of such debt securities completed, to the Paying
Agent at the address specified in the notice prior to the close of business on
the business day immediately preceding the Payment Date;
(6) that Holders will be entitled to withdraw their election if the
Paying Agent receives, not later than the close of business on the third
Business Day immediately preceding the Payment Date, a telegram, facsimile
transmission or letter setting forth the name of such Holder, the
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48
principal amount of any debt securities of a series under the indenture
delivered for purchase and a statement that such Holder is withdrawing his
election to have such debt securities purchased; and
(7) that Holders whose debt securities of a series are being purchased
only in part will be issued new notes equal in principal amount to the
unpurchased portion of such debt securities surrendered; provided that each
such debt security purchased and each new debt security issued shall be in a
principal amount of $1,000 or an integral multiple thereof.
On the Payment Date, we shall:
(A) accept for payment on a pro rata basis any debt securities of a
series under the indenture or portions thereof tendered pursuant to an Offer
to Purchase;
(B) deposit with the Paying Agent money sufficient to pay the purchase
price of such debt securities or portions thereof so accepted; and
(C) deliver, or cause to be delivered, to the Trustee all such debt
securities or portions thereof so accepted together with an Officer's
Certificate specifying the debt securities or portions thereof accepted for
payment by us.
The Paying Agent shall promptly mail to the Holders of debt securities so
accepted payment in an amount equal to the purchase price, and the Trustee
shall promptly authenticate and mail to such Holders new debt securities equal
in principal amount to any unpurchased portion of the debt securities
surrendered; provided that each debt security purchased and each new debt
security issued shall be in a principal amount of $1,000 or an integral
multiple thereof. We will publicly announce the results of an Offer to
Purchase as soon as practicable after the Payment Date. The Trustee shall act
as the Paying Agent for an Offer to Purchase.
We will comply with Rule 14e-1 under the Securities Exchange Act and any
other securities laws and regulations thereunder to the extent such laws and
regulations are applicable, in the event that we are required to repurchase
any debt securities of a series under the indenture pursuant to an Offer to
Purchase.
"ORIGINAL ISSUE DISCOUNT SECURITY" means (1) any security which provides
for an amount less than the principal amount thereof to be due and payable
upon a declaration of acceleration of the maturity thereof, and (2) any other
security which is issued with "original issue discount" within the meaning of
Section 1273 (a) of the Internal Revenue Code of 1986, as amended, and the
regulations thereunder.
"PERMITTED INVESTMENT" means:
(1) an Investment in us or a Restricted Subsidiary or a Person which
will, upon the making of such Investment, become a Restricted Subsidiary or be
merged or consolidated with or into, or transfer or convey all or
substantially all its assets to us, or a Restricted Subsidiary; provided that
such Person's primary business is related, ancillary or complementary to the
businesses of us and our Restricted Subsidiaries on the date of such
Investment;
(2) Temporary Cash Investments;
(3) payroll, travel and similar advances to cover matters that are
expected at the time of such advances ultimately to be treated as expenses in
accordance with GAAP;
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(4) stock, obligations or securities received in settlement of
Indebtedness Incurred in the ordinary course of business, upon foreclosure of
a Lien created in the ordinary course of business or in satisfaction of
judgments, including in connection with a bankruptcy proceeding; or
(5) Investments in prepaid expenses, negotiable instruments held for
collection and lease, utility and worker's compensation, performance and other
similar deposits;
(6) Interest Rate Agreements and Currency Agreements designed solely to
protect us or our Restricted Subsidiaries against fluctuations in interest
rates or foreign currency exchange rates;
(7) loans or advances to our officers or employees or those of any
Restricted Subsidiary that do not in the aggregate exceed $2 million at any
time outstanding; and
(8) Investments in any Person that is engaged in the telecommunications
business and that is not our Affiliate or a Related Person.
"PERMITTED LIENS" means
(1) Liens for taxes, assessments, governmental charges or claims that are
being contested in good faith by appropriate legal proceedings promptly
instituted and diligently conducted and for which a reserve or other
appropriate provision, if any, as shall be required in conformity with GAAP
shall have been made;
(2) statutory and common law Liens of landlords and carriers,
warehousement, mechanics, suppliers, materialmen, repairmen or other similar
Liens arising in the ordinary course of business and with respect to amounts
not yet delinquent of being contested in good faith by appropriate legal
proceedings promptly instituted and diligently conducted and for which a
reserve or other appropriate provision, if any, as shall be required in
conformity with GAAP shall have been made;
(3) Liens incurred or deposits made in the ordinary course of business in
connection with workers' compensation, unemployment insurance and other types
of social security;
(4) Liens incurred or deposits made to secure the performance of tenders,
bids, leases, statutory or regulatory obligations, bankers' acceptances,
surety and appeal bonds, government contracts, performance and return-of-money
bonds and other obligations of a similar nature incurred in the ordinary
course of business (exclusive of obligations for the payment of borrowed
money);
(5) easements, rights-of-way, municipal and zoning ordinances and similar
charges, encumbrances, title defects or other irregularities that do not
materially interfere with the ordinary course of business of us or any of our
Restricted Subsidiaries;
(6) Liens (including extensions and renewals thereof) upon real or
personal property acquired after the Existing High Yield Closing Date;
provided that
(A) such Lien is created solely for the purpose of securing
Indebtedness Incurred, in accordance with the "Limitation on
Indebtedness" covenant, to finance the cost (including the cost of
design, development, acquisition, construction, installation,
improvement, transportation or integration and all transaction costs
related to the foregoing) of the item of property or assets subject
thereto and such Lien is created prior
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50
to, at the time of or within six months after the later of the acquisition,
the completion of construction or the commencement of full operation of such
property;
(B) the principal amount of the Indebtedness secured by such Lien
does not exceed 100% of such cost; and
(C) any such Lien shall not extend to or cover any property or
assets other than such item of property or assets and any improvements on
such item;
(7) leases or subleases granted to others that do not materially
interfere with the ordinary course of business of us and our Restricted
Subsidiaries, taken as a whole;
(8) Liens encumbering property or assets under construction arising from
progress or partial payments by a customer of us or our Restricted
Subsidiaries relating to such property or assets;
(9) any interest or title of a lessor in the property subject to any
Capitalized Lease or operating lease;
(10) Liens arising from filing Uniform Commercial Code financing
statements regarding leases;
(11) Liens on property of, or on shares of Capital Stock or Indebtedness
of, any Person existing at the time such Person becomes, or becomes a part of,
any Restricted Subsidiary; provided that such Liens do not extend to or cover
any property or assets of, us or any Restricted Subsidiary other than the
property or assets acquired;
(12) Liens in favor of us or any Restricted Subsidiary;
(13) Liens arising from the rendering of a final judgment or order
against us or any Restricted Subsidiary that does not give rise to an Event of
Default;
(14) Liens securing reimbursement obligations with respect to letters of
credit that encumber documents and other property relating to such letters of
credit and the products and proceeds thereof;
(15) Liens in favor of customs and revenue authorities arising as a
matter of law to secure payment of customs duties in connection with the
importation of goods;
(16) Liens encumbering customary initial deposits and margin deposits,
and other Liens that are within the general parameters customary in the
industry and incurred in the ordinary course of business, in each case,
securing Indebtedness under Interest Rate Agreements and Currency Agreements
and forward contracts, options, future contracts, futures options or similar
agreements or arrangements designed solely to protect us or any of our
Restricted Subsidiaries from fluctuations in interest rates, currencies or the
price of commodities;
(17) Liens arising out of conditional sale, title retention,
consignment or similar arrangements for the sale of goods entered into by
us or any of our Restricted Subsidiaries in the ordinary course of business
in accordance with the past practices of us and our Restricted Subsidiaries
prior to the Existing High Yield Closing Date;
(18) Liens on or sales of receivables; and
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51
(19) Liens that secure Indebtedness with an aggregate principal amount
not in excess of $5 million at any time outstanding.
"PERSON" means, an individual, a corporation, a partnership, a limited
liability company, an association, a trust or any other entity or
organization, including a government or political subdivision or an agency or
instrumentality thereof.
"PREFERRED STOCK" means, with respect to any Person, Capital Stock issued
by such Person that is entitled to preference or priority over one or more
series or classes of other Capital Stock issued by such Person upon any
distribution of such Person's property and assets, whether by dividend or upon
liquidation.
"RELATED PERSON" means, as applied to any Person, any other Person
directly or indirectly owning
(1) 10% or more of the outstanding Common Stock of such Person (or, in
the case of a Person that is not a corporation, 10% or more of the outstanding
equity interest in such Person) or
(2) 10% or more of the combined outstanding voting power of the Voting
Stock of such Person, and all Affiliates of any such other Person.
"RESTRICTED SUBSIDIARY" means any of our Subsidiaries other than an
Unrestricted Subsidiary.
"SIGNIFICANT SUBSIDIARY" means, at any date of determination, any
Restricted Subsidiary that, together with its Subsidiaries,
(1) for our most recent fiscal year, accounted for more than 10% of the
consolidated revenue of us and our Restricted Subsidiaries; or
(2) as of the end of such fiscal year, was the owner of more than 10% of
our consolidated assets and those of our Restricted Subsidiaries, all as set
forth on the most recently available consolidated financial statements for
such fiscal year.
"SEC" means Securities and Exchange Commission.
"SandP" means Standard and Poor's Ratings Services, a division of The
McGraw-Hill Companies, and its successors.
"SPECIFIED DATE" means any Redemption Date, any Payment Date for an Offer
to Purchase or any date on which any debt securities of a series under the
indenture first become due and payable after an Event of Default.
"STATED MATURITY" means:
(1) with respect to any debt security, the date specified in such debt
security as the fixed date on which the final installment of principal of such
debt security is due and payable; and
(2) with respect to any scheduled installment of principal of or
interest on any debt security as the fixed date on which such installment
is due and payable.
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"STRATEGIC SUBORDINATED INDEBTEDNESS" means our Indebtedness Incurred to
finance the acquisition of a Person engaged in a business that is related,
ancillary or complementary to the business conducted by us or any of our
Restricted Subsidiaries, which Indebtedness by its terms, or by the terms of
any agreement or instrument pursuant to which such Indebtedness is Incurred:
(1) is expressly made subordinate in right of payment to any debt
securities under the indenture; and
(2) provides that no payment of principal, premium or interest on, or any
other payment with respect to, such Indebtedness may be made prior to the
payment in full of all of our obligations under such debt securities; provided
that such Indebtedness may provide for and be repaid at any time from the
proceeds of the sale of our Capital Stock (other than Disqualified Stock) or
other of our Indebtedness which by its terms, or by the terms of any agreement
or instrument pursuant to which such other Indebtedness is Incurred, meets
clauses (1) and (2) above after the Incurrence of such Indebtedness.
"SUBSIDIARY" means, with respect to any Person, any corporation,
association or other business entity of which more than 50% of the voting
power of the outstanding Voting Stock is owned, directly or indirectly, by
such Person and one or more other Subsidiaries of such Person.
"TAX AMOUNT" means, with respect to any period, without duplication, the
increase in the cumulative United States Federal, state and local tax
liability of holders of equity interests in us (or if such holder is a
pass-through entity for United States income tax purposes, holders of its
equity interests) in respect of their interests in us for such period plus any
additional amounts payable to such holders to cover taxes arising from the
ownership of such equity interests, but excluding any increase in tax
liability or additional amounts payable in respect of a gain realized by a
holder of an equity interest in us upon the sale or disposition by such holder
of an equity interest, including without limitation, any redemption thereof by
us, in us.
"TEMPORARY CASH INVESTMENT" means any of the following:
(1) direct obligations of the United States of America or any agency
thereof or obligations fully and unconditionally guaranteed by the United
States of America or any agency thereof;
(2) time deposit accounts, certificates of deposit and money market
deposits maturing within one year 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 of America, and which bank or trust company has capital, surplus and
undivided profits aggregating in excess of $500 million (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;
(3) repurchase obligations with a term of not more than 30 days for
underlying securities of the types described in clause (1) above entered into
with a bank meeting the qualifications described in clause (2) above;
(4) commercial paper, maturing not more than one year after the date of
acquisition, issued by a corporation (other than our Affiliate) organized and
in existence under the laws of the United States of America, any state thereof
or any foreign country recognized by the United
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53
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 or "A-1" (or higher)
according to SandP;
(5) securities with maturities of six months or less from the date of
acquisition issued or fully and unconditionally 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 S&P or
Moody's;
(6) corporate debt securities with maturities of eighteen months or less
from the date of acquisition and with a rating at the time as of which any
Investment therein is made of "A3" (or higher) according to Moody's or "A-"
(or higher) according to SandP; and
(7) money market funds at least 95% of the assets of which are invested
in the foregoing.
"TRADE PAYABLES" means, with respect to any Person, any accounts payable
or any other indebtedness or monetary obligation to trade creditors created,
assumed or Guaranteed by such Person or any of its Subsidiaries arising in the
ordinary course of business in connection with the acquisition of goods or
services.
"TRANSACTION DATE" means, with respect to the Incurrence of any
Indebtedness by us or any of our Restricted Subsidiaries, the date such
Indebtedness is to be Incurred and, with respect to any Restricted Payment,
the date such Restricted Payment is to be made.
"UNRESTRICTED SUBSIDIARY" means:
(1) any Subsidiary of us that at the time of determination shall be
designated an Unrestricted Subsidiary by the Board of Directors in the manner
provided below; and
(2) any Subsidiary of an Unrestricted Subsidiary.
The Board of Directors may designate any Restricted Subsidiary (including
any newly acquired or newly formed Subsidiary) to be an Unrestricted
Subsidiary unless such Subsidiary owns any of our Capital Stock, or owns or
holds any Lien on any of our property or those of any Restricted Subsidiary;
provided that
(A) any Guarantee by us or any Restricted Subsidiary of any
Indebtedness of the Subsidiary being so designated shall be deemed an
"Incurrence" of such Indebtedness and an "Investment" by us or such
Restricted Subsidiary (or both, if applicable) at the time of such
designation;
(B) 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 the "Limitation on
Restricted Payments" covenant and
(C) if applicable, the Incurrence of Indebtedness and the Investment
referred to in clause (A) of this proviso would be permitted under the
"Limitation on Indebtedness" and "Limitation on Restricted Payments"
covenants.
The Board of Directors may designate any Unrestricted Subsidiary to be a
Restricted Subsidiary; provided that (1) no Default or Event of Default shall
have occurred and be continuing at the time of or after giving effect to such
designation and (2) all Liens and Indebtedness of such Unrestricted Subsidiary
outstanding immediately after such designation
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would, if Incurred at such time, have been permitted to be Incurred (and shall
be deemed to have been Incurred) for all purposes of the indenture. Any such
designation by the Board of Directors shall be evidenced to the Trustee by
promptly filing with the Trustee a copy of the board resolution giving effect
to such designation and an Officer's Certificate certifying that such
designation complied with the foregoing provisions.
"VOTING STOCK" means, with respect to any Person, Capital Stock of any
class or kind ordinarily having the power to vote for election of directors,
managers or other voting members of the governing body of such Persons.
"WHOLLY OWNED" means, with respect to any Subsidiary of any Person, the
ownership of all of the outstanding Capital Stock of such Subsidiary (other
than any director's qualifying shares or Investments by foreign nationals
mandated by applicable law) by such Person or one or more Wholly Owned
Subsidiaries of such Person.
SEC REPORTS AND REPORTS TO HOLDERS
Whether or not we are required to file reports with the SEC, we shall
file with the SEC all such reports and other information as we would be
required to file with the SEC by Sections 13(a) or 15(d) under the Securities
Exchange Act of 1934 if we were subject thereto. We shall supply the Trustee
and each Holder or apply to the Trustee for forwarding to each such Holder,
without cost to such Holder, copies of such reports and other information.
EVENTS OF DEFAULT AND REMEDIES
The following events are defined in the indenture as "Events of Default"
with respect to each series of debt securities:
(1) default in payment of principal or premium, if any, on the debt
securities of that series when due at maturity, upon acceleration, redemption
or otherwise;
(2) default for 30 days in payment of any interest installment on that
series when it becomes due and payable;
(3) default in the performance or breach of the provisions of the
indenture applicable to mergers, consolidations and transfers of all or
substantially all of our assets or the failure to make or consummate an Offer
to Purchase in accordance with the "Limitation on Asset Sales" or "Repurchase
of debt Securities upon a Change of Control" covenant;
(4) default for 30 consecutive days after we receive written notice by
the Trustee or Holders of 25% or more of the aggregate principal amount of the
debt securities of that series as provided in the indenture, in the
performance of any other covenant or agreement by us (other than a default in
(1) (2), (3) above);
(5) there occurs with respect to any issue or issues of our Indebtedness
(including any other series of debt securities) or that of our Significant
Subsidiaries with a principal amount (or in the case of original issue
discount securities, accreted value) of $12 million or more, whether such
Indebtedness now exists or shall hereafter be created, (A) an event of default
that has caused the holder thereof to declare such Indebtedness to be due and
payable prior to its Stated Maturity and such Indebtedness has not been
discharged in full or such acceleration has not been rescinded
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55
or annulled within 30 days of such acceleration and/or (B) the failure to make
a principal payment at the final (but not any interim) fixed maturity and such
defaulted payment shall not have been made, waived or extended within 30 days
of such payment default;
(6) any final judgment or order (not covered by insurance) for the
payment of money in excess of $12 million in the aggregate for all such final
judgments or orders against all such Persons (treating any deductibles,
self-insurance or retention as not so covered) shall be rendered against us or
any Significant Subsidiary and shall not be paid or discharged, and there is a
period of 30 consecutive days following entry of such judgment or order that
causes the aggregate amount for all such final judgements or orders
outstanding and not paid or discharged against all such Persons to exceed $12
million during which a stay of enforcement by such final judgment or order, by
reason of a pending appeal or otherwise, shall not be in effect;
(7) a court having jurisdiction in the premises enters a decree or order
for
(A) relief in respect of us or any Significant Subsidiary in an
involuntary case under any applicable bankruptcy, insolvency or other
similar law now or hereafter in effect;
(B) appointment of a receiver, liquidator, assignee, custodian,
trustee, sequestrator or similar official of us or any Significant
Subsidiary or for all or substantially all of our or any Significant
Subsidiary's property and assets; or
(C) the winding up or liquidation of our affairs or the affairs of
any Significant Subsidiary and, such decree of order shall remain
unstayed and in effect for a period of 30 consecutive days; or
(8) we or any Significant Subsidiary
(A) commence a voluntary case under any applicable bankruptcy,
insolvency or other similar law now or hereafter in effect, or consent to
the entry of an order for relief in an involuntary case under and such
law;
(B) consent to the appointment of or taking possession by a
receiver, liquidator, assignee, custodian, trustee, sequestrator or
similar official of us or any Significant Subsidiary for all or
substantially all of our or those of any Significant Subsidiary's
property and assets; or
(C) effect any general assignment for the benefit of creditors.
If an Event of Default (other than an Event of Default specified in (7)
and (8) above that occurs with respect to us) occurs and is continuing under
the indenture with respect to a particular series, the Trustee or Holders of
at least 25% in aggregate principal amount at maturity of the debt securities
of that series then outstanding by written notice to us (and to the Trustee if
such notice is given by the Holders), may, and the Trustee shall at the
request of such Holders, declare the principal amount of (or, in the case of
Original Issue Discount Securities, the portion thereby specified in the terms
thereof), premium, if any, and accrued interest on the debt securities of that
series to be immediately due and payable. Upon a declaration of acceleration,
such principal amount, premium, if any, and accrued interest shall be
immediately due and payable.
In the event of a declaration of acceleration because an Event of Default
set forth in clause (5) above has occurred and is continuing, such declaration
of acceleration shall be automatically rescinded and annulled if the Event of
Default triggering such event of default pursuant to clause
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56
5 shall be remedied or cured by us or by the relevant Significant Subsidiary
or waived by the Holders of the relevant Indebtedness within 60 days after the
declaration of acceleration with respect thereto.
If an Event of Default specified in 7 or 8 above occurs with respect to
us, the principal amount of, premium, if any, and accrued interest on any debt
securities of that series then outstanding shall become and be immediately due
and payable without any declaration or other act on the part of the Trustee or
any Holder.
The Holders of at least a majority in principal amount of the outstanding
debt securities of a series affected by written notice to us and to the
Trustee, may waive all past Defaults and rescind and annul a declaration of
acceleration and its consequences if (i) all existing Events of Default, other
than the nonpayment of the principal of, premium, if any, and interest on the
debt securities of that series that have become due solely by such declaration
of acceleration, have been cured or waived and (ii) the rescission would not
conflict with any judgment or decree of a court of competent jurisdiction. For
more information as to the waiver of defaults, see "-Modification of the
Indenture."
The Holders of at least a majority in aggregate principal amount of the
outstanding debt securities of that series may direct the time, method and
place of conducting any proceeding for any remedy available to the Trustee or
exercising any trust or power conferred on the Trustee. However, the Trustee
may refuse to follow any direction that conflicts with law or the indenture,
that may involve the Trustee in personal liability, or that the Trustee
determines in good faith may be unduly prejudicial to the rights of Holders of
debt securities not joining in the giving of such direction and may take any
other action it deems proper that is not inconsistent with any such direction
received from Holders of such debt securities.
A Holder may not pursue any remedy with respect to the indenture or the
debt securities of that series unless:
(1) the Holder gives the Trustee written notice of a continuing Event of
Default;
(2) the Holders of at least 25% in aggregate principal amount of
outstanding debt securities of that series make a written request to the
Trustee to pursue the remedy;
(3) such Holder or Holders offer the Trustee indemnity satisfactory to
the Trustee against any costs, liability or expense;
(4) the Trustee does not comply with the request within 60 days after
receipt of the request and the offer of indemnity; and
(5) during such 60-day period, the Holders of a majority in aggregate
principal amount of the outstanding debt securities of that series do not give
the Trustee a direction that is inconsistent with the request.
However, such limitations do not apply to the right of any Holder of debt
securities of a series under the indenture to receive payment of the principal
amount of, premium, if any, or interest on, such debt securities of a series
or to bring suit for the enforcement of any such payment, on or after the due
date expressed in the debt securities of a series, which right shall not be
impaired or affected without the consent of the holder.
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57
The indenture will require certain of our officers to certify, on or
before a date not more than 90 days after the end of each fiscal year, that a
review has been conducted of our and our Restricted Subsidiaries' activities
and performance under the indenture and that we have fulfilled all obligations
thereunder, or, if there has been a default in the fulfillment of any such
obligation, specifying each such default and the nature and status thereof. We
will also be obligated to notify the Trustee of any default or defaults in the
performance of any covenants or agreements under the indenture.
MODIFICATION OF THE INDENTURE
WITH CONSENT OF HOLDERS
Modifications and amendments of the indenture may be made by us and the
Trustee with the consent of the Holders of not less than a majority in
aggregate principal amount of the debt securities of all series outstanding
affected by the modification or amendment, voting as a single class; provided,
however, that no such modification or amendment may, without the consent of
each Holder affected thereby:
(1) change the Stated Maturity of the principal of, or any installment of
interest on, any debt securities of a series under the indenture;
(2) reduce the principal amount of, or premium, if any, or interest on,
any debt securities of a series under the indenture;
(3) change the place or currency of payment of principal of, or premium,
if any, or interest on, any debt securities of a series under the indenture;
(4) impair the right to institute suit for the enforcement of any payment
on or after the Stated Maturity (or, in the case of a redemption, on or after
the redemption date) of any debt securities of a series under the indenture;
(5) reduce the above-stated percentage of outstanding debt securities,
the consent of whose Holders is necessary to modify or amend the indenture;
(6) waive a default in payment of principal of, premium, if any, or
interest on the debt securities of a series or modify any provisions of the
indenture relating to modification or amendment thereof; or
(7) reduce the percentage or aggregate principal amount of outstanding
debt securities, the consent of whose Holders is necessary for waiver of
compliance with certain provisions of the indenture or for waiver of certain
defaults.
For purposes of this paragraph, if any debt securities of a series are
Original Issue Discount Securities, then for the purposes of determining
whether the Holders of the requisite principal amount of debt securities of a
series have taken any action herein described, the principal amount of such
debt securities shall be deemed to be the amount of the principal thereof that
would be due and payable at the date of the taking of such action upon a
declaration of acceleration of maturity thereof.
WITHOUT CONSENT OF THE HOLDERS
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We, when authorized by a resolution of our Board of Directors (as
evidenced by board resolutions), and the Trustee may amend or supplement this
indenture or the debt securities without notice to or the consent of any
holder:
(1) to cure any ambiguity, defect or inconsistency in this indenture;
provided that such amendments or supplements shall not, in the good faith
opinion of the Board of Directors as evidenced by a board resolution,
adversely affect the interests of the Holders in any material respect;
(2) to comply with the provisions concerning consolidation, merger and
sale of assets;
(3) to comply with any requirements of the SEC in connection with the
qualification of this indenture under the Trust Indenture Act;
(4) to evidence and provide for the acceptance of appointment hereunder
by a successor Trustee;
(5) to provide for uncertificated debt securities in addition to or in
place of certificated debt securities;
(6) to add one or more Subsidiary Guarantees on the terms required by
this indenture;
(7) to establish the form or terms of any series of debt securities; and
(8) to make any change that, in the good faith opinion of the Board of
Directors as evidenced by a board resolution, does not materially and
adversely affect the rights of any holder.
CONSOLIDATION, MERGER AND SALE OF ASSETS
The following restrictions on consolidations, mergers and asset sales
will apply to any non-convertible indebtedness issued under the indenture:
We will not consolidate with, merge with or into, or sell, convey,
transfer, lease or otherwise dispose of all or substantially all of our
property and assets (as an entirety or substantially an entirety in one
transaction or a series of related transactions) to, any Person or permit any
Person to merge with or into us unless:
(1) we shall be the continuing Person, or the Person (if other than us)
formed by such consolidation or into which we are merged or that acquired or
leased our property and assets shall be a corporation organized and validly
existing under the laws of the United States of America or any jurisdiction
thereof and shall expressly assume, by a supplemental indenture, executed and
delivered to the Trustee, all of our obligations on all of the debt securities
and under the indenture;
(2) immediately after giving effect to such transaction, no Default or
Event of Default shall have occurred and be continuing;
(3) immediately after giving effect to such transaction on a pro forma
basis, we or any Person becoming the successor obligor of the debt securities
shall have a Consolidated Net Worth equal to or greater than our Consolidated
Net Worth immediately prior to such transaction;
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provided that this paragraph (3) shall only apply to a sale of substantially
all, but less than all, of our assets;
(4) immediately after giving effect to such transaction on a pro forma
basis we, or any Person becoming the successor obligor of the debt securities,
as the case may be, could Incur at least $1.00 of Indebtedness under (A) of
the "Limitation on Indebtedness" covenant; provided that this clause (4) shall
not apply to:
(A) a consolidation, merger or sale of all (but not less than all)
of our assets if all of our Liens and Indebtedness or of any Person
becoming the successor obligor on the debt securities, as the case may be
and its Restricted Subsidiaries outstanding immediately after such
transaction would, if Incurred at such time, have been permitted to be
Incurred (and all such Liens and Indebtedness, other than our Liens and
Indebtedness and those of our Restricted Subsidiaries outstanding
immediately prior to the transaction, shall be deemed to have been
Incurred) for all purposes of the indenture or
(B) a consolidation, merger or sale of all or substantially all of
our assets if immediately after giving effect to such transaction on a
pro forma basis, we or any Person becoming the successor obligor of the
debt securities shall have a Consolidated Leverage Ratio equal to or less
than our Consolidated Leverage Ratio immediately prior to such
transaction; and
(5) we deliver to the Trustee an Officer's Certificate (attaching the
arithmetic computations to demonstrate compliance with paragraphs (3) and (4)
above) and opinion of counsel, in each case stating that such consolidation,
merger or transfer and such supplemental indenture complies with this
provision and that all conditions precedent provided for herein relating to
such transaction have been complied with;
provided, however, that paragraphs (3) and (4) above do not apply if,
in the good faith determination of our Board of Directors, whose
determination shall be evidenced by a board resolution, the principal
purpose of such transaction is to change our state of incorporation; and
provided further that any such transaction shall not have as one of its
purposes the evasion of the foregoing limitations.
DEFEASANCE
The following defeasance provisions will apply to any non-convertible
indebtedness issued under the indenture:
DEFEASANCE AND DISCHARGE.
The indenture will provide that we will be deemed to have paid and will
be discharged from any and all obligations in respect of the debt securities
of that series on the 123rd day after the deposit referred to below, and the
provisions of the indenture will no longer be in effect with respect to the
debt securities of that series (except for, among other matters, certain
obligations to register the transfer or exchange of the debt securities of
such series, to replace stolen, lost or mutilated debt securities of such
series, to maintain paying agencies and to hold monies for payment in trust)
if, among other things:
(1) we have deposited with the Trustee, in trust, money and/or U.S.
Government Obligations that through the payment of interest and principal in
respect thereof in accordance
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with their terms will provide money in an amount sufficient to pay the
principal of, premium, if any, and accrued interest on the debt securities of
that series on the Stated Maturity of such payments in accordance with the
terms of the indenture and the debt securities of that series;
(2) we have delivered to the Trustee
(A) either (i) an opinion of counsel to the effect that Holders will
not recognize income, gain or loss for federal income tax purposes as a
result of our exercise of our option under this "Defeasance" provision
and will be subject to federal income tax on the same amount and in the
same manner and at the same times as would have been the case if such
deposit, defeasance and discharge had not occurred, which opinion of
counsel must be based upon (and accompanied by a copy of) a ruling of the
Internal Revenue Service to the same effect unless there has been a
change in applicable federal income tax law after the date the debt
securities of that series are issued under the indenture such that a
ruling is no longer required or (ii) a ruling directed to the Trustee
received from the Internal Revenue Service to the same effect as the
aforementioned opinion of counsel; and
(B) an opinion of counsel to the effect that the creation of the
defeasance trust does not violate the Investment Company Act of 1940 and
after the passage of 123 days following the deposit, the trust fund will
not be subject to the effect of Section 547 of the United States
Bankruptcy Code or Section 15 of the New York Debtor and Creditor Law;
(3) immediately after giving effect to such deposit on a pro forma basis,
no Event of Default, or event that after the giving of notice or lapse of time
or both would become an Event of Default, shall have occurred and be
continuing on the date of such deposit or during the period ending on the
123rd day after the date of such deposit, and such deposit shall not result in
a breach or violation of, or constitute a default under, any other agreement
or instrument to which we or any of our Subsidiaries is a party or by which we
or any of our Subsidiaries is bound; and
(4) if at such time such debt securities are listed on a national
securities exchange, we have delivered to the Trustee an opinion of counsel to
the effect that such debt securities will not be delisted as a result of such
deposit, defeasance and discharge.
DEFEASANCE OF CERTAIN COVENANTS AND CERTAIN EVENTS OF DEFAULT.
The indenture further will provide that the provisions of the indenture
will no longer be in effect with respect to paragraphs (3) and (4) under
"Consolidation, Merger and Sale of Assets" and all the covenants described
herein under "Covenants," paragraph (3) under "Events of Default" with respect
to such paragraphs (3) and (4) under "Consolidation, Merger and Sale of
Assets," paragraph (4) under "Events of Default" with respect to such other
covenants and paragraphs (5) and (6) under "Events of Default" shall be deemed
not to be Events of Default upon, among other things, the deposit with the
Trustee, in trust, of money and/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 the principal
of, premium, if any, and accrued interest on the debt securities of that
series on the Stated Maturity of such payments in accordance with the terms of
the indenture and the debt securities of that series, the satisfaction of the
provisions described in paragraphs (2)(B), (3) and (4) of the preceding
paragraph and the delivery by us to the Trustee of an opinion of counsel to
the effect that, among other things, the Holders will not recognize income,
gain or loss for federal income tax purposes as a result of such deposit and
defeasance of certain covenants and Events of Default and will be subject to
federal income tax on the same amount and in the same manner and at the same
times as would have been the case if such deposit and defeasance had not
occurred.
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DEFEASANCE AND CERTAIN OTHER EVENTS OF DEFAULT.
In the event we exercise the option to omit compliance with certain
covenants and provisions of the indenture with respect to the debt securities
of that series as described in the immediately preceding paragraph and such
debt securities of that series are declared due and payable because of the
occurrence of an Event of Default that remains applicable, the amount of money
and/or U.S. Government Obligations on deposit with the Trustee will be
sufficient to pay amounts due on such debt securities at the time of their
Stated Maturity but may not be sufficient to pay amounts due on such debt
securities at the time of the acceleration resulting from such Event of
Default. However, we will remain liable for such payments.
REPURCHASE OF DEBT SECURITIES UPON A CHANGE OF CONTROL
The following will apply to any non-convertible indebtedness issued under
the indenture:
We must commence, within 30 days of the later of (1) the occurrence of a
Change of Control and (2) the end of the Change of Control Period with respect
to a Change of Control, and consummate an Offer to Purchase for all the debt
securities then outstanding, at a purchase price equal to 101% of the
principal amount thereof on the relevant Payment Date, plus accrued interest
(if any) to the Payment Date; provided that, we shall not be required to
commence and consummate an Offer to Purchase if, at the time specified above
for the commencement of an Offer to Purchase the debt securities of a series
shall be rated Investment Grade.
There can be no assurance that we will have sufficient funds available at
the time of any Change of Control to make any debt payment (including
repurchases of the debt securities of a series) required by the foregoing
covenant (as well as may be contained in our other securities which might be
outstanding at the time).
The above covenant requiring us to repurchase the debt securities will,
unless consents are obtained, require us to repay all indebtedness then
outstanding which by its terms would prohibit such debt security repurchase,
either prior to or concurrently with such debt security repurchase.
NO PERSONAL LIABILITY OF INCORPORATORS STOCKHOLDERS, OFFICERS,
DIRECTORS, OR EMPLOYEES
The indenture provides that no recourse for the payment of the principal
of, premium, if any, or interest on any of the debt securities or for any
claim based thereon or otherwise in respect thereof, and no recourse under or
upon any of our obligations, covenant or agreement or because of the creation
of any Indebtedness represented thereby, shall be had against any of our or
our successors, incorporator, stockholder, officer, director, employee or
controlling person. Each Holder, by accepting the debt securities, waives and
releases all such liability.
CONCERNING THE TRUSTEE
The indenture provides that, except during the continuance of a Default,
the Trustee will perform only such duties as are specifically set forth in the
indenture. If an Event of Default has occurred and is continuing, the Trustee
will use the same degree of care and skill in its exercise of the rights and
powers vested in it under the indenture as a prudent person would exercise
under the circumstances in the conduct of such person's own affairs.
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The indenture and provisions of the Trust Indenture Act of 1939, as
amended, incorporated by reference therein contain limitations on the rights
of the Trustee, should it become our creditor, to obtain payment of claims in
certain cases or to realize on certain property received by it in respect of
any such claims, as security or otherwise. The Trustee is permitted to engage
in other transactions; provided that if it acquires any conflicting interest,
it must eliminate such conflict or resign.
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63
DESCRIPTION OF CAPITAL STOCK
Our restated certificate of incorporation provides for authorized capital
stock of 459.8 million shares, including 277.3 million shares of Class A
common stock, $.01 par value per share, 162.5 million shares of Class B common
stock, $.01 par value per share, and 20 million shares of preferred stock,
$.01 par value per share. No preferred stock is outstanding and the Class B
stockholders are owners of record of all the outstanding shares of Class B
common stock.
COMMON STOCK
The relative rights of the Class A common stock and Class B common stock
are substantially identical in all respects, except for voting rights and
conversion rights.
VOTING RIGHTS.
Each share of Class A common stock entitles the holder to one vote and
each share of Class B common stock entitles the holder to 10 votes on each
matter to be voted upon by the holders of the common stock. The holders of the
shares of Class A common stock and Class B common stock vote as one class on
all matters to be voted on by stockholders, including, without limitation, the
election of directors and any proposed amendment to our restated certificate
of incorporation that would increase the authorized number of shares of common
stock or any class thereof or any other class or series of stock or decrease
the number of authorized shares of any class or series of stock (but not below
the number then outstanding), except as required by the Delaware General
Corporation Law and except that,
(1) as long as the outstanding Class B common stock represents at least
50% of the aggregate voting power of both classes of common stock outstanding,
the approval of 100% of the Class B stockholders is required:
(A) to amend, alter or repeal any provision of the restated
certificate of incorporation, other than in connection with certain
ministerial actions; or
(B) for any direct or indirect disposition by us of capital stock of
subsidiaries or assets that in either case represent substantially all of
our assets and those of our subsidiaries on a consolidated basis.
(2) the approval of 100% of the Class B stockholders is required for the
issuance of any additional shares of Class B common stock or any capital stock
having more than one vote per share; and
(3) without a majority vote of the holders of the Class A common stock,
certain provisions of the restated certificate of incorporation relating to
the termination of, and vote required to waive, the limitations on business
purposes described in the next sentence may not be amended, altered or
repealed.
Under the restated certificate of incorporation, we may not directly or
indirectly, through a subsidiary or affiliate of ours,
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(1) engage in the business of providing, offering, packaging, marketing,
promoting or branding (alone or jointly with or as an agent for other parties)
any wireline telecommunications services or other services, including data
services, to residences (collectively, "residential services"); or
(2) engage in the business of producing, packaging, distributing,
marketing, hosting, offering, promoting, branding or otherwise providing
entertainment, information or any other content services, whether fixed or
interactive, or any services incidental thereto, but excluding acting solely
as a carrier of video, audio or data of unaffiliated parties by providing
transport services, so long as we have no other direct or indirect pecuniary
interest in the transmitted information or content (collectively, "content
services"), in each case until the earlier of (A) the date that is five years
after the date of the filing of the restated certificate of incorporation and
(B) the date on which the holders of Class B common stock no longer represent
at least 50% of the voting power of our outstanding common stock.
Neither the holders of Class A common stock nor the holders of Class B
common stock have cumulative voting rights.
DIVIDENDS.
Each share of common stock is entitled to receive dividends from funds
legally available therefor if, as and when declared by our board of directors.
Class A common stock and Class B common stock share equally, on a
share-for-share basis, in any dividends declared by our board of directors. If
at any time a distribution of the Class A common stock or Class B common stock
is to be paid in shares of Class A common stock, Class B common stock or any
other of our securities or any other person, such dividends may be declared
and paid only as follows:
(1) a share distribution consisting of Class A common stock to holders of
Class A common stock and Class B common stock, on an equal per share basis; or
to holders of Class A common stock only, but in such event there shall also be
a simultaneous share distribution to holders of Class B common stock
consisting of shares of Class B common stock on an equal per share basis;
(2) a share distribution consisting of Class B common stock to holders of
Class B common stock and Class A common stock, on an equal per share basis; or
to holders of Class B common stock only, but in such event there shall also be
a simultaneous share distribution to holders of Class A common stock
consisting of shares of Class A common stock on an equal per share basis; and
(3) a share distribution of shares of any class of our securities or any
other person other than the common stock, either on the basis of a
distribution of identical securities, on an equal per share basis to the
holders of Class A common stock and Class B common stock, or on the basis of a
distribution of one class of securities to the holders of Class A common stock
and another class of securities to holders of Class B common stock, provided
that the securities so distributed do not differ in any respect other than
relative voting rights and related differences in designations, conversion and
share distribution provisions, with the holders of Class B common stock
receiving the class having the higher relative voting rights, provided that if
the securities so distributed constitute capital stock of our subsidiary, such
rights shall not differ to a greater extent than the corresponding differences
in voting rights, designations, conversion and distribution provisions between
Class A common stock and Class B common stock.
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If we shall in any manner subdivide or combine the outstanding shares of
Class A common stock or Class B common stock, the outstanding shares of the
other class of common stock shall be proportionally subdivided or combined in
the same manner and on the same basis as the outstanding shares of Class A
common stock or Class B common stock, as the case may be, that have been
subdivided or combined.
CONVERSION.
Under our restated certificate of incorporation, each share of Class B
common stock is convertible at any time and from time to time at the option of
the holder thereof into one share of Class A common stock. The Class A common
stock has no conversion rights.
EQUIVALENT CONSIDERATION IN CERTAIN TRANSACTIONS.
In the event of any merger, consolidation, acquisition of all or
substantially all of our assets or other reorganization to which we are a
party, in which any consideration is to be received by the holders of Class A
common stock and Class B common stock, those holders must receive the
Equivalent Consideration (as defined below) on a per share basis. Under our
restated certificate of incorporation, "Equivalent Consideration" is defined
as consideration of substantially equivalent economic value as determined by
our board of directors at the time of execution of the definitive agreement
relating to the applicable merger, consolidation, acquisition or
reorganization, provided, that (1) the holders of Class A common stock can
receive consideration of a different form from the consideration to be
received by the holders of Class B common stock and (2) if the holders of
Class A common stock and Class B common stock are to receive securities of any
other person, such securities (and, if applicable, the securities into which
the received securities are convertible, or for which they are exchangeable,
or which they evidence the right to purchase) can differ with respect to their
relative voting rights and related differences in conversion and share
distribution provisions, with the holders of shares of Class B common stock
receiving the class or series having the higher relative voting rights, and
the differences permitted by this clause (2) are not taken into account in the
determination of equivalent economic value.
OTHER.
Our stockholders have no preemptive or other rights to subscribe for
additional shares. All holders of common stock, regardless of class, are
entitled to share equally on a share-for-share basis in any assets available
for distribution to stockholders on our liquidation, dissolution or winding
up. All outstanding shares are, and all shares offered by this prospectus will
be, when sold, validly issued, fully paid and nonassessable. We may not
subdivide or combine shares of common stock without at the same time
proportionally subdividing or combining shares of the other classes.
In April 1999, we issued 307,550 shares of Class A common stock in
connection with our acquisition of Internet Connect, Inc. in a private
placement under Section 4(2) of the Securities Act of 1933. The former
stockholders of Internet Connect may require us to include their shares in
certain registered offerings of our Class A common stock under the Securities
Act of 1933, subject to certain conditions. If we sell any of our securities
in such an offering, we must pay all expenses (other than underwriting
discounts, commissions and fees and expenses of counsel attributable to the
sale of the shares) relating to the filing and effectiveness of a registration
statement. If we do not sell any of our securities, the selling stockholders
will pay their share of the registration expenses.
<PAGE>
66
During the second quarter of 1999, we issued 2,190,308 shares of Class A
common stock to the former partners of MetroComm, Inc. in a private placement
under Section 4(2) of the Securities Act of 1933 in connection with the
acquisition of the remaining 50% of MetroComm that we did not own. The former
stockholders of MetroComm have one demand registration right collectively for
shares of Class A common stock if they wish to register Class A common stock
constituting at least 50% of the aggregate number of shares of Class A common
stock issued in the merger. Once we have registered shares of Class A common
stock as a result of any other registration statement, we are not required to
register shares pursuant to this demand until six months after the other
registration statement is effective. In addition, each former stockholder of
MetroComm may require us to include its shares in certain other registered
offerings under the Securities Act of 1933, subject to certain conditions.
Each former stockholder of MetroComm must pay all underwriting discounts and
commissions attributable to the sale of its shares. We will pay all expenses
relating to the filing and effectiveness of a registration statement, the
legal fees of one counsel representing the former stockholders of MetroComm
and the auditors' fees and expenses.
PREFERRED STOCK
Our board of directors is authorized to provide for the issuance of
preferred stock in one or more series and to fix the designation, preferences,
powers and relative, participating, optional and other rights, qualifications,
limitations and restrictions thereof, including the dividend rate, conversion
rights, voting rights, redemption price and liquidation preference and to fix
the number of shares to be included in any such series. Any preferred stock so
issued may rank senior to the Class A common stock with respect to the payment
of dividends or amounts upon liquidation, dissolution or winding up, or both.
In addition, any such shares of preferred stock may have class or series
voting rights.
If we offer preferred stock, the terms of that series of preferred stock,
will be set forth in the prospectus supplement relating to that series.
CORPORATE OPPORTUNITIES
Our restated certificate of incorporation provides that the Class B
stockholders are not restricted from engaging directly or indirectly in the
same or similar business activities or lines of business as us. In the event
that any of the Class B stockholders acquires knowledge of a potential
transaction or matter that may be a corporate opportunity for any of the Class
B stockholders and us, such corporate opportunity shall be allocated to the
Class B stockholder if offered to any person who is an officer, employee or
director of the Class B stockholder and/or us, unless such opportunity is
expressly offered to such person primarily in his or her capacity as an
officer, employee or director of us. Other than under these circumstances, the
Class B stockholders shall have no duty to communicate or present such
corporate opportunity to us.
SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW
Our restated certificate of incorporation expressly states that we have
elected not to be governed by Section 203 of the Delaware General Corporation
Law, which prohibits a publicly held Delaware corporation from engaging in a
"business combination", as defined in clause (c)(3) of that section, with an
"interested stockholder", as defined in clause (c)(5) of that section, for a
<PAGE>
67
period of three years after the date of the transaction in which the
stockholder became an interested stockholder.
LIMITATIONS ON LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS
Our restated certificate of incorporation limits the liability of
directors to the fullest extent permitted by the Delaware General Corporation
Law. In addition, our restated certificate of incorporation provides that we
shall indemnify our directors and officers to the fullest extent permitted by
that law. We have entered into separate indemnification agreements with our
current directors and executive officers which have the effect of providing
such persons indemnification protection in the event the restated certificate
of incorporation is subsequently amended.
NASDAQ TRADING
The Class A common stock is listed on the NASDAQ Stock Market's National
Market under the symbol "TWTC."
Transfer Agent and Registrar
The transfer agent and registrar for the Class A common stock is Wells
Fargo Bank, Minnesota N.A.
<PAGE>
68
PLAN OF DISTRIBUTION
The distribution of the securities may be effected from time to time in
one or more transactions at a fixed price or prices (which may be changed from
time to time), at market prices prevailing at the time of sale, at prices
related to such prevailing market prices or at negotiated prices. Each
prospectus supplement will describe the method of distribution of the
securities offered therein.
We may sell securities directly, through agents designated from time to
time, through underwriting syndicates led by one or more managing underwriters
or through one or more underwriters acting alone. Each prospectus supplement
will describe the terms of the securities to which such prospectus supplement
relates, the name or names of any underwriters or agents with whom we have
entered into arrangements with respect to the sale of such securities, the
public offering or purchase price of such securities and the net proceeds we
will receive from such sale. In addition, each prospectus supplement will
describe any underwriting discounts and other items constituting underwriters'
compensation, any discounts and commissions allowed or paid to dealers, if
any, any commissions allowed or paid to agents, and the securities exchange or
exchanges, if any, on which such securities will be listed. Dealer trading may
take place in certain of the securities, including securities not listed on
any securities exchange.
Any underwriter or agent participating in the distribution of the
securities may be deemed to be an underwriter, as that term is defined in the
Securities Act, of the securities so offered and sold and any discounts or
commissions received by them, and any profit realized by them on the same or
resale of the securities may be deemed to be underwriting discounts and
commissions under the Securities Act.
Certain of any such underwriters and agents, including their associates,
may be customers of, engage in transactions with and perform services for us
and our subsidiaries in the ordinary course of business. One or more of our
affiliates may from time to time act as an agent or underwriter in connection
with the sale of the securities to the extent permitted by applicable law. The
participation of any such affiliate in the offer and sale of the securities
will comply with Rule 2720 of the Conduct Rules of the National Association of
Securities Dealers, Inc. regarding the offer and sale of securities of an
affiliate.
Except as indicated in the applicable prospectus supplement, the
securities are not expected to be listed on a securities exchange, except for
the Class A common stock, which is listed on The NASDAQ Stock Market's
National Market, and any underwriters or dealers will not be obligated to make
a market in securities. We cannot predict the activity or liquidity of any
trading in the securities.
<PAGE>
69
VALIDITY OF SECURITIES
The validity of the securities offered hereby will be passed upon for us
by Cravath, Swaine & Moore, New York, New York and for the underwriters or
agents, if any, by Shearman & Sterling, New York, New York.
EXPERTS
The consolidated and combined financial statements of Time Warner Telecom
Inc. appearing in Time Warner Telecom Inc.'s Annual Report (Form 10-K) for the
year ended December 31, 1999, have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report thereon included therein
and incorporated herein by reference. Such consolidated and combined financial
statements are incorporated herein by reference in reliance upon such report
given on the authority of such firm as experts in accounting and auditing.
The consolidated balance sheets of GST Telecommunications, Inc. and
subsidiaries as of December 31, 1999 and 1998, and the related consolidated
statements of operations, shareholders' deficit and cash flows for each of the
years in the two-year period ended December 31, 1999, the three month period
ended December 31, 1997 and for the year ended September 30, 1997 have been
incorporated by reference herein and in the registration statement in reliance
upon the report of KPMG LLP, independent certified public accountants,
incorporated by reference herein, and upon the authority of said firm as
experts in accounting and auditing. The report of KPMG LLP covering the
December 31, 1999, financial statements contains an explanatory paragraph that
states that the accompanying consolidated financial statements have been
prepared assuming the Company will continue as a going concern. As discussed
in note 16(c) and (d) to the consolidated financial statements, on May 17,
2000, the Company filed for protection from its creditors under Chapter 11 of
the U.S. Bankruptcy Laws. Subsequent to this filing, the Company conducted an
auction under the supervision of the U.S. District Court for the District of
Delaware that has resulted in a definitive agreement to sell a substantial
portion of the Company's assets to Time Warner Telecom Inc. These actions
raise substantial doubt about the Company's ability to continue as a going
concern. The consolidated financial statements do not include any adjustments
that might result from the outcome of that uncertainty.
<PAGE>
70
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses in connection with
the sale and distribution of the securities being registered, other than the
underwriting discounts and commissions. All amounts shown are estimates except
for the SEC registration fee.
SEC registration fee.........................................$1,848,000
Printing and engraving expenses..............................$ 300,000
Legal fees and expenses......................................$ 250,000
Accounting fees and expenses.................................$ 150,000
Fees of trustee..............................................$ 20,000
Miscellaneous................................................$ 32,000
-------------
Total...............................................$2,600,000
----------
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article VI of the restated certificate of incorporation of Time Warner
Telecom Inc. (the "Company") provides that to the fullest extent permitted
under the General Corporation Law of the State of Delaware (the "DGCL"), a
director of the Company shall not be personally liable to the Company or its
stockholders for monetary damages for breach of fiduciary duty as a director.
Section 102(b)(7) of the DGCL provides that a corporation may eliminate
or limit the personal liability of a director (or certain persons who,
pursuant to the provisions of the certificate of incorporation, exercise or
perform duties conferred or imposed upon directors by the DGCL) to the
corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, provided that such provision shall not eliminate or limit
the liability of a director:
o for any breach of the director's duty of loyalty to the corporation
or its stockholders;
o for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
o under Section 174 of the DGCL (providing for liability of directors
for unlawful payment of dividends or unlawful stock purchases or
redemptions); or
o for any transaction from which the director derived an improper
personal benefit.
Article VII of the By-laws of the Company provides that to the fullest
extent permitted under the DGCL, the Company will indemnify and hold harmless
any person that was or is made or threatened to be made a party or is
otherwise involved in any action, suit or proceeding by reason of the fact
that such person is or was a director or officer of the Company. Section 145
of the DGCL provides that a corporation may indemnify directors and officers
as well as other employees and individuals against expenses (including
attorneys' fees), judgments, fines, and amounts paid in settlement in
connection with specified actions, suits or proceedings, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the corporation - a "derivative action"), if they acted in good faith
and in a manner they reasonably believed to be in or not opposed to the best
interests of the corporation and, with respect to any
<PAGE>
71
criminal action or proceedings, had no reasonable cause to believe their
conduct was unlawful. A similar standard is applicable in the case of
derivative actions, except that indemnification only extends to expenses
(including attorneys' fees) actually and reasonably incurred in connection
with the defense or settlement of such action, and the statute requires court
approval before there can be any indemnification where the person seeking
indemnification has been found liable to the corporation. The statute provides
that it is not exclusive of other indemnification that may be granted by a
corporation's charter, by-laws, disinterested director vote, stockholder vote,
agreement or otherwise. The Company also has obtained insurance policies which
provide coverage for the Company's directors and officers in certain
situations, including some situations where the Company cannot directly
indemnify the directors of officers.
ITEM 16. EXHIBITS
1.1 Form of Underwriting Agreement for Debt Securities
1.2 Form of Underwriting Agreement for Equity Securities
2* Plan of acquisition (filed as Exhibit 2.1 to the Company's Current Report
on Form 8-K dated September 18, 2000)
4 Form of Indenture
5 Opinion of Cravath, Swaine & Moore
12 Statements re computation of ratios
23.1 Consent of Ernst & Young LLP
23.2 Consent of KPMG LLP
23.3 Consent of Cravath, Swaine & Moore (contained in Exhibit 5)
24 Power of Attorney (included in signature page)
25 Statement of eligibility of Trustee
-----------------------
* incorporated by reference
ITEM 17. UNDERTAKINGS
1. The undersigned Registrant hereby undertakes:
(a) 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.
Notwithstanding the foregoing, any increase or decrease in
volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered)
and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of
prospectus filed with the Securities and Exchange Commission
pursuant to Rule 424(b) under the Securities Act of 1933 if, in
the aggregate, the changes in volume and price represent no
more than a 20% change in the maximum aggregate offering price
set forth in the "Calculation of Registration Fee" table in the
effective registration statement; and
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72
(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;
provided, however, that paragraphs (1)(i) and (1)(ii) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the Registrant pursuant
to Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in the Registration Statement.
(b) That, for the purpose of determining any liability under the
Securities Act, 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.
(c) 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.
2. The undersigned Registrant hereby undertakes that, for the purpose of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act (and, where applicable, each filing of any employee
benefit plan's annual report pursuant to Section 15(d) of the Securities
Exchange Act) that is incorporated by reference in the Registration Statement
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. The undersigned Registrant hereby undertakes that, insofar as
indemnification for liabilities arising under the Securities Act may be
permitted to directors, officers and controlling persons of the Registrant
pursuant to the provisions described in Item 15 (other than the provisions
relating to insurance), or otherwise, the Registrant has been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person in connection with the
securities being registered, the Registrant 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 whether such indemnification by
it is against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
4. The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, the information
omitted from the form of prospectus filed as part of this registration
statement in reliance upon Rule 430A and contained in a form of prospectus
filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the
Securities Act shall be deemed to be part of this registration statement as of
the time it was declared effective.
(b) For the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a
form of prospectus 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.
<PAGE>
73
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Registrant certifies that it has reasonable grounds to believe that it
meets all of the requirements for filing on Form S-3 and has duly caused
Amendment No. 1 to this Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City of Littleton, State of
Colorado, on this 12th day of January, 2001.
TIME WARNER TELECOM INC.
By: /s/ Paul Jones
--------------------------------
Name: Paul Jones
Title: Senior Vice President, General
Counsel & Regulatory Policy
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons on
behalf of the Registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
President and Chief
* Executive Officer and January 12, 2001
----------------------------------
Larissa L. Herda Representative
Senior Vice President
* and Chief Financial January 12, 2001
----------------------------------
David J. Rayner Officer
Vice President,
Accounting and Finance
* and Chief Accounting January 12, 2001
----------------------------------
Jill Stuart Officer
* January 12, 2001
----------------------------------
Glenn A. Britt Director
* January 12, 2001
----------------------------------
Bruce Claflin Director
* January 12, 2001
----------------------------------
Richard J. Davies Director
<PAGE>
74
* January 12, 2001
----------------------------------
Spencer B. Hays Director
* January 12, 2001
----------------------------------
Larissa L. Herda Director
* January 12, 2001
----------------------------------
Lisa Hook Director
* January 12, 2001
----------------------------------
Robert J. Miron Director
*By: January 12, 2001
/s/ Paul Jones
----------------------------------
Attorney-in-fact
<PAGE>
75
EXHIBITS INDEX
The following exhibits are filed as a part of this Registration
Statement.
Exhibit
No. Description of Exhibit
1.1 Form of Underwriting Agreement for Debt
Securities
1.2 Form of Underwriting Agreement for
Equity Securities
2* Plan of acquisition (filed as Exhibit 2.1 to the
Company's Current Report on Form 8-K dated
September 18, 2000)
4 Form of Indenture
5 Opinion of Cravath, Swaine & Moore
12 Statements re computation of ratios
23.1 Consent of Ernst & Young LLP
23.2 Consent of KPMG LLP
23.3 Consent of Cravath, Swaine & Moore (included in
Exhibit 5)
24 Power of Attorney (included in signature page)
25 Statement of eligibility of Trustee
---------------
* incorporated by reference
