<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 1, 1998
REGISTRATION NUMBER 333-48371
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
PRE-EFFECTIVE AMENDMENT NO. 2 TO
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
----------------
FACILICOM INTERNATIONAL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
----------------
DELAWARE 4813 52-1926328
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
INCORPORATION OR
ORGANIZATION)
1401 NEW YORK AVENUE, NW
WASHINGTON, D.C. 20005
(202) 496-1100
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
WALTER J. BURMEISTER
CHIEF EXECUTIVE OFFICER AND PRESIDENT
1401 NEW YORK AVENUE, NW
WASHINGTON, D.C. 20005
(202) 496-1100
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
MORRIS F. DEFEO, JR., ESQ.
SWIDLER & BERLIN, CHARTERED
3000 K STREET, N.W., SUITE 300
WASHINGTON, D.C. 20007
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable after this Registration Statement becomes
effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [_]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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- -------------------------------------------------------------------------------
PROPOSED PROPOSED PROPOSED
TITLE OF AMOUNT MAXIMUM MAXIMUM AMOUNT OF
SECURITIES TO BE TO BE AGGREGATE OFFERING PRICE REGISTRATION
REGISTERED REGISTERED OFFERING PRICE PER NOTE(1) FEE(2)
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
10 1/2% Series B Senior
Notes due 2008........ 300,000 $300,000,000 $1,000 $88,500
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- -------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee in
accordance with Rule 457(f) under the Securities Act of 1933, as amended.
(2) Previously paid.
----------------
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 THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, APPLICATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS Subject to Completion, dated May 1, 1998
[LOGO OF FCI APPEARS HERE]
FACILICOM INTERNATIONAL, INC.
OFFER TO EXCHANGE
10 1/2% SERIES B SENIOR NOTES DUE 2008
FOR ANY AND ALL
10 1/2% SENIOR NOTES DUE 2008
($300,000,000 AGGREGATE PRINCIPAL AMOUNT OUTSTANDING)
-----------
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK
CITY TIME, ON . , 1998, UNLESS EXTENDED
SEE "RISK FACTORS" ON PAGE 17, IMMEDIATELY FOLLOWING THE PROSPECTUS
SUMMARY, FOR A DISCUSSION OF CERTAIN INFORMATION THAT SHOULD BE
CONSIDERED IN CONNECTION WITH THE EXCHANGE OFFER AND AN INVESTMENT
IN THE EXCHANGE NOTES.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
-----------
THE DATE OF THIS PROSPECTUS IS . , 1998
FaciliCom International, Inc., a Delaware corporation (the "Company" or
"FCI"), hereby offers, upon the terms and subject to the conditions set forth
in this Prospectus and the accompanying Letter of Transmittal (which together
constitute the "Exchange Offer"), to exchange up to $300,000,000 aggregate
principal amount of its 10 1/2% Series B Senior Notes due 2008 (the "Exchange
Notes") for up to $300,000,000 aggregate principal amount of its 10 1/2% Senior
Notes due 2008 (the "Old Notes" and together with the Exchange Notes, the
"Notes"). As of the date of this Prospectus, there was $300,000,000 aggregate
principal amount of the Old Notes outstanding. The terms of the Exchange Notes
are identical in all material respects to those of the Old Notes, except that
(i) the Exchange Notes have been registered under the Securities Act of 1933,
as amended (the "Securities Act"), and, therefore, will not bear legends
restricting their transfer and (ii) the holders of the Exchange Notes will not
be entitled to certain rights under the Registration Rights Agreement (as
defined herein), including the terms providing for an increase in the interest
rate on the Old Notes under certain circumstances relating to the timing of the
Exchange Offer, all of which rights will terminate when the Exchange Offer is
consummated. See "The Exchange Offer--Purposes and Effects of the Exchange
Offer."
Based on an interpretation by the Securities and Exchange Commission (the
"Commission") set forth in no-action letters issued to Exxon Capital Holdings
Corp. (available April 13, 1988) and Morgan Stanley & Co. Inc. (available June
5, 1991), among others. The Company believes that the Exchange Notes issued
pursuant to the Exchange Offer in exchange for Old Notes may be offered for
resale, resold and otherwise transferred by a holder thereof (other than (i) a
broker-dealer who purchases such Exchange Notes directly from the Company to
resell pursuant to Rule 144A under the Securities Act or any other available
exemption under the Securities Act or (ii) a person that is an affiliate (as
defined in Rule 405 under the Securities Act) of the Company), without
compliance with the registration and prospectus delivery provisions of the
Securities Act, provided that the holder is acquiring the Exchange Notes in the
ordinary course of its business and is not participating, and has no
arrangement or understanding with any person to participate, in the
distribution of the Exchange Notes. Eligible holders wishing to accept the
Exchange Offer must represent to the Company that such conditions have been
<PAGE>
met. Each broker-dealer that receives the Exchange Notes for its own account
in exchange for the Old Notes, where such Old Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such Exchange Notes. The Letter of Transmittal states that
by so acknowledging and by delivering a prospectus, a broker-dealer will not
be deemed to admit that it is an "underwriter" within the meaning of the
Securities Act. This Prospectus, as it may be amended or supplemented from
time to time, may be used by a broker-dealer in connection with resales of
Exchange Notes received in exchange for Old Notes where such Old Notes were
acquired by such broker-dealer as a result of market-making activity or other
trading activities. The Company has agreed that, for a period of 180 days
after the Expiration Date (as defined herein), it will make this Prospectus
available to any broker-dealer for use in connection with any such resale. See
"Plan of Distribution."
Interest on the Exchange Notes will be payable semiannually in arrears on
January 15 and July 15 of each year, commencing on July 15, 1998. Holders of
the Exchange Notes will receive interest from the date of initial issuance of
the Exchange Notes, plus an amount equal to the accrued interest on the Old
Notes from the later of (i) the most recent date to which interest has been
paid thereon or (ii) the date of issuance of the Old Notes, to the date of
exchange thereof.
The Notes will be redeemable at the option of the Company, in whole or in
part, at any time on or after January 15, 2003, at the redemption prices set
forth herein plus accrued and unpaid interest and Liquidated Damages (as
defined), if any, thereon to the date of redemption. In addition, at any time
prior to January 15, 2001, the Company may redeem from time to time up to
35.0% of the originally issued aggregate principal amount of the Notes at the
redemption price set forth herein plus accrued and unpaid interest and
Liquidated Damages, if any, to the date of redemption with the Net Cash
Proceeds (as defined) of one or more Public Equity Offerings (as defined);
provided that at least 65.0% of the originally issued aggregate principal
amount of the Notes remains outstanding after such redemption. In the event of
a Change in Control (as defined), each holder of the Notes will have the right
to require the Company to purchase all or any part of such holder's Notes at a
purchase price in cash equal to 101.0% of the aggregate principal amount
thereof, plus accrued and unpaid interest and Liquidated Damages, if any, to
the date of purchase. There can be no assurance that the Company will be able
to fund these repurchase obligations in the event of a Change in Control.
The Notes will be unsecured obligations of the Company, will rank senior in
right of payment to any existing and future obligations of the Company
expressly subordinated in right of payment to the Notes and pari passu in
right of payment with all other existing and future unsecured and
unsubordinated obligations of the Company. As of December 31, 1997, after
giving pro forma effect to the offering of the Old Notes and the application
of the net proceeds thereof, the Company would have had approximately $304.3
million of Indebtedness (as defined). Because the Company is a holding company
that conducts its business through its subsidiaries, all existing and future
Indebtedness and other liabilities and commitments of the Company's
subsidiaries, including trade payables, will be effectively senior to the
Notes, and the Company's subsidiaries will not be guarantors of the Notes. As
of December 31, 1997, the Company's consolidated subsidiaries had aggregate
liabilities of $60.5 million, which included $21.2 million of Indebtedness.
See "Capitalization."
The Exchange Offer is not conditioned on any minimum aggregate principal
amount of Old Notes being tendered for exchange. The Company will accept for
exchange any and all validly tendered Old Notes not withdrawn prior to 5:00
p.m., New York City time, on . , 1998 unless extended by the Company (the
"Expiration Date"). The Company can, in its sole discretion, extend the
Exchange Offer indefinitely, subject to the Company's obligation to pay
Liquidated Damages if the Exchange Offer is not consummated by . , 1998 and,
under certain circumstances, file a shelf registration statement with respect
to the Old Notes. Tenders of Old Notes may be withdrawn at any time prior to
the Expiration Date. The Exchange Offer is subject to certain customary
conditions. See "The Exchange Offer--Conditions to Exchange Offer." The
Company has agreed to pay all expenses incident to the Exchange Offer. The
Company will not receive any proceeds from the Exchange Offer.
The Notes are new securities for which there currently is no market. The
Company does not intend to apply for listing of the Exchange Notes on any
securities exchange or for quotation through the Nasdaq National Market
("Nasdaq"). Although the Initial Purchasers (as defined herein) have informed
the Company that they
2
<PAGE>
currently intend to make a market in the Notes, they are not obligated to do
so and any such market-making may be discontinued at any time without notice.
In addition, such market-making activity may be limited during the pendency of
the Exchange Offer or the effectiveness of a shelf registration statement in
lieu thereof. Accordingly, there can be no assurance as to the development or
liquidity of any market for the Notes.
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE COMPANY ACCEPT
SURRENDERS FOR EXCHANGE FROM, HOLDERS OF OLD NOTES IN ANY JURISDICTION IN
WHICH THE EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE
WITH THE SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTION.
3
<PAGE>
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-4 (the "Exchange Offer Registration Statement") under the Securities Act
with respect to the Exchange Notes being offered by this Prospectus. This
Prospectus does not contain all the information set forth in the Exchange
Offer Registration Statement and the exhibits and schedules thereto, certain
portions of which have been omitted pursuant to the rules and regulations of
the Commission. Statements made in this Prospectus as to the contents of any
contract, agreement or other document are not necessarily complete. With
respect to each such contract, agreement or other document filed or
incorporated by reference as an exhibit to the Exchange Offer Registration
Statement, reference is made to such exhibit for a more complete description
of the matter involved, and each such statement is qualified by such
reference.
The Company has agreed to file with the Commission, to the extent permitted,
and distribute to holders of the Exchange Notes reports, information and
documents specified in Sections 13(a) and 15(d) of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), so long as the Exchange Notes are
outstanding, whether or not the Company is subject to such informational
requirements of the Exchange Act.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Prospectus contains certain forward-looking statements and information
relating to the Company that is based on the beliefs of the Management of the
Company, as well as assumptions made by and information currently available to
the Management of the Company. When used in this Prospectus, the words
"estimate," "project," "believe," "anticipate," "intend," "expect" and similar
expressions are intended to identify forward-looking statements. Such
statements reflect the current views of the Company with respect to future
events and are subject to risks and uncertainties that could cause actual
results to differ materially from those contemplated in such forward-looking
statements, including those discussed under "Risk Factors." Readers are
cautioned not to place undue reliance on these forward-looking statements,
which speak only as of the date hereof. The Company does not undertake any
obligation to publicly release any revisions to these forward-looking
statements to reflect events or circumstances after the date hereof or to
reflect the occurrence of unanticipated events.
4
<PAGE>
PROSPECTUS SUMMARY
The following summary should be read in conjunction with, and is qualified in
its entirety by, the more detailed information, including risk factors, and the
financial statements (including the notes thereto) appearing elsewhere in this
Prospectus. References in this Prospectus to the "Company" and "FCI" refer to
FaciliCom International, Inc. and its subsidiaries, and give effect to the
Recapitalization (as defined below) of FaciliCom International, L.L.C. as a
Delaware corporation on December 22, 1997, except where the context otherwise
requires.
THE COMPANY
FCI is a rapidly growing multinational carrier focused on providing
international wholesale telecommunications services to other carriers
worldwide. FCI provides these services over a carrier-grade international
network consisting of five international gateway switches in the U.S., Sweden,
Denmark and the U.K., as well as transmission capacity owned and leased on a
fixed-cost basis that connects its switches in the U.S. and Europe. FCI's
network and its operating agreements with traditional incumbent carriers
("PTTs") enable it to offer high quality services to its carrier customers at
competitive rates. In addition to wholesale services, as of December 31, 1997,
FCI provided domestic and international long distance services on its network
to 16,015 retail customers in Sweden through its Swedish subsidiary, Nordiska
Tele8 AB ("Tele8"). FCI believes that its multinational, facilities-based
approach and its established carrier status in Europe through Tele8 provide it
with significant competitive advantages including control over transmission
quality and reduced termination and network costs, as well as high quality
local sales and customer service. FCI, founded in May 1995, reported
consolidated revenues for the three months ended December 31, 1997, and for the
fiscal year ended September 30, 1997, of $35.8 million and $70.2 million,
respectively, and net loss of ($5.3) million and ($14.0) million, respectively.
FCI was founded to capitalize on opportunities that have developed for
facilities-based carriers as a result of (i) the increasing demand for
international telecommunications services worldwide, (ii) the rapid pace of
deregulation of the approximately $61 billion international telecommunications
market and (iii) the erosion of the international Accounting Rate Mechanism
("ARM"). Demand for international telecommunications services is expected to
increase as a result of a number of factors, including worldwide economic
growth, global deregulation, technological advancements and the introduction of
new services. FCI believes that, as in the U.S., deregulation in Europe, Latin
America, Asia and the Pacific Rim will accelerate demand for international
telecommunications services and lead to the establishment of new carriers in
these markets. FCI believes that it is well positioned to capture international
traffic from established and emerging carriers seeking carrier-grade network
quality, competitively priced network services and flexible, responsive
technical support and customer service.
The Company's target customer base consists primarily of PTTs and other
first-tier carriers, emerging carriers and wireless carriers with international
traffic. PTTs and other first-tier carriers generally have their own
international networks, but will use carriers such as FCI for overflow traffic
and least-cost routing. Emerging carriers and wireless carriers constitute
rapidly growing industry segments that generally rely on PTTs and wholesale
carriers such as the Company to provide international connectivity. As of
December 31, 1997, the Company provided service to 77 carriers, including nine
of the ten largest U.S. carriers (based on outbound international traffic),
three wireless carriers and nine multinational carriers that originate traffic
in more than one of the Company's existing markets.
To offer high quality international services and to control its termination
and network costs, FCI seeks to invest in undersea fiber optic cable systems
and international gateway switches in locations and on routes where customer
demand justifies such fixed asset investments. As of December 31, 1997, FCI had
implemented an international network comprising (i) three NorTel and two
Ericsson international gateway switches located in New York City; Jersey City,
New Jersey; Malmo, Sweden; Copenhagen and London; (ii) owned and leased
5
<PAGE>
capacity in seven undersea fiber optic cable systems connecting the Company's
international gateway switches in the U.S. and Europe: CANTAT-3, CANUS-1, TAT
12/13, Kattegatt, Odin, the Fiber-optic Link Around the Globe ("FLAG") and DKS-
18; and (iii) points of presence ("PoPs") in three U.S. and two European cities
for origination and termination of international traffic. During 1998, the
Company plans to install 13 additional switches in Australia, Austria, Belgium,
France, Germany, Italy, Japan, the Netherlands, Norway, Spain, Switzerland and
the U.S. (Los Angeles and Miami). In addition, the Company plans to invest in
fiber optic transmission capacity connecting North America, Europe, Latin
America, Asia and the Pacific Rim, including the Trans Pacific Cable ("TPC-5"),
Americas-1, Gemini, APCN(A) and Southern Cross fiber optic cables, and to
acquire additional capacity in the FLAG system during 1998. FCI had invested
$29.7 million in network facilities as of December 31, 1997, and plans to
invest an additional $150.0 million during the next two calendar years.
FCI currently has operating agreements with 18 foreign carriers, 15 of which
are the PTTs in their respective countries. The Company's operating agreements
permit it to terminate traffic directed to correspondent carriers in these
countries and provide for the Company to receive return traffic. For the three
months ended December 31, 1997 and for the fiscal year ended September 30,
1997, return traffic generated under such operating agreements accounted for
approximately 1.2% and 2.3%, respectively, of consolidated revenues. The
Company is currently negotiating additional operating agreements with carriers
in Europe, Latin America, Asia and the Pacific Rim.
STRATEGY
FCI's objective is to become a leading provider of high quality,
competitively priced, dedicated and switched wholesale international
telecommunications services to established and emerging carriers worldwide. To
achieve this objective, the Company intends to continue to expand its carrier-
grade international network and to offer competitively priced network services
comparable in quality to that of major PTTs and first-tier carriers while
providing highly responsive technical support and customer service. The key
elements of the Company's strategy are as follows:
. Increase multinational presence. FCI seeks to expand its operations by
cultivating relationships with PTTs in strategic locations worldwide and
establishing operations in markets with significant international
traffic as soon as deregulation enables facilities-based carriers to
enter such markets. The Company believes that its ability to originate
traffic from multiple markets will allow it to benefit from the
relatively high growth of non-U.S. originated traffic, to serve
multinational carriers and to optimize the use of its facilities. As
part of its business strategy, the Company may enter into strategic
alliances with, acquire assets or businesses from, or invest in,
companies that are complementary to its current operations. The Company
has a dedicated Business Development Group which focuses on developing
relationships with correspondent carriers and which facilitates new
market entry.
. Expand carrier-grade international infrastructure. FCI intends to expand
its carrier-grade international network. The Company uses switches
similar to those used by first-tier carriers and PTTs, and continues to
implement advanced features, such as asynchronous transfer mode ("ATM")
technology, which will permit the Company to transmit voice and data
services over a single platform. The Company believes that increasing
the percentage of minutes of traffic it carries end-to-end over its
facilities and international transmission capacity owned or leased on a
fixed-cost basis ("on-net") will enable it to increase margins and
profitability and ensure quality of service. By the end of 1998, the
Company expects to have such on-net capability on 25 of the top 50
international traffic routes and facilities in countries representing
over 60.0% of total international traffic.
. Focus on wholesale market. FCI's customer base consists primarily of
established and emerging competitive carriers and PTTs that purchase the
Company's services on a wholesale basis. The Company believes that the
wholesale telecommunications market will offer significant growth
opportunities as traditional international traffic settlement mechanisms
are replaced by competitive
6
<PAGE>
cost-based systems. In addition, liberalization of telecommunications
markets worldwide is expected to lead to the establishment of new
carriers and resellers that require high quality international
connectivity at competitive rates. FCI believes that its wholesale
strategy enables it to generate the high traffic volumes required to
justify investments in network infrastructure, while controlling
selling, general and administrative expenses.
. Continue to leverage Tele8 status. Tele8's status as an established
carrier in Sweden has enabled FCI to enter into operating agreements
with a number of major European PTTs. The Company intends to continue to
leverage Tele8's carrier status and brand name to negotiate additional
operating agreements, acquire additional customers and obtain
preferential pricing on leased fiber and satellite transmission capacity
worldwide.
. Maintain efficient operations and low cost base. The Company seeks to
maintain efficient operations and a low cost base through a disciplined
incremental approach to investments in fixed assets, strict control over
selling, general and administrative expenses and the operation of a
centralized, highly efficient network control center for its global
network, which enable the Company to be price competitive.
MANAGEMENT
The seven members of the Company's senior management have over 140 years of
combined experience in the telecommunications industry. The breadth of
experience of FCI's management team has enabled it to establish correspondent
relationships, obtain customers and attract skilled management personnel.
Walter Burmeister, co-founder, Chief Executive Officer and President of the
Company, has over 36 years of experience in the industry, including serving as
Vice President and Chief Financial Officer of Bell Atlantic International.
Anand Kumar, co-founder and Executive Vice President of Business Development
of the Company, has more than 30 years of experience with Washington
International Teleport, GTE Corp. ("GTE") and AT&T Corp. ("AT&T"). Jeffrey
Guzy, co-founder and Executive Vice President of Marketing, Sales & Product
Development of the Company, has more than 13 years of experience with
telecommunications and technology companies, including Interferometrics,
Sprint Communications, Inc. ("Sprint"), Bell Atlantic Corp. ("Bell Atlantic")
and Overseas Telecommunications Inc. Christopher King, the Company's Chief
Financial Officer and Vice President of Finance and Administration, has more
than 10 years of finance experience with Bell Atlantic. Donald Dodd, the
Company's Managing Director of Operations & Engineering, has over 40 years of
experience with telecommunications companies, including Tekelec Incorporated,
Bell Atlantic and Northern Telecom. Peter Gardener, the Managing Director of
the Company's U.K. subsidiary, has more than 20 years of experience in the
industry, including working as a management consultant with Commslogic for 10
years.
RECENT DEVELOPMENTS
On December 22, 1997, the Company and its stockholders, Armstrong
International Telecommunications, Inc. ("AIT"), a subsidiary of Armstrong
Holdings, Inc. ("Armstrong"), and FCI Management Group, a Pennsylvania general
partnership ("FMG"), effected a reorganization to convert their ownership
interests in the Company from limited liability company interests to shares in
a corporation. AIT and FMG contributed their membership interests in FaciliCom
International, L.L.C. ("FCI LLC") to the Company in exchange for all of the
outstanding shares of the Company's common stock on a pro rata basis (the
"Reorganization"). As a result of the Reorganization, FCI LLC is a wholly
owned subsidiary of the Company. Concurrently, AIT invested an additional
$20.0 million in the Company in exchange for an additional equity interest
(the "Equity Investment" and together with the Reorganization, the
"Recapitalization") by contributing cash and canceling indebtedness. Giving
effect to the Recapitalization, AIT and FMG own 84% and 16% of the outstanding
stock of the Company. See "Certain Relationships and Related Transactions."
On January 28, 1998, the Company issued $300,000,000 aggregate principal
amount of Old Notes pursuant to an Indenture (as defined herein). Interest on
the Old Notes is payable semiannually in arrears on January 15 and July 15 of
each year, commencing on July 15, 1998.
7
<PAGE>
The Old Notes are redeemable at the option of the Company in whole or in part
at any time on or after January 15, 2003, at specified redemption prices plus
accrued and unpaid interest and Liquidated Damages (as defined in the
Indenture), if any, thereon to the date of redemption. In addition, at any time
prior to January 15, 2001, the Company may redeem from time to time up to 35.0%
of the originally issued aggregate principal amount of the Notes at the
specified redemption prices plus accrued interest and Liquidated Damages, if
any, to the date of redemption with the Net Cash Proceeds (as defined in the
Indenture) of one or more Public Equity Offerings (as defined in the
Indenture); provided that at least 65.0% of the originally issued aggregate
principal amount of the Notes remains outstanding after such redemption. In the
event of a Change in Control (as defined in the Indenture), each holder of the
Notes has the right to require the Company to purchase all or any of such
holder's Old Notes at a purchase price in cash equal to 101.0% of the aggregate
principal amount thereof, plus accrued and unpaid interest and Liquidated
Damages, if any, to the date of purchase.
The Company used approximately $86.5 million of the proceeds from the
offering of the Old Notes to purchase a portfolio of Pledged Securities (as
defined in the Indenture) consisting of U.S. Governmental Obligations (as
defined in the Indenture), which are pledged as security and restricted for the
first six scheduled interest payments on the Notes. In addition, approximately
$16.9 million of existing indebtedness was paid off with the proceeds from the
offering of the Old Notes.
The Old Notes are unsecured obligations of the Company, rank senior in right
of payment to any existing and future obligations of the Company expressly
subordinated in right of payment to the Old Notes and will be pari passu in
right of payment with all other existing and future unsecured and
unsubordinated obligations of the Company.
The Notes require maintenance of certain financial and nonfinancial
covenants, including limitations on additional indebtedness, restricted
payments (including dividends), transactions with affiliates, liens and asset
sales. See "Description of Notes--Covenants."
On March 31, 1998, the Company's Board of Directors approved an amendment to
the Company's Certificate of Incorporation to create a new class of non-voting
common stock, and adopted the FaciliCom International, Inc. 1998 Stock Option
Plan (the "1998 Stock Option Plan"). The Stock Option Plan provides for the
grant of options to purchase shares of the Company's non-voting common stock to
certain directors, officers, key employees and advisors of the Company. Also on
March 31, 1998, all of the phantom shares previously granted to employees and
directors of the Company under the FaciliCom International, Inc. 1997 Phantom
Stock Rights Plan (the "Phantom Stock Plan") were converted to options under
the 1998 Stock Option Plan, and the Company granted additional options to
purchase 6,498 shares of non-voting stock to employees, directors and advisors
under the 1998 Stock Option Plan. The option grants will result in a charge to
operations for the three months ended March 31, 1998. While the amount of the
actual charge will be determined only after the Company has obtained a
valuation of the Company, management believes that such charge will be material
to results of operations.
On April 27, 1998, the Company entered into an agreement to purchase 100% of
the issued and outstanding capital stock of Oy Teleykkanen AB ("Tele 1"), a
corporation formed under the laws of Finland, for $4.0 million in cash. Tele 1
is a Finnish provider of local and long distance international
telecommunication services and has a carrier agreement to exchange customer
traffic with Telecom Finland, the dominant carrier in Finland.
----------------
The Company's headquarters are located at 1401 New York Avenue, NW,
Washington, D.C. 20005 and its telephone number is (202) 496-1100.
8
<PAGE>
SUMMARY OF THE TERMS OF THE EXCHANGE OFFER
The Exchange Offer.......... The Company is offering to exchange up to
$300,000,000 aggregate principal amount of
Exchange Notes for up to $300,000,000 aggregate
principal amount of Old Notes that are properly
tendered and accepted. The Company will issue
Exchange Notes on or promptly after the
Expiration Date. The terms of the Exchange Notes
are substantially identical in all respects to
the terms of the Old Notes for which they may be
exchanged pursuant to the Exchange Offer, except
that (i) the Exchange Notes are freely
transferable by holders thereof (other than as
provided herein), and are not subject to any
covenant restricting transfer absent registration
under the Securities Act and (ii) the holders of
the Exchange Notes will not be entitled to
certain rights under the Registration Rights
Agreement, including the terms providing for an
increase in the interest rate on the Old Notes
under certain circumstances relating to the
timing of the Exchange Offer, all of which rights
will terminate when the Exchange Offer is
consummated. See "The Exchange Offer." The
Exchange Offer is not conditioned upon any
minimum aggregate principal amount of Old Notes
being tendered for exchange.
Based on an interpretation by the Commission set
forth in no-action letters issued to third
parties, the Company believes that the Exchange
Notes issued pursuant to the Exchange Offer in
exchange for Old Notes may be offered for resale,
resold and otherwise transferred by a holder
thereof (other than (i) a broker-dealer who
purchases such Exchange Notes directly from the
Company to resell pursuant to Rule 144A under the
Securities Act or any other available exemption
under the Securities Act or (ii) a person that is
an affiliate (as defined in Rule 405 under the
Securities Act) of the Company), without
compliance with the registration and prospectus
delivery provisions of the Securities Act,
provided that the holder is acquiring the
Exchange Notes in the ordinary course of its
business and is not participating, and has no
arrangement or understanding with any person to
participate, in the distribution of the Exchange
Notes. Each broker-dealer that receives the
Exchange Notes for its own account in exchange
for the Old Notes, where such Old Notes were
acquired by such broker-dealer as a result of
market-making activities or other trading
activities, must acknowledge that it will deliver
a prospectus in connection with any resale of
such Exchange Notes. The Company has agreed that
for a period of 180 days after the Expiration
Date, it will make this Prospectus available to
any broker-dealer for use in connection with any
such resale. See "Plan of Distribution."
Registration Rights......... The Old Notes were issued in transactions exempt
from the registration requirements of the
Securities Act by the Company on January 28, 1998
to Lehman Brothers Inc. and BT Alex. Brown
Incorporated (the "Initial Purchasers") pursuant
to a purchase
9
<PAGE>
agreement dated as of January 23, 1998 by and
among the Company and the Initial Purchasers (the
"Purchase Agreement"). The Initial Purchasers
subsequently sold the Old Notes to (a) qualified
institutional buyers in reliance on Rule 144A
under the Securities Act and (b) outside the U.S.
to certain persons in reliance on Regulation S
under the Securities Act. In connection
therewith, the Company executed and delivered for
the benefit of the holders of the Notes a
registration rights agreement (the "Registration
Rights Agreement") which grants the holders of
the Old Notes certain exchange and registration
rights. Pursuant to the Registration Rights
Agreement, the Company is obligated to (i) file
the Exchange Offer Registration Statement with
the Commission with respect to the Exchange Offer
on or prior to 60 days after January 28, 1998
("the Closing Date"), (ii) use its reasonable
best efforts to cause the Exchange Offer
Registration Statement to be declared effective
by the Commission within 120 days after the
Closing Date, (iii) file all necessary amendments
to the Exchange Offer Registration Statement and
make other necessary filings pursuant to state
securities laws to permit consummation of the
Exchange Offer and (iv) use its reasonable best
efforts to cause the Exchange Offer to be
consummated on or prior to 30 days after the date
on which the Exchange Offer Registration
Statement is declared effective by the
Commission. In the event that applicable law or
Commission policy do not permit the Company to
effect the Exchange Offer, the Exchange Offer is
not consummated by June 1, 1998, or certain
holders of the Old Notes notify the Company they
are not permitted to participate in, or would not
receive freely tradable Exchange Notes pursuant
to, the Exchange Offer, the Company will use its
reasonable best efforts to cause to be declared
effective a registration statement (the "Shelf
Registration Statement") with respect to resale
of the Old Notes on or prior to the 120th day
after such obligation arises and to keep the
Shelf Registration Statement continuously
effective until up to two years after the date on
which the Old Notes were sold. If the Company
fails to satisfy these registration obligations,
it will be required to pay Liquidated Damages (as
defined herein) to the holders of the Notes under
certain circumstances. The holders of the
Exchange Notes are not entitled to any exchange
or registration rights with respect to the
Exchange Notes, except as described herein.
Holders of Old Notes do not have any appraisal or
dissenters' rights under the Indenture in
connection with the Exchange Offer. See "The
Exchange Offer--Purposes and Effects of the
Exchange Offer."
Expiration Date............. The Exchange Offer will expire at 5:00 p.m., New
York City time, on . , 1998, unless the Exchange
Offer is extended, in which case the term
"Expiration Date" means the date and time to
which the Exchange Offer is extended.
Conditions to the Exchange
Offer...................... The Exchange Offer is subject to certain
customary conditions, which may be waived by the
Company. See "The Exchange Offer--Conditions to
Exchange Offer." The Company reserves the right
to terminate or amend the Exchange Offer at any
time prior to the Expiration Date upon the
occurrence of any such conditions.
10
<PAGE>
Procedures for Tendering
Old Notes.................. Each holder of Old Notes wishing to accept the
Exchange Offer must complete, sign and date the
Letter of Transmittal, or a facsimile thereof, in
accordance with the instructions contained herein
and therein, and mail or otherwise deliver such
Letter of Transmittal, or such facsimile,
together with the Old Notes and any other
required documentation to the exchange agent (the
"Exchange Agent") at the address set forth
herein. Old Notes may be physically delivered,
but physical delivery is not required if a
confirmation of a book-entry transfer of such Old
Notes to the Exchange Agent's account at the
Depository Trust Company ("DTC" or the
"Depository") is delivered in a timely fashion.
By executing the Letter of Transmittal, each
holder will represent to the Company, among other
things, that (i) the Exchange Notes acquired
pursuant to the Exchange Offer by the holder and
any beneficial owners of Old Notes are being
obtained in the ordinary course of business of
the person receiving such Exchange Notes, (ii)
neither the holder nor such beneficial owner is
participating in, intends to participate in or
has an arrangement or understanding with any
person to participate in the distribution of such
Exchange Notes and (iii) neither the holder nor
such beneficial owner is an "affiliate," as
defined under Rule 405 of the Securities Act, of
the Company. Each broker-dealer that receives
Exchange Notes for its own account in exchange
for Old Notes, where such Old Notes were acquired
by such broker or dealer as a result of market-
making activities or other trading activities
(other than Old Notes acquired directly from the
Company), may participate in the Exchange Offer
but may be deemed an "underwriter" under the
Securities Act and, therefore, must acknowledge
in the Letter of Transmittal that it will deliver
a prospectus in connection with any resale of
such Exchange Notes. The Letter of Transmittal
states that by so acknowledging and by delivering
a prospectus, a broker or dealer will not be
deemed to admit that it is an "underwriter"
within the meaning of the Securities Act. See
"The Exchange Offer--Procedures for Tendering"
and "Plan of Distribution."
Interest on the Exchange
Notes...................... The Exchange Notes will bear interest at the rate
of 10 1/2% per annum, payable semiannually in
arrears on January 15 and July 15 of each year,
commencing on July 15, 1998. Holders of the
Exchange Notes will receive interest from the
date of initial issuance of the Exchange Notes,
plus an amount equal to the accrued interest on
the Old Notes from the later of (i) the most
recent date to which interest has been paid
thereon and (ii) the date of issuance of the Old
Notes, to the date of exchange thereof.
Special Procedures for
Beneficial Owners.......... Any beneficial owner whose Old Notes are
registered in the name of a broker, dealer,
commercial bank, trust company or other nominee
and who wishes to tender should contact such
registered holder promptly and instruct such
registered holder to tender on such beneficial
owner's behalf. If such beneficial owner wishes
to tender on such owner's own behalf, such owner
must, prior to completing and executing the
Letter of Transmittal and delivering his Old
Notes, either make appropriate arrangements to
register ownership of the Old Notes in such
owner's name or obtain a properly completed bond
power from the registered holder. The
11
<PAGE>
transfer of registered ownership may take
considerable time and may not be completed prior
to the Expiration Date. See "The Exchange Offer--
Procedures for Tendering."
Guaranteed Delivery
Procedures................. Holders of Old Notes who wish to tender their Old
Notes and whose Old Notes are not immediately
available or who cannot deliver their Old Notes,
the Letter of Transmittal or any other documents
required by the Letter of Transmittal to the
Exchange Agent prior to the Expiration Date must
tender their Old Notes according to the
guaranteed delivery procedures set forth in "The
Exchange Offer--Guaranteed Delivery Procedures."
Acceptance of the Old Notes
and Delivery of the
Exchange Notes............. Subject to the satisfaction or waiver of the
conditions to the Exchange Offer, the Company
will accept for exchange any and all Old Notes
which are properly tendered in the Exchange Offer
prior to the Expiration Date.
Withdrawal Rights........... Tenders may be withdrawn at any time prior to
5:00 p.m., New York City time, on the Expiration
Date. See "The Exchange Offer--Withdrawal of
Tenders."
U.S. Federal Income Tax
Considerations............. The exchange of Old Notes for Exchange Notes by
tendering holders should not be a taxable
exchange for U.S. federal income tax purposes,
and such holders should not recognize any taxable
gain or loss or any interest income for U.S.
federal income tax purposes as a result of such
exchange. See "Certain United States Federal
Income Tax Considerations."
Use of the Proceeds......... There will be no proceeds to the Company from the
exchange pursuant to the Exchange Offer.
Effect on Holders of Old
Notes...................... As a result of making this Exchange Offer, and
upon acceptance for exchange of all validly
tendered Old Notes pursuant to the terms of this
Exchange Offer, the Company will have fulfilled a
covenant contained in the terms of the Old Notes
and the Registration Rights Agreement and,
accordingly, a holder of the Old Notes will have
no further registration or other rights under the
Registration Rights Agreement, except under
certain limited circumstances. Holders of the Old
Notes who do not tender their Notes in the
Exchange Offer will continue to hold such Old
Notes and will be entitled to all the rights and
limitations applicable thereto under the
Indenture. All untendered, and tendered, but
unaccepted, Old Notes will continue to be subject
to the restrictions on transfer provided for in
the Old Notes and the Indenture. To the extent
that Old Notes are tendered and accepted in the
Exchange Offer, the trading market, if any, for
the Old Notes not so tendered could be adversely
affected. See "Risk Factors--Consequences of
Failure to Exchange."
Exchange Agent.............. State Street Bank and Trust Company is serving as
Exchange Agent in connection with the Exchange
Offer. The address and telephone number of the
Exchange Agent are set forth in "The Exchange
Offer--Exchange Agent."
12
<PAGE>
THE NOTES
The Exchange Offer applies to $300,000,000 aggregate principal amount of Old
Notes. The terms of the Exchange Notes are identical in all material respects
to the Old Notes, except that the Exchange Notes have been registered under the
Securities Act and, therefore, will not bear legends restricting their transfer
and the holders of the Exchange Notes will not be entitled to certain rights
under the Registration Rights Agreement, including the terms providing for an
increase in the interest rate on the Old Notes under certain circumstances
relating to the timing of the Exchange Offer, all of which rights will
terminate when the Exchange Offer is consummated. The Exchange Notes will
evidence the same debt as the Old Notes and will be entitled to the benefits of
the Indenture, under which both the Old Notes were, and the Exchange Notes will
be, issued. See "Description of Notes."
Issue....................... $300,000,000 aggregate principal amount of 10
1/2% Series B Senior Notes due 2008.
Maturity Date............... January 15, 2008.
Interest Payment Dates...... January 15 and July 15, commencing on July 15,
1998.
Security.................... The Indenture requires the Company to purchase
and pledge to the Trustee, as security for the
benefit of the holders of the Notes, the Pledged
Securities in such amount as will be sufficient
upon receipt of scheduled interest and/or
principal payments of such securities to provide
for the payment in full of the first six
scheduled interest payments due on the Notes. The
Company used approximately $86.5 million of the
net proceeds of the offering of the Old Notes to
acquire the Pledged Securities. Under the Pledge
Agreement, assuming that the Company makes the
first six scheduled interest payments on the
Notes in a timely manner, any remaining Pledged
Securities will be released to the Company from
the Pledge Account and the Notes will be
unsecured. See "Description of Notes--Security."
Ranking..................... The Indebtedness evidenced by the Notes will be
unsecured (except as described) obligations of
the Company, will rank senior in right of payment
to any existing and future obligations of the
Company expressly subordinated in right of
payment to the Notes and will be pari passu in
right of payment with all other existing and
future unsecured and unsubordinated obligations
of the Company, including trade payables. As of
December 31, 1997, after giving pro forma effect
to the offering of the Old Notes and the
application of the net proceeds thereof, the
Company would have had approximately $304.3
million of Indebtedness. Because the Company is a
holding company that conducts its business
through its subsidiaries, all existing and future
Indebtedness and other liabilities and
commitments of the Company's subsidiaries,
including trade payables, will be effectively
senior to the Notes. The Company's subsidiaries
will not be guarantors of the Notes. The
Indenture limits, but does not prohibit, the
incurrence of certain additional Indebtedness by
the Company and its Restricted Subsidiaries and
does not limit the amount of Indebtedness
Incurred (as defined herein) to finance the cost
of Telecommunications Assets (as defined herein).
As of December 31, 1997, the Company's
consolidated subsidiaries had aggregate
liabilities of $60.5 million, which includes
$21.2 million of Indebtedness.
13
<PAGE>
Absence of Public Trading
Market for the Exchange
Notes...................... There is no public market for the Exchange Notes
and the Company does not intend to apply for
listing of the Exchange Notes on any national
securities exchange or for quotation of the
Exchange Notes through Nasdaq. Although the
Initial Purchasers have informed the Company that
they currently intend to make a market in the
Notes, they are not obligated to do so and any
such market-making may be discontinued at any
time without notice. In addition, such market-
making activity may be limited during the
pendency of the Exchange Offer or the
effectiveness of a shelf registration statement
in lieu thereof. Accordingly, there can be no
assurance as to the development or liquidity of
any market for the Notes.
Optional Redemption......... The Notes are not redeemable at the option of the
Company prior to January 15, 2003. Thereafter,
the Notes will be redeemable, in whole or in
part, at the option of the Company, at the
redemption prices set forth herein plus accrued
and unpaid interest and Liquidated Damages, if
any, thereon to the date of redemption.
Notwithstanding the foregoing, prior to January
15, 2001, the Company may redeem from time to
time up to 35.0% of the originally issued
aggregate principal amount of Notes at a
redemption price equal to 110.5% of the aggregate
principal amount thereof plus accrued and unpaid
interest and Liquidated Damages, if any, thereon
to the date of redemption with the Net Cash
Proceeds of one or more Public Equity Offerings;
provided, that at least 65.0% of the originally
issued aggregate principal amount of the Notes
remains outstanding immediately after such
redemption; and provided further that notice of
such redemption shall be given within 60 days of
the closing of any such Public Equity Offering.
See "Description of Notes--Optional Redemption."
Change of Control...........
In the event of a Change of Control, each holder
of the Notes will have the right to require the
Company to purchase all or any part of such
holder's Notes at a purchase price in cash equal
to 101.0% of the aggregate principal amount
thereof, plus accrued and unpaid interest and
Liquidated Damages, if any, to the date of
purchase. See "Description of Notes--Repurchase
of Notes upon a Change of Control." There can be
no assurance that the Company will be able to
fund these repurchase obligations in the event of
a Change of Control.
Covenants................... The Indenture contains certain covenants that,
among other things, limit the ability of the
Company and its Restricted Subsidiaries to Incur
additional Indebtedness, pay dividends or make
other distributions, repurchase Capital Stock or
subordinated Indebtedness or make certain other
Restricted Payments, create certain liens, enter
into certain transactions with stockholders and
affiliates, sell assets, issue or sell Capital
Stock of the Company's Restricted Subsidiaries or
enter into certain mergers and consolidations.
See "Description of Notes--Covenants."
14
<PAGE>
USE OF PROCEEDS
The Company will not receive any cash proceeds from the issuance of the
Exchange Notes pursuant to this Prospectus. In consideration for issuing the
Exchange Notes as contemplated herein, the Company will receive in exchange Old
Notes in like principal amount. The Old Notes surrendered in exchange for the
Exchange Notes will be retired and canceled and cannot be reissued.
Accordingly, issuance of the Exchange Notes will not result in any change in
the Indebtedness of the Company. The net proceeds to the Company from the
offering of the Old Notes, after deducting the underwriting discounts and
commissions and estimated expenses, were approximately $290.0 million. The
Company applied approximately $86.5 million of the net proceeds to purchase the
Pledged Securities. The Company intends to apply approximately $150.0 million
to fund capital expenditures to expand and develop the Company's network,
approximately $16.9 million to repay amounts outstanding under its existing
vendor financing agreements, and the balance to fund operating losses and
working capital requirements and other general corporate purposes, including
potential acquisitions and investments in joint ventures and strategic
alliances.
RISK FACTORS
Holders of the Notes should consider carefully the information set forth
under the caption "Risk Factors," and all other information set forth in this
Prospectus, in evaluating the Exchange Offer.
15
<PAGE>
SUMMARY FINANCIAL AND OTHER DATA
The summary financial data for FCI presented below for the fiscal years ended
September 30, 1997 and September 30, 1996, and have been derived from the
financial statements of FCI, which have been audited by Deloitte & Touche LLP,
independent public accountants. The summary financial and certain other data
for the three months ended December 31, 1997 and 1996, and actual balance sheet
data and balance sheet data as adjusted (see below), have been derived from
unaudited financial statements of FCI. The information set forth below should
be read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Results of Operations" and the financial
statements of FCI included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS ENDED FISCAL YEAR ENDED
DECEMBER 31, SEPTEMBER 30,
-------------------------- -------------------
1997 1996 1997 1996
-------- ---------------- --------- --------
(IN THOUSANDS, EXCEPT SWITCH DATA)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues................ $ 35,808 $ 11,254 $ 70,187 $ 11,891
Cost of revenues.............. 32,809 10,524 65,718 12,742
-------- -------- --------- --------
Gross margin (deficit)........ 2,999 730 4,469 (851)
Operating expenses:
Selling, general and
administrative (including
related party)............... 5,962 3,013 13,511 7,582
Depreciation and
amortization................. 1,001 515 2,318 1,143
-------- -------- --------- --------
Total operating expenses...... 6,963 3,528 15,829 8,725
-------- -------- --------- --------
Loss from operations.......... (3,964) (2,798) (11,360) (9,576)
Interest expense (including
related party)............... (535) (175) (1,336) (312)
Foreign exchange gain (loss).. (457) (413) (1,335) 226
-------- -------- --------- --------
Loss before income taxes...... (4,956) (3,386) (14,031) (9,662)
Income taxes.................. (393) -- -- --
-------- -------- --------- --------
Net loss...................... $ (5,349) $ (3,386) $ (14,031) $ (9,662)
======== ======== ========= ========
REVENUE DATA:
Wholesale..................... $ 33,761 $ 10,715 $ 66,422 $ 11,664
Retail........................ 2,047 539 3,765 227
-------- -------- --------- --------
Total revenues................ $ 35,808 $ 11,254 $ 70,187 $ 11,891
======== ======== ========= ========
OTHER DATA:
EBITDA(/1/)................... $ (2,963) $ (2,283) $ (9,042) $ (8,433)
Cash flows from operating
activities................... (3,836) (68) (8,361) (5,413)
Cash flows from investing
activities................... (3,575) (559) (1,664) (1,074)
Cash flows from financing
activities................... 13,524 409 7,914 8,572
Capital expenditures.......... 8,053 3,542 12,282 8,404
Number of switches (at period
end)......................... 5 2 4 2
<CAPTION>
AS OF DECEMBER 31, 1997
--------------------------
ACTUAL AS ADJUSTED(/2/)
-------- ----------------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash(3) ...................... $ 7,353 $193,989
Long-term restricted cash(3).. -- 86,500
Working capital (excluding
cash and restricted cash).... (13,476) (12,486)
Property and equipment, net... 27,554 27,554
Total assets.................. 66,000 349,136
Total long-term obligations
(including current portion).. 21,179 304,315
Total capital accounts........ 5,454 5,454
</TABLE>
- --------
(1) EBITDA consists of earnings (loss) before interest expense, income taxes,
depreciation, amortization and foreign exchange gain (loss). EBITDA should
not be considered as a substitute for operating earnings, net income, cash
flow or other combined statement of income or cash flow data computed in
accordance with generally accepted accounting principles or as a measure of
a company's results of operations or liquidity. EBITDA is widely used as a
measure of a company's operating performance and its ability to service its
indebtedness because it assists in comparing performance on a consistent
basis across companies, which can vary significantly.
(2) Reflects the offering of the Old Notes, and the application of the proceeds
therefrom, less approximately $10.0 million estimated offering costs.
(3) The net proceeds from the offering of the Old Notes have been added to cash
and restricted cash pending application of such proceeds, including amounts
which have been invested in Pledged Securities to fund the first six
scheduled interest payments on the Notes. Excludes proceeds used to repay
amounts outstanding under vendor financing agreements.
16
<PAGE>
RISK FACTORS
Prospective investors should consider carefully the risk factors set forth
below, as well as the other information appearing in this Prospectus, before
making an investment in the Notes.
SUBSTANTIAL INDEBTEDNESS; LIQUIDITY; NEGATIVE RATIO OF EARNINGS TO FIXED
CHARGES
The Company has substantial indebtedness as a result of the offering of the
Old Notes. As of December 31, 1997, on a pro forma basis after giving effect
to the offering of the Old Notes and the application of the net proceeds
therefrom, the Company's total indebtedness would have been approximately
$304.3 million, including $4.3 million of secured indebtedness, its
stockholders' equity would have been approximately $5.5 million and the
Company would have had total assets of approximately $349.1 million. For the
three months ended December 31, 1997 and for the fiscal year ended September
30, 1997, after giving pro forma effect to the offering of the Old Notes and
the application of the net proceeds therefrom as if the offering of the Old
Notes had been consummated on October 1, 1996, the Company's EBITDA would have
been insufficient to cover fixed charges by approximately $10.8 million and
$40.5 million, respectively. Cash flows from operating, investing and
financing activities would also have been insufficient to cover fixed charges.
Historical earnings for the three months ended December 31, 1997 (unaudited),
the periods ended September 30, 1997, 1996 and 1995 for the period from
January 1, 1995 through June 30, 1995 (Predecessor), were insufficient to
cover fixed charges by $5.0 million, $14.0 million, $9.7 million, $1.7 million
and $1.3 million, respectively. The Indenture limits, but does not prohibit,
the incurrence of certain additional indebtedness by the Company and certain
of its subsidiaries and does not limit the amount of Indebtedness that may be
incurred to finance the cost of Telecommunications Assets. Consequently, in
the event of a bankruptcy, liquidation, dissolution, reorganization or similar
proceeding with respect to the Company, the holders of any secured
indebtedness will be entitled to proceed against the collateral that secures
such secured indebtedness and such collateral will not be available for
satisfaction of any amounts owed under the Notes. The Company anticipates that
it and its subsidiaries will incur substantial additional Indebtedness in the
future. See "Selected Consolidated Financial and Other Data" and the Company's
Consolidated Financial Statements elsewhere in the Prospectus, "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Description of Notes."
The level of the Company's indebtedness could have important consequences to
holders of the Notes, including the following: (i) the debt service
requirements of any additional indebtedness could make it more difficult for
the Company to make payments of interest on the Notes; (ii) the ability of the
Company to obtain any necessary financing in the future for working capital,
capital expenditures, debt service requirements or other purposes may be
limited; (iii) a substantial portion of the Company's cash flow from
operations, if any, must be dedicated to the payment of principal and interest
on its indebtedness and other obligations and will not be available for use in
its business; (iv) the Company's level of indebtedness could limit its
flexibility in planning for, or reacting to, changes in its business; (v) the
Company may become more highly leveraged than some of its competitors, which
may place it at a competitive disadvantage; and (vi) the Company's high degree
of indebtedness will make it more vulnerable in the event of a downturn in its
business.
The Company must substantially increase its net cash flow in order to meet
its debt service obligations, and there can be no assurance that the Company
will be able to meet such obligations, including its obligations under the
Notes. If the Company is unable to generate sufficient cash flow or otherwise
obtain funds necessary to make required payments, or if it otherwise fails to
comply with the various covenants under its indebtedness, it would be in
default under the terms thereof, which would permit the holders of such
indebtedness to accelerate the maturity of such indebtedness and could cause
defaults under other indebtedness of the Company. Such defaults could result
in a default on the Notes and could delay or preclude payments of interest or
principal thereon.
HISTORICAL AND FUTURE OPERATING LOSSES; NEGATIVE CASH FLOW AND EBITDA; NET
LOSSES
Since its inception through December 31, 1997, the Company had cumulative
negative cash flow from operating activities of $18.0 million and cumulative
EBITDA of ($21.9) million. In addition, the Company incurred a net loss for
the fiscal quarter ended December 31, 1997 and for the fiscal year ended
September 30, 1997 of ($5.3) million and ($14.0) million, respectively, and
had an accumulated deficit of $32.0 million as of December 31, 1997. Although
the Company has experienced revenue growth in every quarter since it commenced
operations in 1995, such growth should not be considered to be indicative of
future revenue growth,
17
<PAGE>
if any. The Company expects to incur negative EBITDA, negative cash flow from
operating, financing and investing activities and significant operating losses
and net losses for at least its next two fiscal years as it incurs additional
costs associated with the development and expansion of its network, the
expansion of its marketing and sales organization and the introduction of new
telecommunications services. Furthermore, the Company expects that operations
in new target markets will experience negative cash flows until an adequate
customer base and related revenues have been established. The Company must
substantially increase its net cash flow in order to meet its debt service
obligations, including its obligations on the Notes, and there can be no
assurance that the Company will achieve or, if achieved, will sustain
profitability or positive cash flow from operating activities in the future.
If the Company cannot achieve and sustain operating profitability or positive
cash flow from operations, it may not be able to meet its debt service or
working capital requirements (including its obligations with respect to the
Notes), which could have a material adverse effect on the business, operations
and financial condition of the Company. See "--Future Capital Needs;
Uncertainty of Additional Funding" and "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
HOLDING COMPANY STRUCTURE; RELIANCE ON SUBSIDIARIES FOR DISTRIBUTIONS TO REPAY
NOTES
FCI is a holding company, the principal assets of which are its operating
subsidiaries in the U.S., Sweden, Denmark and the U.K. As a holding company,
the Company's internal sources of funds to meet its cash needs, including
payment of expenses and principal and interest on the Notes, are dividends,
intercompany loans and other permitted payments from its direct and indirect
subsidiaries, as well as its own credit arrangements. The subsidiaries of the
Company are legally distinct from the Company and have no obligation,
contingent or otherwise, to pay amounts due with respect to the Notes or to
make funds available for such payments and will not be guarantors of the
Notes. Additionally, some of the Company's subsidiaries are organized in
jurisdictions outside the U.S. The ability of the Company's operating
subsidiaries to pay dividends, repay intercompany loans or make other
distributions to FCI may be restricted by, among other things, the
availability of funds, the terms of various credit arrangements entered into
by such operating subsidiaries, as well as statutory and other legal
restrictions, and such payments may have adverse tax consequences. The failure
to pay any such dividends, repay intercompany loans or make any such other
distributions would restrict FCI's ability to repay principal and interest on
the Notes and its ability to utilize cash flow from one subsidiary to cover
shortfalls in working capital at another subsidiary, and could otherwise have
a material adverse effect upon the Company's business, financial condition and
results of operations.
Because the Company is a holding company that conducts its business through
its subsidiaries, claims of creditors of such subsidiaries will generally have
priority over the assets of such subsidiaries over the claims of the Company
and the holders of the Company's indebtedness (including the Notes).
Accordingly, the Notes will be effectively subordinated to all existing and
future indebtedness and other liabilities and commitments of the Company's
subsidiaries, including trade payables. As of December 31, 1997, the Company's
consolidated subsidiaries had aggregate liabilities of $60.5 million, which
included $21.2 million of Indebtedness. Any right of the Company to receive
assets of any subsidiary upon the liquidation or reorganization of such
subsidiary (and the consequent rights of the holders of the Notes to
participate in those assets) will be effectively subordinated to the claims of
such subsidiary's creditors, except to the extent that the Company is itself
recognized as a creditor, in which case the claims of the Company would still
be subordinate to any security in the assets of such subsidiary and any
indebtedness of such subsidiary senior to that held by the Company. In
addition, holders of secured indebtedness of the Company would have a claim on
the assets securing such indebtedness that is prior to the holders of the
Notes and would have a claim that is pari passu with the holders of the Notes
to the extent such security did not satisfy such indebtedness. The Company has
no significant assets other than its ownership interests in FCI LLC and it is
expected that such ownership interests and the equity interests in the
Company's other subsidiaries may be pledged in the future to secure one or
more credit facilities.
DEPENDENCE ON KEY CUSTOMERS; BAD DEBT EXPOSURE
The Company's primary business as a wholesale long distance provider makes
it highly dependent upon traffic delivered to the Company by other long
distance providers pursuant to arrangements that can generally be terminated
on short notice. The Company's carrier customers tend to be extremely price
sensitive, rely on low margin business and frequently choose to move their
business based solely on incremental price changes. Such
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customers may and frequently do elect to divert a portion of their service
requirements to alternative providers on short notice based solely on price.
Traffic volume lost through service terminations or diversions must be
replaced through the addition of new customers or incremental business from
existing customers to realize revenue growth.
While the list of the Company's most significant customers varies from
quarter to quarter, for the quarter ended December 31, 1997 the Company's ten
largest customers accounted for 49.4% of the Company's revenues. For the
fiscal year ended September 30, 1996, North American Gateway Inc. and Cherry
Communications, Inc. accounted for 30.0% and 11.0%, respectively, of the
Company's total revenues. For the fiscal year ended September 30, 1997, North
American Gateway Inc. and Telegroup, Inc. accounted for 14.0% and 10.3%,
respectively, of the Company's total revenues. The loss or substantial
reduction in the level of service to the Company's large customers would have
an immediate and material adverse effect on the Company's business. The
Company's customer concentration also amplifies the risk of non-payment by
customers. If the Company experiences difficulties in the collection of
accounts receivable from its major customers, the Company's financial
condition and results of operations could be materially adversely affected.
See "Business--Customers" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Overview."
FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FUNDING
The development and expansion of the Company's network facilities, funding
of operating losses and working capital needs and investment in the Company's
management information systems will require significant investment. The
Company expects that the net proceeds from the offering of the Old Notes and
cash flow from operations will provide the Company with sufficient capital to
fund planned capital expenditures and anticipated losses and to make interest
payments on the Notes. There can be no assurance, however, that the Company
will not need additional financing sooner than anticipated. In addition, the
Company may be required to obtain additional financing in order to repay the
Notes at the Maturity Date. The need for additional financing depends on
factors such as the rate and extent of the Company's international expansion,
increased investment in ownership rights in fiber optic cable and increased
sales and marketing expenses. In addition, the amount of the Company's actual
future capital requirements also will depend upon many factors that are not
within the Company's control, including competitive conditions (particularly
with respect to the Company's ability to attract incremental traffic) and
regulatory or other government actions. In the event that the Company's plans
or assumptions change or prove to be inaccurate or the net proceeds of the
offering of the Old Notes, together with internally generated funds, prove to
be insufficient to fund the Company's growth and operations, then some or all
of the Company's development and expansion plans could be delayed or
abandoned, or the Company may be required to seek additional financing.
The Company may seek to raise such additional capital from public or private
equity or debt sources. There can be no assurance that the Company will be
able to obtain the additional financings or, if obtained, that it will be able
to do so on a timely basis or on terms favorable to the Company. The Indenture
contains certain restrictive covenants that will affect, and in many respects
will significantly limit or prohibit, among other things, the ability of the
Company to incur additional indebtedness and to create liens on its assets. If
the Company is able to raise additional funds through the incurrence of debt,
and it does so, it would likely become subject to additional restrictive
financial covenants. In the event that the Company is unable to obtain such
additional capital or is unable to obtain such additional capital on
acceptable terms, the Company may be required to reduce the scope of its
expansion, which could adversely affect the Company's business, results of
operations and financial condition, its ability to compete and its ability to
meet its obligations on the Notes.
LIMITED OPERATING HISTORY; ENTRY INTO NEW MARKETS
FCI LLC was founded in May 1995, acquired Tele8, the Company's principal
international subsidiary, in July 1995 and began generating revenues in the
U.S. in February 1996. The Company has generated only limited revenues and has
a limited operating history. In addition, the Company intends to enter markets
where it has limited or no operating experience and where services have
previously been provided primarily by the local PTTs. Accordingly, there can
be no assurance that the Company's future operations will generate operating
or net income, and the Company's prospects must therefore be considered in
light of the risks, expenses, problems and delays inherent in establishing a
new business in a rapidly changing industry.
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DEPENDENCE ON OPERATING AGREEMENTS WITH FOREIGN OPERATORS
The Company's strategy is substantially based on its ability to enter into:
(i) operating agreements with PTTs in countries that have yet to become
deregulated so the Company can terminate traffic in, and receive return
traffic from, that country; (ii) operating agreements with PTTs and emerging
carriers in foreign countries whose telecommunications markets have
deregulated so it can terminate traffic in such countries; and (iii)
interconnection agreements with the PTT in each of the countries where the
Company has operating facilities (e.g., the U.K.) so it can terminate traffic
in that country. The Company believes that it would not be able to serve its
customers at competitive prices without such operating or interconnection
agreements. Termination of such operating agreements by certain of the
Company's foreign carriers or PTTs would have a material adverse effect on the
Company's business. Moreover, there can be no assurance that the Company will
be able to enter into additional operating or interconnection agreements in
the future. The failure to enter into additional agreements could limit the
Company's ability to increase its revenues on a profitable basis. See
"Business--Network."
INTENSE COMPETITION
The international telecommunications industry is intensely competitive and
subject to rapid change precipitated by advances in technology and regulation.
The Company's success depends upon its ability to compete with a variety of
other telecommunications providers in each of its markets, including the
respective PTT in each country in which the Company operates. Other
competitors of the Company include large, facilities-based, multinational
carriers and smaller facilities-based wholesale long distance service
providers in the U.S. and overseas that have emerged as a result of
deregulation, switched-based resellers of international long distance services
and global alliances among some of the world's largest telecommunications
carriers. International telecommunications providers such as the Company
compete on the basis of price, customer service, transmission quality, breadth
of service offerings and value-added services, and the Company's carrier
customers are especially price sensitive. In addition, many of the Company's
competitors enjoy economies of scale that can result in a lower cost structure
for termination and network costs, which could cause significant pricing
pressures within the international communications industry. Several long
distance carriers in the U.S. have introduced pricing strategies that provide
for fixed, low rates for both international and domestic calls originating in
the U.S. Such a strategy, if widely adopted, could have an adverse effect on
the Company's business, operations and financial condition if increases in
telecommunications usage do not result or are insufficient to offset the
effects of such price decreases. In recent years, prices for international
long distance services have decreased substantially, and are expected to
continue to decrease, in most of the markets in which the Company currently
competes. The intensity of such competition has recently increased, and the
Company expects that such competition will continue to intensify as the number
of new entrants increases as a result of the new competitive opportunities
created by the U.S. Telecommunications Act of 1996 (the "1996
Telecommunications Act"), implementation by the Federal Communications
Commission (the "FCC") of the U.S. commitment to the World Trade Organization
and changes in legislation and regulation in various foreign target markets.
There can be no assurance that the Company will be able to compete
successfully in the future.
Competition from Domestic and International Companies. The U.S.-based
international telecommunications services market is dominated by AT&T, MCI
Communications, Inc. ("MCI"), Sprint and WorldCom, Inc. ("WorldCom"). The
Company also competes with second-tier international carriers including ACC
Corporation, Pacific Gateway Exchange, Inc., Primus Telecommunications Group,
Inc., Star Telecommunications, Inc., TresCom International, Inc. and other
U.S. and foreign long distance providers, a number of which have considerably
greater financial and other resources and more extensive domestic and
international communications networks than the Company. A recent FCC order
implementing the United States' open market commitments in the WTO Agreement
may also make it easier for certain foreign carriers to enter the U.S. market,
thereby increasing competition. See "Business--Industry--Regulatory and
Competitive Environment." In addition, the Company anticipates that it will
encounter additional competition from global alliances among large long
distance telecommunications providers and from new entrants in its recently
deregulated target markets outside the U.S. Recent examples of such alliances
include AT&T's alliance with Unisource, known as "Uniworld;" AT&T's recent
alliance with Italy's STET/Telecom Italia to serve
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international customers with a primary focus on the Latin American and
European regions; WorldCom's proposed merger with MCI; and Sprint's alliance
with Deutsche Telekom and France Telecom, known as "Global One." Consolidation
in the telecommunications industry may create even larger competitors with
greater financial and other resources. The effect of the proposed mergers and
alliances could create increased competition in the telecommunications
services market and potentially reduce the number of customers that purchase
wholesale international long distance services from the Company. Because many
of the Company's current competitors are also the Company's customers, the
Company's business would be materially adversely affected to the extent that a
significant number of such customers limit or cease doing business with the
Company for competitive or other reasons.
Increased Competition as a Result of a Changing Regulatory Environment. The
1996 Telecommunications Act, which substantially revises the Communications
Act of 1934, as amended (the "Communications Act"), promotes additional
competition in the intrastate, interstate and international telecommunications
markets by both U.S.-based and foreign companies, including the Regional Bell
Operating Companies ("RBOCs") in the U.S. Moreover, the Company believes that
the FCC's recently released order implementing the United States' commitments
under the WTO Agreement (as defined) will make it easier for certain foreign
carriers to enter the U.S. market, thereby increasing competition in the U.S.
market for the Company. The Company believes that competition in non-U.S.
markets is likely to follow the intense competition in the U.S. market as non-
U.S. markets continue to deregulate.
Competition from New Technologies. The telecommunications industry is in a
period of rapid technological evolution, marked by the introduction of new
product and service offerings and increasing satellite and undersea cable
transmission capacity for services similar to those provided by the Company.
Such technologies include satellite-based systems, such as those proposed by
Iridium LLC and Globalstar, L.P., utilization of the Internet for
international voice and data communications and digital wireless communication
systems such as Personal Communications Systems ("PCS"). The Company is unable
to predict which of many possible future product and service offerings will be
important to maintain its competitive position or what expenditures will be
required to develop and provide such products and services.
For a more detailed discussion of competition in the international
telecommunications industry, see "Business--Competition."
EXPANSION AND OPERATION OF THE NETWORK
The long-term success of the Company is dependent upon its ability to
operate, expand, manage and maintain its network. In particular, the Company's
ability to increase revenues will be dependent on its ability to expand the
capacity of, and eliminate bottlenecks that have developed from time to time
on, the Company's network. The continued expansion, operation and development
of the network will depend on, among other factors, the Company's ability to
accomplish the following: (i) attract and retain customers; (ii) attract and
retain experienced and qualified personnel; (iii) obtain one or more switch
sites in each country; (iv) obtain interconnectivity to the local Public
Switched Telecommunications Network ("PSTN") and/or other carriers; (v) obtain
necessary licenses permitting termination and origination of traffic; (vi)
obtain access to or ownership of transmission facilities linking a switch to
other network switches; and (vii) open new offices in target markets. By
expanding its network, the Company will incur additional fixed operating costs
that typically exceed, particularly with respect to international transmission
lines, the revenues attributable to the transmission capacity funded by such
costs until the Company generates additional traffic volume for such expanded
capacity. There can be no assurance that the Company will be able to expand
its network in a cost effective manner or to operate the network efficiently.
Although the Company has not experienced quality problems to date, the
Company may from time to time experience general problems affecting the
quality of the voice and data transmission of some calls transmitted over its
network due to its anticipated expansion, which could result in poor quality
transmission and interruptions in service. To provide redundancy in the event
of technical difficulties with the network and to the extent the Company
purchases transit and termination capacity from other carriers, the Company
relies upon
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other carriers' networks. Whenever the Company is required to route traffic
over a non-primary choice carrier due to technical difficulties or capacity
shortages with its network or the primary choice carrier, those calls will be
more costly to the Company and can result in lower transmission quality. Any
failure by the Company to operate, expand, manage or maintain its network
properly could result in customers diverting all or a portion of their calls
to other carriers, which could have a material adverse effect on the Company's
business, financial condition and results of operations. See "Management's
Discussion and Analysis of Financial Conditions and Results of Operations."
RISKS ASSOCIATED WITH ACQUISITIONS, INVESTMENTS AND STRATEGIC ALLIANCES
As part of its business strategy, the Company may enter into strategic
alliances with, acquire assets or businesses from, or make investment in,
companies that are complementary to its current operations. Any such future
strategic alliances, investments or acquisitions would be accompanied by the
risks commonly encountered in such transactions. Such risks include, among
other things, the difficulty of assimilating the operations and personnel of
the companies, the potential disruption of the Company's ongoing business,
costs associated with the development and integration of such operations, the
inability of management to maximize the financial and strategic position of
the Company by the successful incorporation of licensed or acquired technology
into the Company's service offerings, the maintenance of uniform standards,
controls, procedures and policies, the impairment of relationships with
employees and customers as a result of changes in management and higher
customer attrition with respect to customers obtained through acquisitions.
Financial risks involved in acquisitions include the incurrence of
Indebtedness by the Company in order to finance such acquisitions and the
consequent need to service such Indebtedness.
Expansion through joint ventures entails additional potential risks for the
Company. The Company may not have a majority interest or control of the board
of directors of any such local operating project entity or its operations or
assets. There is also a risk that the Company's joint venture partner or
partners may not have economic, business or legal interests or goals that are
consistent with those of the joint venture or the Company. In addition, there
is a risk that a joint venture partner may be unable to meet its economic or
other obligations and that the Company may be required to fulfill those
obligations.
MANAGEMENT OF GROWTH
The Company's strategy of continuing its growth and expansion has placed,
and is expected to continue to place, a significant strain on the Company's
management, operational and financial resources and increased demands on its
systems and controls. The Company's growth has resulted in increased
responsibilities for management personnel. The Company's ability to continue
to manage its growth successfully will require it to further expand its
network and infrastructure, enhance its management, financial and information
systems and controls and expand, train and manage its employee base
effectively. Inaccuracies in the Company's forecasts of traffic could result
in insufficient or excessive transmission facilities and disproportionately
high fixed expenses. In addition, as the Company increases its service
offerings and expands its target markets, there will be additional demands on
its customer service support and sales, marketing and administrative
resources. There can be no assurance that the Company will be able to manage
successfully its expanding operations. If the Company's management is unable
to manage growth effectively or maintain the quality of its service, the
Company's business, financial condition and results of operations could be
materially and adversely affected.
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS
A key component of the Company's strategy is its expansion in international
markets. In many international markets, the PTT controls access to the local
networks, enjoys better brand name recognition and customer loyalty and
possesses significant operational economies, including a larger backbone
network and operating agreements with other PTTs. Moreover, PTTs generally
have certain competitive advantages due to their close ties with national
regulatory authorities, which have, in certain instances, shown reluctance to
adopt policies and grant regulatory approvals that would result in increased
competition for the local PTT. Pursuit of international growth opportunities
may require significant investments for extended periods of time before
returns, if any, on
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such investments are realized. Obtaining licenses in certain target countries
may require the Company to commit significant financial resources, which
investments may not yield positive net returns in such markets for extended
periods of time or ever. In addition, there can be no assurance that the
Company will be able to obtain the permits and licenses required for it to
operate, obtain access to local transmission facilities or markets or to sell
and deliver competitive services in these markets.
In addition to the uncertainty as to the Company's ability to expand its
international presence, there are certain risks associated with conducting
business internationally that could have a material adverse effect on the
Company's international operations, including its strategy to open additional
offices in foreign countries and its ability to repatriate net income from
foreign markets. Such risks may include unexpected changes in regulatory
requirements, value added tax, tariffs, customs, duties and other trade
barriers, difficulties in staffing and managing foreign operations, problems
in collecting accounts receivable, political risks, fluctuations in currency
exchange rates, foreign exchange controls which restrict or prohibit
repatriation of funds, technology export and import restrictions or
prohibitions, delays from customs brokers or government agencies, seasonal
reductions in business activity during the summer months in Europe and certain
other parts of the world and potentially adverse tax consequences resulting
from operating in multiple jurisdictions with different tax laws. In addition,
the Company's business could be adversely affected by a reversal in the
current trend toward deregulation of telecommunications carriers. In certain
countries, particularly in Asia, into which the Company may choose to expand
in the future, the Company may need to enter into a joint venture or other
strategic relationship with one or more third parties (possibly with a PTT or
other dominant carrier) in order to enter the market and/or conduct its
operations successfully. There can be no assurance that such factors will not
have a material adverse effect on the Company's future operations and,
consequently, on the Company's business, results of operations and financial
condition, or that the Company will not have to modify its current business
practices. In addition, there can be no assurance that laws or administrative
practices relating to taxation, foreign exchange or other matters of countries
within which the Company operates will not change. Any such change could have
a material adverse effect on the Company's business, financial condition and
results of operations.
Although the Company's reporting currency is the U.S. dollar, the Company
expects to derive an increasing percentage of its revenues from international
operations. Accordingly, changes in currency exchange rates may have a
significant effect on the Company's results of operations. The Company
experienced a foreign currency loss for the 12 months ended September 30, 1997
of $1.3 million and may, in the future, continue to experience losses due to
fluctuations in foreign currency exchange rates. The Company does not
currently engage in exchange rate hedging strategies, although it may choose
to limit its exposure to foreign currency fluctuations in the future by
purchasing forward foreign exchange contracts or engaging in other similar
hedging strategies. The failure by the Company to hedge its foreign currency
exchange exposure may result in continued foreign exchange losses to the
Company from its non-U.S. operations. In addition, there can be no assurance
that any currency hedging strategy that the Company decides to employ, if any,
would be successful in avoiding currency exchange-related losses. Exchange-
related losses could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
DEPENDENCE ON TELECOMMUNICATIONS FACILITIES PROVIDERS AND AVAILABILITY OF
TRANSMISSION FACILITIES
The Company's success will continue to depend, in part, on its ability to
obtain and utilize transmission capacity on a cost-effective basis. For the
three months ended December 31, 1997, 20.5% of the Company's wholesale
international traffic was terminated on-net by the Company and 79.5% was
terminated by other long distance carriers pursuant to resale and operating
agreements between the Company and such carriers ("off-net"). Traffic routed
by the Company may be transmitted via one or more of the following types of
circuit capacity: (i) capacity owned by the Company on an indefeasible right
of use ("IRU") or ownership basis (such as a Minimum Assignable Ownership
Unit, "MAOU"); (ii) capacity leased on a fixed-cost basis from another
carrier; or (iii) capacity purchased from another carrier on a per minute
basis under a simple resale agreement. In addition, the Company requires
leased circuit capacity to provide interconnectivity with the local PSTN in
each country and from its PoPs to its gateway switches. As of December 31,
1997, the Company had invested $5.3 million in IRUs and $3.8 million in MAOUs.
While the Company has no current commitments to purchase additional IRU or
MAOU capacity, the Company expects to invest approximately $50.0 in IRUs and
MAOUs through December 31, 1999.
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The Company leases transmission facilities under a variety of arrangements
with facilities-based long distance carriers, many of which are, or may
become, competitors of the Company. The Company's ability to maintain and
expand its business is dependent upon whether the Company continues to
maintain favorable relationships with the transmission facilities-based
carriers from which the Company leases transmission facilities. Although the
Company believes that its relationships with these carriers generally are
satisfactory, the deterioration or termination of the Company's relationships
with one or more of these carriers could have a material adverse effect on the
Company's cost structure, service quality, network diversity, results of
operations and financial condition.
The Company also owns IRUs and MAOUs on several undersea fiber optic cable
systems, and has committed to investments in several more. Because undersea
fiber optic cables typically take several years to plan and construct,
carriers generally make investments in such systems based on a forecast of
anticipated traffic. The Company does not always control the planning or
construction of undersea fiber optic transmission facilities and must seek
access to such facilities through partial ownership positions. If partial
ownership positions are not available, the Company must seek access to such
facilities through lease arrangements on negotiated terms that may vary with
industry and market conditions. The Company's strategy of purchasing or
leasing capacity on its principal fiber optic cable lines creates a particular
risk in regions and on routes in which capacity is limited relative to call
volume, such as on certain U.S. domestic and trans-Atlantic routes at the
present time. There can be no assurance of continued availability of
transmission facilities on economically viable terms. See "Business--Network"
and "Management's Discussion and Analysis of Financial Condition and Results
of Operations--Liquidity and Capital Resources."
RISK OF DEFAULT UNDER EXISTING FINANCING AGREEMENTS; DEPENDENCE ON KEY
SUPPLIERS
The Company has entered into financing agreements with Ericsson I.F.S.
("Ericsson") and Northern Telecom in connection with the Company's purchase of
switches produced by these manufacturers. These agreements permit Ericsson and
Northern Telecom, upon the occurrence of certain events of default, to
accelerate the entire unpaid balance of amounts loaned to the Company, if any,
for the purchase of switches and to foreclose on the equipment purchased from
Ericsson and Northern Telecom. These suppliers also provide the Company with
system monitoring services. Accordingly, any failure by the Company to make
payments when due on such loans or to comply with certain affirmative and
negative covenants set forth in the agreements could adversely affect the
Company's business, financial condition and results of operation as well as
its ability to provide services through the use of these switches. For a more
detailed discussion of these agreements, see "Summary of Other Indebtedness."
SUBSTANTIAL GOVERNMENT REGULATION
The Company's business is subject to various federal laws, regulations,
regulatory actions and court decisions that may adversely affect the Company.
The Company's interstate and international facilities-based and resale
services are subject to regulation by the FCC. The Company is also subject to
FCC rules that regulate the manner in which international services may be
provided, including, for example, the circumstances under which carriers may
provide international switched services by using private lines or transit
agreements to route traffic through third countries. The Company may also be
subject to regulation in foreign countries in connection with certain of its
business activities. There can be no assurance that future regulatory,
judicial and legislative changes will not have a material adverse effect on
the Company, that domestic or international regulators or third parties will
not raise material issues with regard to the Company's compliance or
noncompliance with applicable regulations or that regulatory activities will
not have a material adverse effect on the Company.
United States. In the U.S., the provision of the Company's services is
subject to the provisions of the Communications Act, the 1996
Telecommunications Act and the FCC's regulations thereunder, as well as the
applicable laws and regulations of the various states administered by the
relevant state public service commission ("PSC"). Despite recent trends
towards deregulation, the FCC and relevant state PSCs continue to regulate
ownership of transmission facilities, provision of services and the terms and
conditions under which the Company's services are provided. Non-dominant
carriers such as the Company are required by federal and state law and
regulations to file tariffs listing the rates, terms and conditions of the
services they provide. Failure to
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maintain proper federal and state tariffs or certification or any finding by
the federal or state agencies that the Company is not operating under
permissible terms and conditions may result in an enforcement action or
investigation, either of which could have a material adverse effect on the
Company.
The FCC and certain state agencies also impose prior approval requirements
on transfers of control. Such requirements may delay, prevent or deter a
change in control of the Company. With regard to international services, the
FCC administers a variety of international service regulations, including the
International Settlements Policy ("ISP"), that govern the settlements between
U.S. carriers and their foreign correspondents of the cost of terminating
traffic over each other's networks, the accounting rates for such settlement
and permissible deviations from these policies. As a consequence of the
increasingly competitive global telecommunications market, the FCC has adopted
a number of policies that permit carriers to deviate from the ISP under
certain circumstances that promote competition. The FCC also requires carriers
such as the Company to report any affiliations, as defined by the FCC, with
foreign carriers. Failure to comply with the FCC's rules could result in
fines, penalties and/or forfeiture of the Company's FCC authorizations, each
of which could have a material adverse effect on the Company's business,
financial condition and results of operations.
Regulatory requirements pertinent to the Company's operations will continue
to evolve as a result of the WTO Agreement, federal legislation, court
decisions and new and revised policies of the FCC and state PSCs. For a
description of the WTO Agreement, see "Business--Industry--Regulatory and
Competitive Environment." In particular, the FCC continues to refine its
international service regulations to promote competition, reflect and
encourage deregulation in foreign countries and reduce international
accounting rates toward cost. Among other things, such changes may increase
competition and alter the ability of the Company to compete with other service
providers that provide the same services or to introduce services currently
planned for the future. Any change in applicable regulatory requirements may
impact the Company's operations in a manner that cannot be predicted.
Non-U.S. Markets. To the extent that it seeks to provide telecommunications
services in non-U.S. markets, the Company will be subject to the developing
laws and regulations governing the competitive provision of telecommunications
services in those markets. The Company currently plans to provide a limited
range of services in certain countries in Europe, Asia, the Pacific Rim and
Latin America, as permitted by regulatory conditions in those markets, and to
expand its operations as these markets liberalize to permit competition in the
full range of telecommunications services. The nature, extent and timing of
the opportunity for the Company to compete in these markets will be
determined, in part, by the actions taken by the governments in these
countries to implement competition and the response of incumbent carriers to
these efforts. There can be no assurance that any of these countries will
implement competition in the near future or at all, that the Company will be
able to take advantage of any such liberalization in a timely manner or that
the Company's operations in any such country will be successful. For a more
detailed discussion of how government regulation impacts the Company, see
"Business--Licenses and Regulation."
DEPENDENCE ON MANAGEMENT AND OTHER KEY PERSONNEL
The Company's success depends in significant part upon the continued service
of its senior management personnel, including, in particular, Walter
Burmeister, the Company's President and Chief Executive Officer, and certain
other employees with longstanding industry relationships and technical
knowledge of the Company's operations. In addition, several of the Company's
key personnel have joined the Company within the past twelve months. The
Company does not maintain any "key person" insurance. None of the Company's
executive officers is bound by an employment agreement. An equipment loan
agreement with one of the vendors from which the Company purchases switching
equipment provides that the termination, resignation, death or permanent
disability of Walter Burmeister is an event of default under the agreement if
the Company does not, within 180 days, replace Mr. Burmeister with a successor
acceptable to the vendor.
The Company's future success also depends on its ability to attract, train,
retain and motivate highly skilled personnel. Competition for qualified, high-
level telecommunications personnel is intense and there can be no
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assurance that the Company will be successful in attracting and retaining such
personnel. In particular, the Company is seeking to expand its middle-
management personnel in certain target markets in Western Europe in which the
number of available qualified managers is extremely limited. The loss of the
services of one or more of the Company's key individuals, or the failure to
attract and retain additional key personnel, could have a material adverse
effect on the Company's business, operating results and financial condition.
See "Management."
DEPENDENCE ON EFFECTIVE MANAGEMENT INFORMATION SYSTEMS
To complete its billing, the Company must record and process massive amounts
of data quickly and accurately. The Company has entered into a contract with
Armstrong pursuant to which Armstrong will provide billing and management
information systems ("MIS") support for the Company and its subsidiaries
through September 30, 2002, on terms that the Company believes are competitive
with similar services offered in the industry. The contract may be terminated
by Armstrong or the Company upon 180 days' notice to the other party. See
"Business--Operations and Systems" and "Certain Relationships and Related
Transactions--Relationship with Armstrong."
In addition, the Company has entered into agreements with other contractors,
including certain of its equipment suppliers, to provide facilities and
services required for its operations, including monitoring its network
transmission equipment. These agreements are subject to termination after
notice. The Company's reliance upon others to provide essential services on
behalf of the Company may result in relative inability to control the
efficiency, timeliness and quality of such contracted services. Management
expects that the Company will be required to rely on independent contractors
for some time in the future.
RISK OF NETWORK FAILURE
The success of the Company is largely dependent upon its ability to deliver
high quality, uninterrupted telecommunications services and on its ability to
protect its software and hardware against damage. Any failure of the Company's
network or other systems or hardware that causes interruptions in the
Company's operations could have a material adverse effect on the Company. As
the Company expands its network and the volume of call traffic grows, there
will be increased stress on hardware, circuit capacity and traffic management
systems. There can be no assurance that the Company will not experience system
failures. The Company's operations are also dependent on its ability to expand
the network successfully and integrate new and emerging technologies and
equipment into the network, which could increase the risk of system failure
and result in further strains upon the network. The Company attempts to
minimize customer inconvenience in the event of a system disruption by routing
traffic to other circuits and switches which may be owned by other carriers.
However, significant or prolonged system failures of, or difficulties for
customers in accessing and maintaining connection with, the Company's network
could damage the reputation of the Company and result in customer attrition
and financial losses.
CONTROL BY PRINCIPAL STOCKHOLDERS
AIT, a wholly owned subsidiary of Armstrong, is the record owner of 84.0% of
the outstanding shares of the Company's capital stock. AIT's controlling
interest in the Company provides it with the power to exercise voting and
management control of the Company. Because certain material corporate actions
cannot be taken by the Company without the approval of the holders of a
majority of the outstanding shares of the Company's common stock, AIT will
have the power to approve or disapprove significant corporate transactions
regardless of the wishes of the other stockholders of the Company. Such power
may have the effect of delaying or preventing a change in control of the
Company, including a merger, consolidation or other business combination or
takeover, and allows AIT to otherwise direct the Company's business and
affairs without the agreement of the Company's other stockholders. In
addition, AIT, FMG and the Company entered into an Investment and Shareholders
Agreement dated December 22, 1997 (the "Stockholders Agreement") that
restricts the transferability of shares of the Company's common stock.
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LACK OF PUBLIC MARKET; RESTRICTIONS ON TRANSFERABILITY
The Exchange Notes are new securities for which there currently is no
market. The Company does not intend to apply for listing of the Exchange Notes
on any national securities exchange or for quotation of the Exchange Notes
through Nasdaq. Although the Initial Purchasers have informed the Company that
they currently intend to make a market in the Notes, they are not obligated to
do so and any such market-making may be discontinued at any time without
notice. In addition, such market-making activity may be limited during the
pendency of the Exchange Offer or the effectiveness of a shelf registration
statement in lieu thereof. Accordingly, there can be no assurance as to the
development or liquidity of any market for the Notes.
CONSEQUENCES OF FAILURE TO EXCHANGE
The Old Notes have not been registered under the Securities Act and are
subject to substantial restrictions on transfer. Old Notes that are not
tendered in exchange for Exchange Notes or are tendered but not accepted will,
following consummation of the Exchange Offer, continue to be subject to the
existing restrictions upon transfer thereof. The Company does not currently
anticipate that it will register the Old Notes under the Securities Act. To
the extent that Old Notes are tendered and accepted in the Exchange Offer, the
trading market for untendered and tendered but unaccepted Old Notes could be
adversely affected. In addition, although the Old Notes have been designated
for trading in the Private Offerings, Resale and Trading through Automatic
Linkages ("PORTAL") market, to the extent that Old Notes are tendered and
accepted in connection with the Exchange Offer, any trading market for Old
Notes that remain outstanding after the Exchange Offer could be adversely
affected.
FAILURE TO COMPLY WITH EXCHANGE OFFER PROCEDURES
Issuance of the Exchange Notes in exchange for the Old Notes pursuant to the
Exchange Offer will be made only after timely receipt by the Exchange Agent of
such Old Notes, a properly completed and duly executed Letter of Transmittal
and all other required documents. Therefore, holders of the Old Notes desiring
to tender such Old Notes in exchange for Exchange Notes should allow
sufficient time to ensure timely delivery. The Company is under no duty to
give notification of defects or irregularities with respect to tenders of Old
Notes for exchange. Holders of Old Notes who do not exchange their Old Notes
for Exchange Notes pursuant to the Exchange Offer will continue to be subject
to the restrictions on transfer of such Old Notes as set forth in the legend
thereon. See "The Exchange Offer."
IMPACT OF THE YEAR 2000 ISSUE
The Year 2000 issue is the result of computer programs having been written
using two digits rather than four to define the applicable year, resulting in
date-sensitive software having the potential to recognize a date using "00" as
the year 1900 rather than the year 2000. This could result in a system failure
or miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices, or
engage in similar normal business activities. Neither management nor Armstrong
has developed a plan to review software that was internally developed or
externally purchased or licensed. Management has not reviewed with its key
vendors and service providers their software, for compliance with Year 2000
processing requirements. If the systems of other companies on whose services
the Company depends, including Armstrong, or with whom the Company's systems
interface are not Year 2000 compliant, there could be a material adverse
effect on the Company's business, financial condition and results of
operation.
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THE EXCHANGE OFFER
PURPOSES AND EFFECTS OF THE EXCHANGE OFFER
The Company entered into the Registration Rights Agreement with the Initial
Purchasers, pursuant to which the Company is obligated to file with the
Commission, subject to the provisions described below, the Exchange
Offer Registration Statement on an appropriate form permitting the Exchange
Notes to be offered in exchange for the Transfer Restricted Securities and to
permit resales of Exchange Notes held by broker-dealers as contemplated by the
Registration Rights Agreement. The Registration Rights Agreement provides that
unless the Exchange Offer would not be permitted by applicable law or
Commission policy, the Company will (i) file the Exchange Offer Registration
Statement with the Commission on or prior to 60 days after the Closing Date,
(ii) use its reasonable best efforts to cause the Exchange Offer Registration
Statement to be declared effective by the Commission within 120 days after the
Closing Date, (iii) (A) file all pre-effective amendments to such Exchange
Offer Registration Statement as may be necessary in order to cause such
Exchange Offer Registration Statement to become effective, (B) file if
applicable, a post-effective amendment to such Exchange Offer Registration
Statement pursuant to Rule 430A under the Securities Act and (C) cause all
necessary filings in connection with the registration and qualifications of
the Exchange Notes to be made under the blue sky laws of such jurisdictions as
are necessary to permit consummation of the Exchange Offer and (iv) use its
reasonable best efforts to cause the Exchange Offer to be consummated on or
prior to 30 days after the date on which the Exchange Offer Registration
Statement is declared effective by the Commission.
For purposes of the foregoing, "Transfer Restricted Securities" means each
Note until the earliest to occur of (i) the date on which such Note has been
exchanged by a person other than a broker-dealer for Exchange Notes in the
Exchange Offer, (ii) following the exchange by a broker-dealer in the Exchange
Offer of such Note for one or more Exchange Notes, the date on which such
Exchange Notes are sold to a purchaser who receives from such broker-dealer on
or prior to the date of such sale a copy of the prospectus contained in the
Exchange Offer Registration Statement, (iii) the date on which such Note has
been effectively registered under the Securities Act and disposed of in
accordance with the Shelf Registration Statement or (iv) the date on which
such Note is eligible for distribution to the public pursuant to Rule 144
under the Securities Act.
Under existing Commission interpretations, the Exchange Notes would, in
general, be freely transferable after the Exchange Offer without further
registration under the Securities Act; provided, however, that, in the case of
broker-dealers participating in the Exchange Offer, a prospectus meeting the
requirements of the Securities Act must be delivered by such broker-dealers in
connection with resales of the Exchange Notes. The Company has agreed, for a
period of 180 days after consummation of the Exchange Offer, to make available
a prospectus meeting the requirements of the Securities Act to any such
broker-dealer for use in connection with any resale of any Exchange Notes
acquired in the Exchange Offer. A broker-dealer that delivers such a
prospectus to purchasers in connection with such resales will be subject to
certain of the civil liability provisions under the Securities Act and will be
bound by the provisions of the Registration Rights Agreement (including
certain indemnification rights and obligations).
Holders of Old Notes that desire to exchange such Old Notes for Exchange
Notes in the Exchange Offer will be required to make certain representations,
including representations that (i) any Exchange Notes to be received by it
will be acquired in the ordinary course of its business, (ii) it has no
arrangement with any person to participate in the distribution (within the
meaning of the Securities Act) of the Exchange Notes and (iii) it is not an
"affiliate," as defined in Rule 405 of the Securities Act, of the Company, or
if it is an affiliate, it will comply with the registration and prospectus
delivery requirements of the Securities Act to the extent applicable.
If the holder is not a broker-dealer, it will be required to represent that
it is not engaged in, and does not intend to engage in, the distribution of
the Exchange Notes. If the holder is a broker-dealer that will receive
Exchange Notes for its own account in exchange for Notes that were acquired as
a result of market-making activities or other trading activities, it will be
required to acknowledge that it will deliver a prospectus in connection with
any resale of such Exchange Notes.
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The Company has agreed to pay all expenses incident to the Exchange Offer
and will indemnify the Initial Purchasers against certain liabilities,
including liabilities under the Securities Act.
If (i) the Company is not permitted to consummate the Exchange Offer because
the Exchange Offer is not permitted by applicable law or Commission policy,
(ii) any holder of Transfer Restricted Securities that is a "qualified
institutional buyer" (as defined in Rule 144A under the Securities Act)
notifies the Company at least 20 business days prior to the consummation of
the Exchange Offer that (a) applicable law or Commission policy prohibits the
Company from participating in the Exchange Offer, (b) such holder may not
resell the Exchange Notes acquired by it in the Exchange Offer to the public
without delivering a prospectus and this Prospectus is not appropriate or
available for such resales by such Holder or (c) such holder is a broker-
dealer and holds Notes acquired directly from the Company or an affiliate of
the Company, (iii) the Exchange Offer is not for any other reason consummated
by June 1, 1998 or (iv) the Exchange Offer has been completed and in the
opinion of counsel for the Initial Purchasers a Registration Statement must be
filed and a prospectus must be delivered by the Initial Purchasers in
connection with any offering or sale of Transfer Restricted Securities, the
Company will use its reasonable best efforts to: (A) file a Shelf Registration
Statement within 60 days of the earliest to occur of (i) through (iv) above
and (B) cause the Shelf Registration Statement to be declared effective by the
Commission on or prior to the 120th day after such obligation arises. The
Company shall use its reasonable best efforts to keep such Shelf Registration
Statement continuously effective, supplemented and amended to ensure that it
is available for resales of Notes by the holders of Transfer Restricted
Securities entitled to this benefit and to ensure that such Shelf Registration
Statement conforms and continues to conform with the requirements of the
Registration Rights Agreement, the Securities Act and the policies, rules and
regulations of the Commission, as announced from time to time, until the
second anniversary of the Closing Date; provided, however, that during such
two-year period the holders may be prevented or restricted by the Company from
effecting sales pursuant to the Shelf Registration Statement as more fully
described in the Registration Rights Agreement. A holder of Notes that sells
its Notes pursuant to the Shelf Registration Statement generally will be
required to be named as a selling security holder in the related prospectus
and to deliver a prospectus to purchasers, will be subject to certain of the
civil liability provisions under the Securities Act in connection with such
sales and will be bound by the provisions of the Registration Rights Agreement
that are applicable to such Holder (including certain indemnification and
contribution obligations).
If (i) the Company fails to file with the Commission any of the Registration
Statements required by the Registration Rights Agreement on or before the date
specified therein for such filing, (ii) any of such Registration Statements is
not declared effective by the Commission on or prior to the date specified for
such effectiveness in the Registration Rights Agreement (the "Effectiveness
Target Date"), (iii) the Exchange Offer has not been consummated within 30
days after the Effectiveness Target Date with respect to the Exchange Offer
Registration Statement or (iv) any Registration Statement required by the
Registration Rights Agreement is filed and declared effective but thereafter
ceases to be effective or fails to be usable for its intended purpose without
being succeeded within five business days by a post-effective amendment to
such Registration Statement that cures such failure and that is itself
immediately declared effective (each such event referred to in clauses (i)
through (iv) above, a "Registration Default"), additional cash interest
("Liquidated Damages") shall accrue to each holder of the Notes commencing
upon the occurrence of such Registration Default in an amount equal to .50%
per annum of the principal amount of Notes held by such holder. The amount of
Liquidated Damages will increase by an additional .50% per annum of the
principal amount of Notes with respect to each subsequent 90-day period (or
portion thereof) until all Registration Defaults have been cured, up to a
maximum rate of Liquidated Damages of 1.50% per annum of the principal amount
of Notes. All accrued Liquidated Damages will be paid to holders by the
Company in the same manner as interest is paid pursuant to the Indenture.
Following the cure of all Registration Defaults relating to any particular
Transfer Restricted Securities, the accrual of Liquidated Damages with respect
to such Transfer Restricted Securities will cease.
The summary herein of certain provisions of the Registration Rights
Agreement does not purport to be complete and is subject to, and is qualified
by reference to, all the provisions of the Registration Rights Agreement, a
copy of which has been filed with the Commission as an Exhibit to Exchange
Offer Registration Statement of which this Prospectus is a part.
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<PAGE>
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Company will accept any and all Old
Notes validly tendered and not withdrawn prior to 5:00 p.m., New York City
time, on the Expiration Date. The Company will issue up to $300,000,000
aggregate principal amount of Exchange Notes in exchange for up to
$300,000,000 aggregate principal amount of outstanding Old Notes accepted in
the Exchange Offer. Holders may tender some or all of their Old Notes pursuant
to the Exchange Offer. However, Old Notes may be tendered only in integral
multiples of $1,000. The Exchange Offer is not conditioned upon any minimum
aggregate principal amount of Old Notes being tendered for exchange.
The form and terms of the Exchange Notes will be identical in all material
respect to the form and terms of the Old Notes, except that (i) the Exchange
Notes will have been registered under the Securities Act and therefore will
not bear legends restricting the transfer thereof and (ii) the holders of the
Exchange Notes will not be entitled to certain rights under the Registration
Rights Agreement, including the terms providing for an increase in the
interest rate on the Old Notes under certain circumstances relating to the
timing of the Exchange Offer, all of which rights will terminate when the
Exchange Offer is consummated. The Exchange Notes will evidence the same debt
as the Old Notes and will be entitled to the benefits of the Indenture under
which the Old Notes were, and the Exchange Notes will be, issued, such that
all outstanding Notes will be treated as a single class of debt securities
under the Indenture.
As of the date of this Prospectus, $300,000,000 aggregate principal amount
of the Old Notes was outstanding. Holders of Old Notes do not have any
appraisal or dissenters' rights under the Indenture in connection with the
Exchange Offer. The Company intends to conduct the Exchange Offer in
accordance with the provisions of the Registration Rights Agreement and the
applicable requirements of the Securities Act, the Exchange Act and the rules
and regulations of the Commission thereunder.
The Company shall be deemed to have accepted validly tendered Old Notes
when, as and if the Company has given oral or written notice thereof to the
Exchange Agent. The Exchange Agent will act as agent for the tendering holders
for the purpose of receiving the Exchange Notes from the Company.
If any tendered Old Notes are not accepted for exchange because of an
invalid tender, the occurrence of certain other events set forth herein or
otherwise, such unaccepted Old Notes will be returned, without expense, to the
tendering holder thereof as promptly as practicable after the Expiration Date.
Holders who tender Old Notes in the Exchange Offer will not be required to
pay brokerage commission or fees or, subject to the instructions in the Letter
of Transmittal, transfer taxes with respect to the exchange of Old Notes
pursuant to the Exchange Offer. The Company will pay all charges and expenses,
other than certain applicable taxes, in connection with the Exchange Offer.
See "--Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York City time, on . ,
1998, unless the Company, in its sole discretion, extends the Exchange Offer,
in which case the term "Expiration Date" shall mean the latest date and time
to which the Exchange Offer is extended.
In order to extend the Exchange Offer, the Company will notify the Exchange
Agent of any extension by oral (promptly confirmed in writing) or written
notice and will make a public announcement thereof, each prior to 9:00 a.m.,
New York City time, on the next business day after the previously scheduled
expiration date of the Exchange Offer. Without limiting the manner in which
the Company may choose to make a public announcement of any delay, extension,
amendment or termination of the Exchange Offer, the Company shall have no
obligation to publish, advertise or otherwise communicate any such public
announcement, other than by making a timely release to an appropriate news
agency.
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The Company reserves the right, in its sole discretion, (i) to delay
accepting any Old Notes, (ii) to extend the Exchange Offer, (iii) if any
conditions set forth below under "--Conditions to Exchange Offer" shall not
have been satisfied, to terminate the Exchange Offer by giving oral or written
notice of such delay, extension or termination to the Exchange Agent or (iv)
to amend the terms of the Exchange Offer in any manner. Any such delay in
acceptance, extension, termination or amendment will be followed as promptly
as practicable by oral or written notice thereof to the registered holders. If
the Exchange Offer is amended in a manner determined by the Company to
constitute a material change, the Company will promptly disclose such
amendment by means of a prospectus supplement that will be distributed to the
registered holders of Old Notes, and the Company will extend the Exchange
Offer for a period of five to ten business days, depending upon the
significance of the amendment and the manner of disclosure to such registered
holders, if the Exchange Offer would otherwise expire during such five to ten
business day period. The rights reserved by the Company in this paragraph are
in addition to the Company's rights set forth below under the caption "--
Conditions to Exchange Offer."
If the Company extends the period of time during which the Exchange Offer is
open, or if it is delayed in accepting for exchange of, or in issuing and
exchanging the Exchange Notes for, any Old Notes, or is unable to accept for
exchange of, or issue Exchange Notes for, any Old Notes pursuant to the
Exchange Offer for any reason, then, without prejudice to the Company's rights
under the Exchange Offer, the Exchange Agent may, on behalf of the Company,
retain all Old Notes tendered, and such Old Notes may not be withdrawn except
as otherwise provided below in "--Withdrawal of Tenders." The adoption by the
Company of the right to delay acceptance for exchange of, or the issuance and
the exchange of the Exchange Notes, for any Old Notes is subject to applicable
law, including Rule 14e-1(c) under the Exchange Act, which requires that the
Company pay the consideration offered or return the Old Notes deposited by or
on behalf of the holders thereof promptly after the termination or withdrawal
of the Exchange Offer.
PROCEDURES FOR TENDERING
Only a registered holder of Old Notes may tender such Old Notes in the
Exchange Offer. To tender in the Exchange Offer, a holder must complete, sign
and date the Letter of Transmittal, or facsimile thereof, have the signature
thereon guaranteed if required by the Letter of Transmittal and mail or
otherwise deliver such Letter of Transmittal or such facsimile to the Exchange
Agent at the address set forth below under "--Exchange Agent" for receipt
prior to the Expiration Date. In addition, either (i) certificates for such
Old Notes must be received by the Exchange Agent along with the Letter of
Transmittal, or (ii) a timely confirmation of a book-entry transfer of such
Old Notes, if such procedure is available, into the Exchange Agent's account
at DTC pursuant to the procedure for book-entry transfer described below, must
be received by the Exchange Agent prior to the Expiration Date, or (iii) the
holders must comply with the guaranteed delivery procedures described below
under "--Guaranteed Delivery Procedures."
Any financial institution that is a participant in the Depository's Book-
Entry Transfer facility system may make book-entry delivery of the Old Notes
by causing the Depository to transfer such Old Notes into the Exchange Agent's
account in accordance with the Depository's procedure for such transfer.
Although delivery of Old Notes may be effected through book-entry transfer
into the Exchange Agent's account at the Depository, the Letter of Transmittal
(or facsimile thereof), with any required signature guarantees and any other
required documents, must, in any case, be transmitted to and received and
confirmed by the Exchange Agent at its addresses set forth under "--Exchange
Agent" below prior to 5:00 p.m., New York City time, on the Expiration Date.
DELIVERY OF DOCUMENTS TO THE DEPOSITORY IN ACCORDANCE WITH ITS PROCEDURES DOES
NOT CONSTITUTE DELIVERY TO THE EXCHANGE AGENT.
The tender by a holder which is not withdrawn prior to the Expiration Date
will constitute a binding agreement between such holder and the Company in
accordance with the terms and subject to the conditions set forth herein and
in the Letter of Transmittal.
THE METHOD OF DELIVERY OF OLD NOTES AND THE LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK OF
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THE HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE AN
OVERNIGHT OR HAND DELIVERY SERVICE, PROPERLY INSURED. IF DELIVERY IS BY MAIL,
REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS
RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE
DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE. NO LETTER OF
TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO THE COMPANY. HOLDERS MAY REQUEST
THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST COMPANIES OR
NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR SUCH HOLDERS.
Any beneficial owner of the Old Notes whose Old Notes are registered in the
name of a broker, dealer, commercial bank, trust company or other nominee and
who wishes to tender should contact the registered holder promptly and
instruct such registered holder to tender on such beneficial owner's behalf.
If such beneficial owner wishes to tender on such owner's own behalf, such
owner must, prior to completing and executing the Letter of Transmittal and
delivering such owner's Old Notes either make appropriate arrangements to
register ownership of the Old Notes in such owner's name (to the extent
permitted by the Indenture) or obtain a properly completed assignment from the
registered holder. The transfer of registered ownership may take considerable
time.
If the Letter of Transmittal is signed by a person other than the registered
holder of any Old Notes (which term includes any participants in DTC whose
name appears on a security position listing as the owner of the Old Notes) or
if delivery of the Old Notes is to be made to a person other than the
registered holder, such Exchange Notes must be endorsed or accompanied by a
properly completed bond power, in either case signed by such registered holder
as such registered holder's name appears on such Old Notes with the signature
on the Old Notes or the bond power guaranteed by an Eligible Institution (as
defined below).
Signatures on a Letter of Transmittal or a notice of withdrawal described
below (see "--Withdrawal of Tenders"), as the case may be, must be guaranteed
by an Eligible Institution unless the Old Notes tendered pursuant thereto are
tendered (i) by a registered holder who has not completed the box entitled
"Special Delivery Instructions" on the Letter of Transmittal or (ii) for the
account of an Eligible Institution. In the event that signatures on a Letter
of Transmittal or a notice of withdrawal, as the case may be, are required to
be guaranteed, such guarantee must be made by a member firm of a registered
national securities exchange or of the National Association of Securities
Dealers, Inc., a commercial bank or trust company having an office or
correspondent in the United States, or another "Eligible Guarantor
Institution" within the meaning of Rule 17Ad-15 under the Exchange Act (any of
the foregoing an "Eligible Institution").
If the Letter of Transmittal or any Old Notes or assignments are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and unless waived by the Company,
evidence satisfactory to the Company of their authority to so act must be
submitted with the Letter of Transmittal.
The Exchange Agent and the Depository have confirmed that any financial
institution that is a participant in the Depository's system may utilize the
Depository's Automated Tender Offer Program to tender Old Notes.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of tendered Old Notes will be determined
by the Company in its sole discretion, which determination will be final and
binding. The Company reserves the absolute right to reject any and all Old
Notes not properly tendered or any Old Notes, the Company's acceptance of
which would, in the opinion of counsel for the Company, be unlawful. The
Company also reserves the right to waive any defects, irregularities or
conditions of tender as to particular Old Notes. The Company's interpretation
of the terms and conditions of the Exchange Offer (including the instructions
in the Letter of Transmittal) will be final and binding on all parties. Unless
waived, any defects or irregularities in connection with tenders of Old Notes
must be cured within such time as the Company shall determine. Although the
Company intends to request the Exchange Agent to notify holders of defects or
irregularities with respect to tenders of Old Notes, neither the Company, the
Exchange Agent nor any other person shall incur any liability for failure to
give such notification. Tenders of Old Notes will not be deemed to have been
made until such defects or irregularities have been cured or waived.
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While the Company has no present plan to acquire any Old Notes which are not
tendered in the Exchange Offer or to file a registration statement to permit
resales of any Old Notes which are not tendered pursuant to the Exchange
Offer, the Company reserves the right in its sole discretion to purchase or
make offers for any Old Notes that remain outstanding subsequent to the
Expiration Date or, as set forth below under "--Conditions to Exchange Offer,"
to terminate the Exchange Offer and, to the extent permitted by applicable
law, purchase Old Notes in the open market, in privately negotiated
transactions or otherwise. The terms of any such purchase or offers could
differ from the terms of the Exchange Offer.
By tendering, each holder will represent to the Company that, among other
things, (i) the Exchange Notes to be acquired by the holder of the Old Notes
in connection with the Exchange Offer are being acquired by the holder in the
ordinary course of business of the holder, (ii) the holder has no arrangement
or understanding with any person to participate in the distribution of
Exchange Notes, (iii) if the holder is not a broker-dealer, or is a broker-
dealer but will not receive Exchange Notes for its own account in exchange for
Old Notes, neither the holder nor any such other person is engaged in or
intends to participate in the distribution of such Exchange Notes, (iv) the
holder understands that a secondary resale transaction described in clause
(iii) above and any resales of Exchange Notes obtained by such holder in
exchange for Old Notes acquired by such holder directly from the Company
should be covered by an effective registration statement containing the
selling security holder information required by Item 507 or Item 508, as
applicable, of Regulation S-K of the Commission, and (v) the holder is not an
"affiliate," as defined in Rule 405 of the Securities Act, of the Company or,
if such holder is an affiliate of the Company, that such holder will comply
with the registration and prospectus delivery requirements of the Securities
Act to the extent applicable. If the holder is a broker-dealer that will
receive Exchange Notes for its own account in exchange for Old Notes that were
acquired as a result of market-making activities or other trading activities,
the holder is required to acknowledge in the Letter of Transmittal that it
will deliver a prospectus in connection with any resale of such Exchange
Notes; however, by so acknowledging and by delivering a prospectus, the holder
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act. See "Plan of Distribution."
RETURN OF OLD NOTES
If any tendered Old Notes are not accepted for exchange because of an
invalid tender, the occurrence of certain other events set forth herein or
otherwise, certificates for any such unaccepted Old Notes will be returned
without expense to the tendering holder thereof (or, in the case of Old Notes
tendered by book-entry transfer into the Exchange Agent's account at the
Depository pursuant to the book-entry transfer procedures described below,
such Old Notes will be credited to an account maintained with the Depository)
as promptly as practicable.
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Old Notes at the Depository for purposes of the Exchange Offer within
two business days after the date of this Prospectus, and any financial
institution that is a participant in the Depository's system may make book-
entry delivery of Old Notes by causing the Depository to transfer such Old
Notes into the Exchange Agent's account at the Depository in accordance with
the Depository's procedures for transfer. However, although delivery of Old
Notes may be effected through book-entry transfer at the Depository, the
Letter of Transmittal or facsimile thereof, with any required signature
guarantees and any other required documents, must, in any case, be transmitted
to and received by the Exchange Agent at the address set forth below under "--
Exchange Agent" on or prior to the Expiration Date or pursuant to the
guaranteed delivery procedures described below.
33
<PAGE>
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Old Notes and (i) whose Old Notes are not
immediately available or (ii) who cannot deliver their Old Notes (or complete
the procedures for book-entry transfer), the Letters of Transmittal or any
other required documents to the Exchange Agent prior to the Expiration Date,
may effect a tender if:
(a) the tender is made through an Eligible Institution;
(b) prior to the Expiration Date, the Exchange Agent receives from such
Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery substantially in the form provided by the Company (by
facsimile transmission, mail or hand delivery) setting forth the name and
address of the holder, the certificate number(s) of such Old Notes (if
available) and the principal amount of Old Notes tendered, stating that the
tender is being made thereby and guaranteeing that, within five New York
Stock Exchange trading days after the Expiration Date, the Letter of
Transmittal (or a facsimile thereof) together with the certificate(s)
representing the Old Notes in proper form (or transfer for a confirmation
of a book-entry transfer into the Exchange Agent's account at the
Depository of Old Notes delivered electronically), and any other documents
required by the Letter of Transmittal will be deposited by the Eligible
Institution with the Exchange Agent; and
(c) such properly executed Letter of Transmittal (or facsimile thereof),
as well as the certificate(s) representing all tendered Old Notes in proper
form for transfer (or a confirmation of a book-entry transfer into the
Exchange Agent's account at the Depository of Old Notes delivered
electronically), and all other documents required by the Letter of
Transmittal are received by the Exchange Agent within five New York Stock
Exchange trading days after the Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to the holders who wish to tender their Old Notes according to the
guaranteed delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Old Notes may be withdrawn
at any time prior to the Expiration Date. To withdraw a tender of Old Notes in
the Exchange Offer, a written or facsimile transmission notice of withdrawal
must be received by the Exchange Agent at its address set forth herein prior
to the Expiration Date. Any such notice of withdrawal must (i) specify the
name of the person having deposited the Old Notes to be withdrawn (the
"Depositor"), (ii) identify the Old Notes to be withdrawn (including the
certificate number or numbers (if applicable) and principal amount of such Old
Notes), and (iii) be signed by the holder in the same manner as the original
signature on the Letter of Transmittal by which such Old Notes were tendered
(including any required signature guarantees). All questions as to the
validity, form and eligibility (including time of receipt) of such notices
will be determined by the Company in its sole discretion, whose determination
shall be final and binding on all parties. Any Old Notes so withdrawn will be
deemed not to have been validly tendered for purposes of the Exchange Offer
and no Exchange Notes will be issued with respect thereto unless the Old Notes
so withdrawn are validly retendered. Properly withdrawn Old Notes may be
retendered by following one of the procedures described above under "--
Procedures for Tendering" at any time prior to the Expiration Date.
CONDITIONS TO EXCHANGE OFFER
Notwithstanding any other term of the Exchange Offer, the Company shall not
be required to accept for exchange, or exchange the Exchange Notes for, any
Old Notes not theretofore accepted for exchange, and may terminate or amend
the Exchange Offer as provided herein before the acceptance of such Old Notes,
if any of the following conditions exist:
(a) any action or proceeding is instituted or threatened in any court or
by or before any governmental agency with respect to the Exchange Offer
which, in the reasonable judgment of the Company, might impair the ability
of the Company to proceed with the Exchange Offer or have a material
adverse effect on the
34
<PAGE>
contemplated benefits of the Exchange Offer to the Company or there shall
have occurred any material adverse development in any existing action or
proceeding with respect to the Company or any of its Subsidiaries; or
(b) there shall have been any material change, or development involving a
prospective change, in the business or financial affairs of the Company or
any of its Subsidiaries which, in the reasonable judgment of the Company,
could reasonably be expected to materially impair the ability of the
Company to proceed with the Exchange Offer or materially impair the
contemplated benefits of the Exchange Offer to the Company; or
(c) there shall have been proposed, adopted or enacted any law, statute,
rule or regulation which, in the judgment of the Company, could reasonably
be expected to materially impair the ability of the Company to proceed with
the Exchange Offer or materially impair the contemplated benefits of the
Exchange Offer to the Company; or
(d) any governmental approval which the Company shall, in its reasonable
discretion, deem necessary for the consummation of the Exchange Offer as
contemplated hereby shall have not been obtained.
If the Company determines in its reasonable discretion that any of these
conditions are not satisfied, the Company may (i) refuse to accept any Old
Notes and return all tendered Old Notes to the tendering holders, (ii) extend
the Exchange Offer and retain all Old Notes tendered prior to the expiration
of the Exchange Offer, subject, however, to the rights of holders to withdraw
such Old Notes (see "--Withdrawal of Tenders") or (iii) waive such unsatisfied
conditions with respect to the Exchange Offer and accept all properly tendered
Old Notes which have not been withdrawn. If such waiver constitutes a material
change to the Exchange Offer, the Company will promptly disclose such waiver
by means of a prospectus supplement that will be distributed to the registered
holders of the Old Notes, and the Company will extend the Exchange Offer for a
period of five to ten business days, depending upon the significance of the
waiver and the manner of disclosure to the registered holders, if the Exchange
Offer would otherwise expire during such five to ten business day period.
Holders may have certain rights and remedies against the Company under the
Registration Rights Agreement should the Company fail to consummate the
Exchange Offer, notwithstanding a failure of the conditions stated above. See
"Description of Notes." Such conditions are not intended to modify those
rights or remedies in any respect.
The foregoing conditions are for the sole benefit of the Company and may be
asserted by the Company regardless of the circumstances giving rise to such
condition or may be waived by the Company in whole or in part at any time and
from time to time in the Company's reasonable discretion. The failure by the
Company at any time to exercise the foregoing rights shall not be deemed a
waiver of any such right and each such right shall be deemed an ongoing right
which may be asserted at any time and from time to time.
TERMINATION OF REGISTRATION RIGHTS
All rights under the Registration Rights Agreement (including registration
rights) of holders of the Old Notes eligible to participate in this Exchange
Offer will terminate upon consummation of the Exchange Offer except with
respect to the Company's continuing obligations (i) to indemnify the holders
(including any broker-dealers) and certain parties related to the holders
against certain liabilities (including liabilities under the Securities Act),
(ii) to provide, upon the request of any holder of any transfer-restricted Old
Notes, certain information in order to permit resales of such Old Notes
pursuant to Rule 144A, (iii) to use its best efforts to keep the Exchange
Offer Registration Statement effective and to amend and supplement this
Prospectus in order to permit this Prospectus to be lawfully delivered by all
persons subject to the prospectus delivery requirements of the Securities Act
for such period of time as is necessary to comply with applicable law in
connection with any resale of the Exchange Notes; provided, however, that such
period shall not exceed 180 days after the Exchange Offer has been
consummated. Insofar as indemnification for liabilities arising under the
Securities Act may be permitted pursuant to the foregoing provisions, the
Company has been informed that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities Act
and is therefore unenforceable.
35
<PAGE>
EXCHANGE AGENT
State Street Bank and Trust Company has been appointed as Exchange Agent for
the Exchange Offer. All questions and requests for assistance as well as
correspondence in connection with the Exchange Offer and the Letter of
Transmittal should be addressed to the Exchange Agent, as follows:
State Street Bank and Trust Company
Corporate Trust Department
4th Floor
Two International Place
Boston, MA 02110
Attn: Sandra Szczponik
(617) 664-5587
Requests for additional copies of this Prospectus, the Letter of Transmittal
or the Notice of Guaranteed Delivery should be directed to the Exchange Agent.
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by the Company. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telecopy, telephone or in person by officers and regular
employees of the Company and its affiliates.
The Company has not retained any dealer-manager or other soliciting agent in
connection with the Exchange Offer and will not make any payments to brokers,
dealers or others soliciting acceptance of the Exchange Offer. The Company,
however, will pay the Exchange Agent reasonable and customary fees for its
services and will reimburse it for its reasonable out-of-pocket expenses in
connection therewith.
The cash expenses to be incurred in connection with the Exchange Offer will
be paid by the Company and are estimated in the aggregate to be approximately
$1,000,000. Such expenses include fees and expenses of the Exchange Agent and
Trustee, accounting and legal fees and printing costs, among others.
The Company will pay all transfer taxes, if any, applicable to the exchange
of Old Notes pursuant to the Exchange Offer. If, however, a transfer tax is
imposed for any reason other than the exchange of Old Notes pursuant to the
Exchange Offer, then the amount of any such transfer taxes (whether imposed on
the registered holder or any other persons) will be payable by the tendering
holder. If satisfactory evidence of payment of such taxes or exemption
therefrom is not submitted with the Letter of Transmittal, the amount of such
transfer taxes will be billed directly to such tendering holder of Old Notes.
ACCOUNTING TREATMENT
The Exchange Notes will be recorded at the same carrying value as the Old
Notes as reflected in the Company's accounting records on the date of the
exchange. Accordingly, no gain or loss for accounting purposes will be
recognized. The expenses of the Exchange Offer will be amortized over the term
of the Notes.
36
<PAGE>
CAPITALIZATION
The following table sets forth FCI's capitalization as of December 31, 1997
(i) on a historical basis and (ii) on an as adjusted basis, assuming the
consummation of the offering of the Old Notes and the application of the
assumed net proceeds thereof had occurred on December 31, 1997. The
information set forth in the following table should be read in conjunction
with the Company's financial statements and notes thereto included elsewhere
in this Prospectus.
<TABLE>
<CAPTION>
AS OF
DECEMBER 31, 1997
--------------------------
ACTUAL AS ADJUSTED(/1/)
-------- ----------------
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS)
<S> <C> <C>
Cash(/2/) .......................................... $ 7,353 $193,989
======== ========
Long-term restricted cash(/2/) ..................... $ -- $ 86,500
======== ========
Current maturities of long-term obligations......... $ 2,400 $ 1,410
Long-term debt (less current portion):
Other debt obligations(/3/)....................... 18,779 2,905
10 1/2% Senior Notes due 2008..................... -- 300,000
-------- --------
Total debt...................................... 21,179 304,315
Capital accounts:
Common stock, par value $0.01 per share--300,000
shares authorized; 225,741 shares issued and
outstanding...................................... 2 2
Additional paid-in capital........................ 36,534 36,534
Cumulative translation adjustment................. 908 908
Accumulated deficit............................... (31,990) (31,990)
-------- --------
Total capital accounts.......................... 5,454 5,454
-------- --------
Total capitalization............................ $ 26,633 $309,769
======== ========
</TABLE>
- --------
(1) Reflects the offering of the Old Notes, and the application of the
proceeds therefrom, less approximately $10.0 million estimated offering
costs. See "Prospectus Summary--Recent Developments."
(2) The net proceeds from the offering of the Old Notes have been added to
cash and restricted cash pending application of such proceeds, including
amounts which have been invested in Pledged Securities to fund the first
six scheduled interest payments on the Notes. Excludes proceeds used to
repay amounts outstanding under vendor financing agreements.
(3) Represents obligations outstanding under (a) vendor financing arrangements
that the Company entered into in connection with its purchase of switching
equipment and (b) financing arrangements that the Company entered into in
connection with its acquisition of IRU and MAOU capacity on certain fiber
circuits.
37
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
The selected financial data for FCI presented below for the period from the
Company's inception on May 5, 1995 to September 30, 1995 and for the fiscal
years ended September 30, 1997 and 1996 have been derived from the financial
statements of FCI, which have been audited by Deloitte & Touche LLP,
independent public accountants. The financial data for the Company for the
three months ended December 31, 1997 and 1996 have been derived from the
Company's unaudited financial statements which, in the opinion of Management,
include all significant normal and recurring adjustments necessary for fair
presentation of the financial position and results of operations for such
unaudited period. The statements of operations data for Tele8 for the period
January 1, 1995 through June 30, 1995, have been derived from the financial
statements of Tele8, which have been audited by Deloitte & Touche, independent
chartered accountants. The information set forth below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Results of Operations" and the financial statements
of FCI included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
PERIOD FROM
THREE MONTHS FISCAL YEAR JANUARY 1,
ENDED ENDED PERIOD FROM 1995 TO
DECEMBER 31, SEPTEMBER 30, MAY 5, 1995 TO JUNE 30, 1995
---------------- ----------------- SEPTEMBER 30, TELE8--
1997 1996 1997 1996 1995 PREDECESSOR(/1/)
------- ------- -------- ------- -------------- ----------------
(DOLLARS IN THOUSANDS, EXCEPT OTHER DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues:
Wholesale revenues..... $33,761 $10,715 $ 66,422 $11,664 $ 547 $ 367
Retail revenues........ 2,047 539 3,765 227 -- --
------- ------- -------- ------- ------- -------
Total revenues......... 35,808 11,254 70,187 11,891 547 367
Cost of revenues........ 32,809 10,524 65,718 12,742 1,022 938
------- ------- -------- ------- ------- -------
Gross margin
(deficit)............. 2,999 730 4,469 (851) (475) (571)
Operating expenses:
Selling, general and
administrative
(including related
party)................ 5,962 3,013 13,511 7,582 943 537
Depreciation and
amortization.......... 1,001 515 2,318 1,143 142 197
------- ------- -------- ------- ------- -------
Total operating
expenses.............. 6,963 3,528 15,829 8,725 1,085 734
------- ------- -------- ------- ------- -------
Loss from operations.... (3,964) (2,798) (11,360) (9,576) (1,560) (1,305)
Interest expense
(including related
party)................. (535) (175) (1,336) (312) (80) (44)
Foreign exchange gain
(loss)................. (457) (413) (1,335) 226 (85) 8
------- ------- -------- ------- ------- -------
Loss before income
taxes.................. (4,956) (3,386) (14,031) (9,662) (1,725) (1,341)
Income taxes............ (393) -- -- -- -- --
------- ------- -------- ------- ------- -------
Net loss................ $(5,349) $(3,386) $(14,031) $(9,662) $(1,725) $(1,341)
======= ======= ======== ======= ======= =======
Ratio of earnings to
fixed charges(/2/)..... -- --
======= ========
OTHER FINANCIAL DATA:
Gross margin (deficit)
as a percentage of
revenue (%)............ 8.4 6.5 6.4 (7.2) (86.8) (155.6)
SG&A as a percentage of
revenue (%)............ 16.6 26.8 19.3 63.8 172.4 146.3
EBITDA ($)(/3/)......... (2,963) (2,283) (9,042) (8,433) (1,418) (1,108)
Cash flows from
operating activities... (3,836) (68) (8,361) (5,413) (1,624) 563
Cash flows from
investing activities... (3,575) (559) (1,664) (1,074) (1,055) (545)
Cash flows from
financing activities... 13,524 409 7,914 8,572 2,788 --
Capital expenditures
($).................... 8,053 3,542 12,282 8,404 1,105 1,213
OTHER DATA:
Wholesale customers (at
period end)............ 77 22 53 17 3 N/A
Retail customers
(Sweden) (at period
end)................... 16,015 3,309 12,365 1,615 -- N/A
Billed minutes of use
(in thousands)......... 130,625 39,382 252,290 41,276 2,725 N/A
Revenue per billed
minute of use ($)...... 0.274 0.286 0.278 0.288 0.201 N/A
Number of employees (at
period end)............ 113 66 93 63 16 N/A
Number of switches (at
period end)............ 5 2 4 2 1 N/A
</TABLE>
38
<PAGE>
<TABLE>
<CAPTION>
SEPTEMBER 30,
DECEMBER 31, -------------------------
1997 1997 1996 1995
------------ -------- ------- ------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash ................................. $ 7,353 $ 1,016 $ 2,198 $ 109
Working capital (excluding cash) ..... (13,476) (11,243) (7,377) (1,852)
Property and equipment, net........... 27,554 20,244 10,144 2,661
Total assets.......................... 66,000 44,017 21,008 5,664
Total long-term obligations (including
current portion)..................... 21,179 22,589 9,795 1,906
Capital accounts...................... 5,454 (9,421) (1,715) 1,109
</TABLE>
- --------
(1) Data for periods prior to January 1, 1995 have not been presented because
amounts were insignificant and not meaningful. Cumulative revenue and
losses from inception through December 31, 1994 were $35,758 and $287,564,
respectively, and both total assets and liabilities at December 31, 1994
were $2.6 million.
(2) The ratio of earnings to fixed charges is computed by dividing pretax
income from operations before fixed charges by fixed charges. Fixed
charges consist of interest charges and that portion of rental expense the
Company believes to be representative of interest. For the period January
1, 1995 through June 30, 1995 (Predecessor), the periods ended September
30, 1995, 1996 and 1997 and the three months ended December 31, 1997
(unaudited), earnings were insufficient to cover fixed charges by $1.3
million, $1.7 million, $9.7 million, $14.0 million and $5.0 million,
respectively.
(3) EBITDA consists of earnings (loss) before interest expense, income taxes,
depreciation, amortization and foreign exchange gain (loss). EBITDA should
not be considered as a substitute for operating earnings, net income, cash
flow or other combined statement of income or cash flow data computed in
accordance with generally accepted accounting principles or as a measure
of a company's results of operations or liquidity. EBITDA is widely used
as a measure of a company's operating performance and its ability to
service its indebtedness because it assists in comparing performance on a
consistent basis across companies, which can vary significantly.
39
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion and analysis should be read in conjunction with the
financial statements and notes thereto contained elsewhere in this Prospectus.
Certain information contained below and elsewhere in this Prospectus,
including information with respect to the Company's plans and strategy for its
business, are forward-looking statements. See "Risk Factors" for a discussion
of important factors which could cause actual results to differ materially
from the forward-looking statements contained herein.
OVERVIEW
FCI is a rapidly growing multinational carrier focused on providing
international wholesale telecommunications services to other carriers
worldwide. As a facilities-based carrier, the Company seeks primarily to
provide service over its facilities and international transmission capacity
owned or leased on a fixed-cost basis ("on-net"). The Company believes that it
is better able to control the quality and the termination costs of on-net
traffic and that increasing the proportion of on-net traffic significantly
improves the Company's gross margins. For the three months ended December 31,
1997, 20.5% of the Company's wholesale international traffic was terminated
on-net and 79.5% was terminated by other long distance carriers pursuant to
resale and operating agreements between the Company and such carriers ("off-
net"). The Company plans to expand its facilities to increase the percentage
of on-net traffic.
FCI LLC, the Company's predecessor, was formed as a Delaware limited
liability company in May 1995 by AIT and FMG, with AIT and FMG contributing
$180,000 and $60,000, respectively, in exchange for ownership interests of
75.0% and 25.0% in the Company, respectively. As the Company's majority
stockholder, AIT has supplied substantially all of the Company's capital. In
September 1996, AIT provided FCI LLC with working capital of $10.2 million in
the form of an additional capital contribution (the "Additional Capital"). As
a result of the Additional Capital, AIT was entitled to a guaranteed return
through September 30, 1997 for the use of the Additional Capital, pursuant to
the terms of FCI LLC's limited liability company agreement. In November 1996,
AIT provided FCI LLC a $5.0 million convertible line of credit, at a rate of
10.0% per annum, due October 31, 1999, and also guaranteed a $10.0 million
letter of credit facility for the benefit of FCI LLC (collectively, the
"Convertible Debenture").
In September 1997, AIT increased its equity ownership in the Company from
75.0% to 81.0% by converting into permanent equity (1) the Convertible
Debenture (which, together with accrued interest, totaled $5.4 million) and
(2) capital contributions of $10.9 million (representing the $10.2 million
furnished by AIT in September 1996 plus a guaranteed return of $724,000
related thereto). Also in September 1997, AIT established a bridge loan for
the benefit of the Company, pursuant to which AIT advanced funds to the
Company for working capital purposes at a rate equal to the prime rate plus
1.0% per annum.
In November 1997, the Company's stockholders, AIT and FMG, formed FaciliCom
International, Inc. On December 22, 1997, as a result of the Reorganization,
FCI LLC became a wholly owned subsidiary of the Company. Also on December 22,
1997, AIT made the Equity Investment of $20.0 million by making a cash
contribution of $13.7 million and a noncash contribution of $6.3 million in
the form of cancellation of amounts outstanding under the bridge loan, thereby
increasing AIT's equity ownership in the Company from 81.0% to 84.0%.
The Company provides its services over a carrier-grade international network
consisting of international gateway switches, transmission capacity owned or
leased on a fixed-cost basis and various multinational termination agreements
and resale arrangements with other long distance providers. FCI generates
revenues in Sweden primarily via an international gateway switch in Malmo
operated through Tele8. In February 1996, the Company installed its first U.S.
international gateway switch in New York City and began providing
international long distance services in the U.S. In January 1997, the Company
began operation of its second U.S. international gateway switch in Jersey
City, New Jersey. In April 1997, the Company generated its first revenues in
the U.K. through resale agreements, and in August 1997, installed its fourth
international gateway switch in London. In July 1997, the Company generated
its first revenues in Denmark through resale arrangements, and in December
1997, the Company began operating its fifth international gateway switch in
Copenhagen.
40
<PAGE>
The Company's strategy is to invest in network facilities as it expands its
customer base, allowing it to enhance service quality and increase gross
margins on particular routes. However, this approach also causes the Company's
gross margins to fluctuate with changes in network utilization due to the
Company's fixed-cost investment in its network. The Company intends to expand
its international presence significantly during 1998 by installing 13
additional switches in Australia, Austria, Belgium, France, Germany, Italy,
Japan, the Netherlands, Norway, Spain, Switzerland and the U.S. (Los Angeles
and Miami). The Company believes that expansion into these additional markets
will provide the Company with an opportunity to increase its traffic volume.
Currently, the Company's revenues are generated through the sale of
international long distance services on a wholesale basis to
telecommunications carriers and through the sale of domestic and international
long distance services on a retail basis in Sweden. The Company records
revenues from the sale of telecommunications services at the time of customer
usage. The Company earns revenue based on the number of minutes it bills to
and collects from its customers. The Company's agreements with its wholesale
customers are short-term in duration and are subject to significant traffic
variability. The rates charged to customers are subject to change from time to
time, generally requiring seven days' notice to the customer. However, the
Company is beginning to offer longer-term, fixed-price arrangements to select
customers who historically have generated large volumes of traffic,
specifically on routes where the Company provides on-net service. Consolidated
revenues grew to $35.8 million for the three months ended December 31, 1997,
from $11.3 million for the three months ended December 31, 1996, and to $70.2
million for the fiscal year ended September 30, 1997, from $11.9 million for
the fiscal year ended September 30, 1996. For the three months ended December
31, 1997 and for the fiscal year ended September 30, 1997, 94.3% and 94.6%,
respectively, of the Company's consolidated revenues were generated from the
sale of services to wholesale customers and 5.7% and 5.4%, respectively, were
generated from the sale of services to retail customers. For the three months
ended December 31, 1997, the Company's U.S., Swedish, Danish and U.K. business
units generated 76.1%, 16.5%, 3.0% and 4.4% of consolidated revenues,
respectively.
The Company believes its services are competitively priced in each country
in which the Company offers its services. Prices for wholesale and retail
telecommunications services in many of the Company's markets have declined in
recent years as a result of deregulation and increased competition. The
Company believes that worldwide deregulation and increased competition are
likely to continue to reduce the Company's wholesale and retail revenues per
billed minute of use. The Company believes, however, that any decrease in
wholesale and retail revenues per minute will be at least partially offset by
an increase in billed minutes by the Company's wholesale and retail customers,
and by a decreased cost per billed minute as a result of the expansion of the
Company's network and the Company's ability to use least cost routing.
The Company currently has operating agreements with established long
distance providers in Belgium, Denmark, the Dominican Republic, Estonia,
Finland, Germany, Hungary, Iceland, Italy, Nicaragua, Norway, Poland,
Portugal, Slovenia, the U.K. and Venezuela, and is in the process of
negotiating additional operating agreements with carriers in other countries.
Under its operating agreements, FCI typically agrees to send traffic to its
foreign partners who agree to send a proportionate amount of return traffic
via the Company's network at negotiated rates. The Company and its foreign
partners typically settle the amounts owed to each other in cash on a net
basis, subsequent to the receipt of return traffic. FCI records the amount due
to each foreign partner as an expense in the period during which the Company's
traffic is delivered. FCI recognizes revenue on return traffic in the period
in which it is received. For the three months ended December 31, 1997 and for
the fiscal year ended September 30, 1997, the Company received 5.1 million and
16.1 million minutes of return traffic, respectively, which accounted for 1.2%
and 2.3%, respectively, of the Company's consolidated revenues. See "Risk
Factors--Dependence on Operating Agreements with Foreign Operators."
Cost of revenues includes those costs associated with the transmission and
termination of international long distance and domestic telecommunications
services. Historically, this expense has been variable, based upon minutes of
use, consisting largely of payments to other long distance providers and, to a
lesser extent, customer/carrier interconnect charges, leased fiber circuit
charges and switch facility costs. For the three months ended December 31,
1997, 79.5% of the Company's traffic was terminated off-net and 20.5% of the
Company's traffic was terminated on-net. The Company's resale agreements with
its carriers provide for fluctuating rates with rate change notice periods
varying from seven days to several months. To reduce termination costs for
off-net traffic, the Company is currently negotiating with
41
<PAGE>
several large carriers for longer-term arrangements that are based on minimum
usage commitments. The variability and short-term nature of many of its
existing contracts subject the Company to the possibility of unanticipated
cost increases and the loss of cost-effective routing alternatives.
Selling, general and administrative expenses consist primarily of personnel
costs, facilities costs, travel, commissions, consulting fees, professional
fees and advertising and promotion expenses. Consistent with the Company's
recent growth, these expenses increased from $3.0 million for the three months
ended December 31, 1996 to $6.0 million for the three months ended December
31, 1997 and from $7.6 million for the fiscal year ended September 30, 1996,
to $13.5 million for the fiscal year ended September 30, 1997. However, as a
percentage of revenues, selling, general and administrative expenses decreased
from 26.8% for the three months ended December 31, 1996 to 16.6% for the three
months ended December 31, 1997, and from 63.8% for the fiscal year ended
September 30, 1996, to 19.3% for the fiscal year ended September 30, 1997.
Although selling, general and administrative expenses are expected to increase
on an absolute basis in order to support expansion of the Company's
operations, the Company expects that selling, general and administrative
expenses as a percentage of revenues will continue to decrease.
42
<PAGE>
The Company has made since its inception, and expects to continue to make,
significant investments to expand its network. Increased capital expenditures
in the future can be expected to affect the Company's operating results due to
increased depreciation charges and interest expense in connection with
borrowings to fund such expenditures.
Although the Company's reporting currency is the U.S. dollar, the Company
expects to derive an increasing percentage of its revenues from international
operations. Accordingly, changes in currency exchange rates may have a
significant effect on the Company's results of operations. For example, the
accounting rate under operating agreements is often defined in monetary units
other than U.S. dollars, such as "special drawing rights" or "SDRs." To the
extent that the U.S. dollar declines relative to units such as SDRs, the
dollar equivalent accounting rate would increase. In addition, as the Company
expands into foreign markets, its exposure to foreign currency rate
fluctuations is expected to increase. Although the Company does not currently
engage in exchange rate hedging strategies, it may choose to limit such
exposure by purchasing forward foreign exchange contracts or other similar
hedging strategies. The Company's board of directors (the "Board of
Directors") periodically reviews and approves the overall interest rate and
foreign exchange risk management policy and transaction authority limits.
Specific hedging contracts, if any, will be subject to approval by certain
specified officers of FCI acting within the Board of Directors' overall
policies and limits. The Company intends to limit its hedging activities to
the extent of its foreign currency exposure. There can be no assurance that
any currency hedging strategy would be successful in avoiding currency
exchange-related losses. For the fiscal years ended September 30, 1996 and
September 30, 1997, the Company realized a foreign currency exchange gain
(loss) of $226,000 and ($1.3 million), respectively, as a result of currency
exchange fluctuations. For the three months ended December 31, 1996 and
December 31, 1997, the Company realized a foreign exchange loss of $413,000
and $457,000, respectively, as a result of currency exchange fluctuations.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain financial
data as a percentage of revenues:
<TABLE>
<CAPTION>
THREE MONTHS PERIOD FROM
ENDED MAY 5, 1995
DECEMBER 31, FISCAL YEAR ENDED SEPTEMBER 30, TO
------------------------------- ------------------------------------- SEPTEMBER 30,
1997 1996 1997 1996 1995
-------------- -------------- ------------------ ----------------- ---------------
$ % $ % $ % $ % $ %
------- ----- ------- ----- --------- ------- -------- ------- ------- ------
(IN THOUSANDS, EXCEPT PERCENTAGE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues:
Wholesale.............. $33,761 94.3 % $10,715 95.2 % $ 66,422 94.6 % $ 11,664 98.1 % $ 547 100.0 %
Retail................. 2,047 5.7 539 4.8 3,765 5.4 227 1.9 -- --
------- ----- ------- ----- --------- ------ -------- ------ ------- ------
Total revenues....... 35,808 100.0 11,254 100.0 70,187 100.0 11,891 100.0 547 100.0
Cost of revenues........ 32,809 91.6 10,524 93.5 65,718 93.6 12,742 107.2 1,022 186.8
------- ----- ------- ----- --------- ------ -------- ------ ------- ------
Gross margin............ 2,999 8.4 730 6.5 4,469 6.4 (851) (7.2) (475) (86.8)
Operating expenses:
Selling, general and
administrative
(including related
party)................ 5,962 16.6 3,013 26.8 13,511 19.3 7,582 63.8 943 172.4
Depreciation and
amortization.......... 1,001 2.8 515 4.6 2,318 3.3 1,143 9.6 142 26.0
------- ----- ------- ----- --------- ------ -------- ------ ------- ------
Total operating
expenses............ 6,963 19.4 3,528 31.4 15,829 22.6 8,725 73.4 1,085 198.4
------- ----- ------- ----- --------- ------ -------- ------ ------- ------
Loss from operations.... (3,964) (11.0) (2,798) (24.9) (11,360) (16.2) (9,576) (80.6) (1,560) (285.2)
Interest expense
(including related
party)................. (535) (1.5) (175) (1.6) (1,336) (1.9) (312) (2.6) (80) (14.6)
Foreign exchange gain
(loss)................. (457) (1.3) (413) (3.7) (1,335) (1.9) 226 1.9 (85) (15.5)
------- ----- ------- ----- --------- ------ -------- ------ ------- ------
Loss before income
taxes.................. (4,956) (13.8) (3,386) (30.2) (14,031) (20.0) (9,662) (81.3) (1,725) (315.3)
Income taxes............ (393) (1.1) -- -- -- -- -- -- -- --
------- ----- ------- ----- --------- ------ -------- ------ ------- ------
Net loss................ $(5,349) (14.9)% $(3,386) (30.2)% $ (14,031) (20.0)% $ (9,662) (81.3)% $(1,725) (315.3)%
======= ===== ======= ===== ========= ====== ======== ====== ======= ======
</TABLE>
43
<PAGE>
FOR THE THREE MONTHS ENDED DECEMBER 31, 1997, AS COMPARED TO THE THREE MONTHS
ENDED DECEMBER 31, 1996
Revenues increased by $24.5 million to $35.8 million for the three months
ended December 31, 1997, from $11.3 million for the three months ended
December 31, 1996. The growth in revenue resulted primarily from an increase
in billed customer minutes of use resulting from an increased number of
wholesale customers in the
U.S., the U.K. and Scandinavia and an increased number of retail customers in
Sweden, as well as usage increases from existing wholesale customers.
Offsetting the growth in revenue during this period was a decrease in the
price per billed minute of 4.2%, to $0.274 for the three months ended December
31, 1997 from $0.286 for the three months ended December 31, 1996, as a result
of increased competition. For the three months ended December 31, 1997, U.S.
revenues totaled $27.2 million, or 76.1% of the Company's consolidated
revenues, Swedish revenues totaled $5.9 million, or 16.5% of consolidated
revenues, Danish revenues totaled $1.0 million, or 3.0% of consolidated
revenues and U.K. revenues totaled $1.6 million, or 4.4% of consolidated
revenues.
Wholesale customers increased by 55, or 250.0%, to 77 wholesale customers at
December 31, 1997, from 22 at December 31, 1996. Retail customers in Sweden
increased by 12,706, to 16,015 retail customers at December 31, 1997, from
3,309 at December 31, 1996. Billed minutes of use increased by 91.2 million,
to 130.6 million minutes of use for the three months ended December 31, 1997,
from 39.4 million minutes of use for the three months ended December 31, 1996.
Cost of revenues increased by $22.3 million, to $32.8 million for the three
months ended December 31, 1997, from $10.5 million for the three months ended
December 31, 1996. As a percentage of revenues, cost of revenues declined to
91.6% for the three months ended December 31, 1997, from 93.5% for the three
months ended December 31, 1996, primarily as a result of increased minutes of
use on the Company's network, improved efficiencies of network facilities due
to higher traffic volumes and reductions in rates charged by the Company's
carrier suppliers. Cost of revenues as a percentage of revenues is expected to
continue to decrease as a result of higher traffic volumes, which are expected
to result in volume discounts for off-net traffic, as well as from an
anticipated increase in the percentage of on-net traffic.
Gross margin increased by $2.3 million to $3.0 million for the three months
ended December 31, 1997, from $730,000 for the three months ended December 31,
1996. As a percentage of revenues, gross margin increased to 8.4% for the
three months ended December 31, 1997, from 6.5% for the three months ended
December 31, 1996.
Selling, general and administrative expenses increased by $3.0 million to
$6.0 million for the three months ended December 31, 1997, from $3.0 million
for the three months ended December 31, 1996, primarily as a result of the
Company's increased sales, an increase in customer service, billing,
collections and accounting staff required to support revenue growth and
approximately $708,000 in settlement expenses relating to litigation arising
from an international telephone services agreement and related billing,
collection and factoring services agreements with third parties. Staff levels
grew by 47, or 71.2%, to 113 employees at December 31, 1997, from 66 employees
at December 31, 1996. As a percentage of revenues, selling, general and
administrative expenses decreased to 16.6% for the three months ended December
31, 1997, from 26.8% for the three months ended December 31, 1996, as a result
of improved efficiencies. Bad debt expense was $268,000 for the three months
ended December 31, 1997, or 0.8% of revenues.
Depreciation and amortization expenses increased by $486,000 to $1.0 million
for the three months ended December 31, 1997, from $515,000 for the three
months ended December 31, 1996, primarily due to increased capital
expenditures incurred in connection with the deployment and expansion of the
Company's network.
Interest expense increased by $360,000 to $535,000 for the three months
ended December 31, 1997, from $175,000 for the three months ended December 31,
1996, primarily due to increased levels of vendor financing and loans from
AIT.
Foreign exchange loss increased by $44,000 to $457,000 for the three months
ended December 31, 1997, from $413,000 for the three months ended December 31,
1996.
44
<PAGE>
Income Taxes of $393,000, resulting from a change in the Company's tax
status as a result of the Reorganization, were recorded as a deferred tax
liability and deferred tax expense for the three months ended December 31,
1997. This amount was determined from temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes
and amounts used for income tax purposes.
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1997, AS COMPARED TO THE FISCAL YEAR
ENDED SEPTEMBER 30, 1996
Revenues increased by $58.3 million to $70.2 million in the fiscal year
ended September 30, 1997, from $11.9 million in the fiscal year ended
September 30, 1996. The growth in revenue resulted primarily from an increase
in billed customer minutes of use resulting from an increased number of
wholesale customers in the U.S., the U.K. and Scandinavia and an increased
number of retail customers in Sweden, as well as usage increases from existing
wholesale customers. Offsetting the growth in revenue during this period was a
decrease in the price per billed minute of 3.5%, to $0.278 for the fiscal year
ended September 30, 1997 from $0.288 for the fiscal year ended December 30,
1996, as a result of increased competition. In the fiscal year ended September
30, 1997, U.S. revenues totaled $53.7 million, or 76.5% of the Company's
consolidated revenues, Swedish revenues totaled $15.5 million, or 22.1% of
consolidated revenues and U.K. revenues totaled $1.0 million, or 1.4% of
consolidated revenues.
Wholesale customers increased by 36, or 211.8%, to 53 wholesale customers at
September 30, 1997, from 17 at September 30, 1996. Retail customers in Sweden
increased by 10,750, to 12,365 retail customers at September 30, 1997, from
1,615 at September 30, 1996. Billed minutes of use increased by 211.0 million,
to 252.3 million minutes of use in the fiscal year ended September 30, 1997,
from 41.3 million minutes of use in the fiscal year ended September 30, 1996.
Cost of revenues increased by $53.0 million, to $65.7 million in the fiscal
year ended September 30, 1997, from $12.7 million in the fiscal year ended
September 30, 1996. As a percentage of revenues, cost of revenues declined to
93.6% in the fiscal year ended September 30, 1997, from 107.2% in the fiscal
year ended September 30, 1996, primarily as a result of increased minutes of
use on the Company's network, improved efficiencies of network facilities due
to higher traffic volumes and reductions in rates charged by the Company's
carrier suppliers. Cost of revenues as a percentage of revenues is expected to
continue to decrease as a result of higher traffic volumes, which are expected
to result in volume discounts for off-net traffic, as well as from an
anticipated increase in the percentage of on-net traffic.
Gross margin increased to $4.5 million in the fiscal year ended September
30, 1997, from ($851,000) in the fiscal year ended September 30, 1996. As a
percentage of revenues, gross margin increased to 6.4% in the fiscal year
ended September 30, 1997, from (7.2%) in the fiscal year ended September 30,
1996.
Selling, general and administrative expenses increased by $5.9 million to
$13.5 million in the fiscal year ended September 30, 1997, from $7.6 million
in the fiscal year ended September 30, 1996, primarily as a result of the
Company's increased sales, and an increase in customer service, billing,
collections and accounting staff required to support revenue growth. Staff
levels grew by 30, or 47.6%, to 93 employees at September 30, 1997, from 63
employees at September 30, 1996. As a percentage of revenues, selling, general
and administrative expenses decreased to 19.3% in the fiscal year ended
September 30, 1997, from 63.8% in the fiscal year ended September 30, 1996, as
a result of improved efficiencies. Bad debt expense was $1.3 million for the
fiscal year ended September 30, 1997, or 1.8% of revenues.
Depreciation and amortization expenses increased by $1.2 million to $2.3
million in the fiscal year ended September 30, 1997, from $1.1 million in the
fiscal year ended September 30, 1996, primarily due to increased capital
expenditures incurred in connection with the deployment and expansion of the
Company's network.
Interest expense, net increased by $1.0 million to $1.3 million in the
fiscal year ended September 30, 1997, from $312,000 in the fiscal year ended
September 30, 1996, primarily due to increased levels of vendor financing and
loans from AIT.
45
<PAGE>
Foreign exchange gain (loss) decreased by $1.5 million to ($1.3) million in
the fiscal year ended September 30, 1997, from $226,000 in the fiscal year
ended September 30, 1996.
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1996, AS COMPARED TO THE PERIOD FROM
MAY 5, 1995 (INCEPTION) TO SEPTEMBER 30, 1995
Revenues increased by $11.4 million to $11.9 million in the fiscal year
ended September 30, 1996, from $547,000 for the period from May 5, 1995
(inception) to September 30, 1995. The growth in revenue resulted primarily
from an increase in billed customer minutes of use resulting from an increased
number of wholesale customers in the U.S. and Sweden and an increased number
of retail customers in Sweden, as well as usage increases from existing
wholesale customers. Contributing to the growth in revenue during this period
was an increase in the price per billed minute of 43.3%, to $0.288 for the
fiscal year ended September 30, 1996 from $0.201 for the fiscal year ended
September 30, 1995, as a result of the commencement of the Company's
operations in the U.S.
Wholesale customers increased by 14, or 466.7%, to 17 wholesale customers at
September 30, 1996, from 3 at September 30, 1995. Retail customers in Sweden
at September 30, 1996 totaled 1,615. Billed minutes of use increased by 38.6
million, to 41.3 million minutes of use in the fiscal year ended September 30,
1996, from 2.7 million minutes of use for the period from May 5, 1995
(inception) to September 30, 1995.
Cost of revenues increased by $11.7 million, to $12.7 million in the fiscal
year ended September 30, 1996, from $1.0 million for the period from May 5,
1995 (inception) to September 30, 1995.
Gross margin decreased by $376,000, to ($851,000) in the fiscal year ended
September 30, 1996, from ($475,000) for the period from May 5, 1995
(inception) to September 30, 1995. As a percentage of revenues, gross margin
increased to (7.2%) in the fiscal year ended September 30, 1996, from (86.8%)
for the period from May 5, 1995 (inception) to September 30, 1995.
Selling, general and administrative expenses increased by $6.6 million to
$7.6 million in the fiscal year ended September 30, 1996, from $943,000 for
the period from May 5, 1995 (inception) to September 30, 1995, primarily as a
result of the Company's increased sales, and an increase in customer service,
billing, collections and accounting staff required to support revenue growth.
Staff levels grew by 47, or 293.8%, to 63 employees at September 30, 1996,
from 16 employees at September 30, 1995. As a percentage of revenues, selling,
general and administrative expenses decreased to 63.8% in the fiscal year
ended September 30, 1996, from 172.4% for the period from inception (May 5,
1995) to September 30, 1995.
Depreciation and amortization expenses increased by $1.0 million to $1.1
million in the fiscal year ended September 30, 1996, from $142,000 for the
period from May 5, 1995 (inception) to September 30, 1995, primarily due to
increased capital expenditures incurred in connection with the deployment and
expansion of the Company's network.
Interest expense increased by $232,000 to $312,000 in the fiscal year ended
September 30, 1996, from $80,000 for the period from May 5, 1995 (inception)
to September 30, 1995, primarily due to increased levels of vendor financing.
Foreign exchange gain increased by $311,000 to $226,000 in the fiscal year
ended September 30, 1996, from a foreign exchange loss of $85,000 for the
period from May 5, 1995 (inception) to September 30, 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company has incurred significant operating losses and negative cash
flows as a result of the development and operation of its network, including
the acquisition and maintenance of switches and undersea fiber optic capacity.
The Company has financed its growth primarily through equity and a credit
facility provided by AIT, credit facilities with two equipment vendors and
capital lease financing. The Company expects to require additional capital to
fund network expansion, operating losses and other general corporate purposes.
46
<PAGE>
Net cash provided by (used in) operating activities was ($3.8) million for
the three months ended December 31, 1997, ($68,000) for the three months ended
December 31, 1996, ($8.4) million in the fiscal year ended September 30, 1997,
($5.4) million in the fiscal year ended September 30, 1996 and ($1.6) million
for the period from May 5, 1995 (inception) to September 30, 1995. The ($3.7)
million year-over-year change in net cash used in operating activities for the
three months ended December 31, 1997 was the result of an increase in net loss
of $2.0 million, a decrease in cash resulting from advances to affiliates of
$1.1 million and cash decreases resulting from year-over-year increases in
current assets exceeding year-over-year increases in current liabilities. The
year-over-year change in net cash used in operating activities in the fiscal
year ended September 30, 1997 was primarily the result of an increase in net
loss of $4.4 million. This change was offset by an increase in cash resulting
from year-over-year increases in accounts payable exceeding year-over-year
increases in accounts receivable. In the fiscal year ended September 30, 1996,
net cash provided by (used in) operating activities of ($5.4) million resulted
from a net loss of $9.7 million, offset in part by $1.1 million in
depreciation and amortization expenses and an increase in cash of $4.4 million
resulting from year-over-year increases in accounts payable exceeding year-
over-year increases in accounts receivable. For the period from May 5, 1995
(inception) to September 30, 1995, net cash provided by (used in) operating
activities of ($1.6) million resulted primarily from a net loss of $1.7
million.
Net cash provided by (used in) investing activities was ($3.6) million for
the three months ended December 31, 1997, ($559,000) for the three months
ended December 31, 1996, ($1.7) million in the fiscal year ended September 30,
1997, ($1.1) million in the fiscal year ended September 30, 1996 and ($1.1)
million for the period from May 5, 1995 (inception) to September 30, 1995. Net
cash utilized by investing activities in each period resulted from an increase
in capital expenditures to expand the Company's network.
Net cash provided by (used in) financing activities was $13.5 million for
the three months ended December 31, 1997, $409,000 for the three months ended
December 31, 1996, $7.9 million in the fiscal year ended September 30, 1997,
$8.6 million in the fiscal year ended September 30, 1996 and $2.8 million for
the period from May 5, 1995 (inception) to September 30, 1995. Net cash
provided by financing activities for the three months ended December 31, 1997
resulted from the $20.0 million equity investment by AIT, including a noncash
conversion of debt to equity of $6.3 million as a result of loans made by AIT
to the Company. Net cash provided by financing activities in fiscal year ended
September 30, 1997 resulted from $9.7 million of borrowings from AIT offset by
$1.8 million of repayments of long-term obligations. On September 30, 1997,
the Company converted $5.4 million of convertible debt and $10.9 million of
equity securities held by AIT to permanent equity. For the fiscal year ended
September 30, 1996, net cash provided by financing activities of $8.6 million
resulted from $7.1 million of capital contributions and $2.0 million of
borrowings from AIT offset by $540,000 of repayments of long-term obligations.
For the period from May 5, 1995 (inception) to September 30, 1995, net cash
provided by financing activities of $2.8 million resulted from $2.8 million of
capital contributions.
Non-cash financing activities for the three months ended December 31, 1997
and December 31, 1996, for the fiscal years ended September 30, 1997 and 1996
and for the period from May 5, 1995 (inception) to September 30, 1995 resulted
from the financing of network equipment provided by NTFC Capital Corp.
("NTFC") and Ericsson I.F.S., and financing of undersea fiber circuits
provided by Teleglobe Cantat-3 Inc. and Telecom A/S (collectively
"Globesystems").
The Company's business strategy contemplates aggregate capital expenditures
of $150.0 million through December 31, 1999. Such capital expenditures are
expected to be used primarily for international gateway switches, PoPs,
transmission equipment, undersea and international fiber circuits (including
IRUs and MAOUs) for new and existing routes and other support systems. During
1998, the Company plans to install 13 additional switches in Australia,
Austria, Belgium, France, Germany, Italy, Japan, the Netherlands, Norway,
Spain, Switzerland and the U.S. (Los Angeles and Miami). In addition, the
Company plans to invest in fiber optic transmission capacity connecting North
America, Europe, Latin America, Asia and the Pacific Rim, including the
Americas-1, Gemini, TPC-5, APCN (A) and Southern Cross fiber optic cables, and
to acquire additional capacity in the FLAG system during 1998.
47
<PAGE>
On December 22, 1997, the Company received the Equity Investment from AIT,
which consisted of a contribution of cash and the cancellation of
indebtedness. See "Certain Relationships and Related Transactions." Following
the Recapitalization, AIT owned approximately 84.0% of the outstanding shares
of common stock of the Company.
On January 28, 1998, FCI issued $300,000,000 aggregate principal amount of
Old Notes. Interest on the Old Notes is payable semiannually in arrears on
January 15 and July 15 of each year, commencing on July 15, 1998.
The Notes are redeemable at the option of FCI, in whole or in part at any
time on or after January 15, 2003, at specified redemption prices plus accrued
and unpaid interest and Liquidated Damages (as defined in the Indenture), if
any, thereon to the date of redemption. In addition, at any time prior to
January 15, 2001, FCI may redeem from time to time up to 35.0% of the
originally issued aggregate principal amount of the Notes at the specified
redemption prices plus accrued interest and Liquidated Damages, if any, to the
date of redemption with the Net Cash Proceeds (as defined in the Indenture) of
one or more Public Equity Offerings (as defined in the Indenture); provided
that at least 65.0% of the originally issued aggregate principal amount of the
Notes remains outstanding after such redemption. In the event of a Change in
Control (as defined in the Indenture), each holder of the Notes has the right
to require FCI to purchase all or any of such holder's Notes at a purchase
price in cash equal to 101% of the aggregate principal amount thereof, plus
accrued and paid interest and Liquidated Damages, if any, to the date of
purchase.
FCI used approximately $86.5 million of the proceeds from the offering of
the Old Notes to purchase a portfolio of Pledged Securities (as defined in the
Indenture) consisting of U.S. Government Obligations (as defined in the
Indenture), which are pledged as security and restricted for the first six
scheduled interest payments on the Notes. In addition, approximately $16.9
million of existing indebtedness was paid off with the proceeds from the
offering of the Old Notes.
The Company continuously reviews opportunities to further its business
strategy through strategic alliances with, investments in, or acquisitions of
companies that are complementary to the Company's operations. The Company may
finance such alliances, investments or acquisitions with cash flow from
operations or through additional bank debt, vendor financing or one or more
public offerings or private placements of securities.
The Company believes that the net proceeds from the offering of the Old
Notes will provide the Company with sufficient capital to fund planned capital
expenditures and anticipated losses and to make interest payments on the
Notes. There can be no assurance, however, that the Company will achieve or,
if achieved, will sustain profitability or positive cash flow from operating
activities in the future.
48
<PAGE>
BUSINESS
THE COMPANY
FCI is a rapidly growing multinational carrier focused on providing
international wholesale telecommunications services to other carriers
worldwide. FCI provides these services over a carrier-grade international
network consisting of five international gateway switches in the U.S., Sweden,
Denmark and the U.K., as well as transmission capacity owned and leased on a
fixed-cost basis that connects its switches in the U.S. and Europe. FCI's
network and its operating agreements with PTTs enable it to offer high quality
services to its carrier customers at competitive rates. In addition to
wholesale services, as of December 31, 1997, FCI provided domestic and
international long distance services on its network to over 16,015 retail
customers in Sweden through Tele8. FCI believes that its multinational,
facilities-based approach and its established carrier status in Europe through
Tele8 provide it with significant competitive advantages including control
over transmission quality and reduced termination and network costs, as well
as high quality local sales and customer service.
FCI was founded to capitalize on opportunities that have developed for
facilities-based carriers as a result of (i) the increasing demand for
international telecommunications services worldwide, (ii) the rapid pace of
deregulation of the approximately $61 billion international telecommunications
market and (iii) the erosion of the international ARM. Demand for
international telecommunications services is expected to increase as a result
of a number of factors, including worldwide economic growth, global
deregulation, technological advancements and the introduction of new services.
FCI believes that, as in the U.S., deregulation in Europe, Latin America, Asia
and the Pacific Rim will accelerate demand for international
telecommunications services and lead to the establishment of new carriers in
these markets. FCI believes that it is well positioned to capture
international traffic from established and emerging carriers seeking carrier-
grade network quality, competitively priced network services and flexible,
responsive technical support and customer service.
The Company's target customer base consists primarily of PTTs and other
first-tier carriers, emerging carriers and wireless carriers with
international traffic. PTTs and other first-tier carriers generally have their
own international networks, but will use carriers such as FCI for overflow
traffic and least-cost routing. Emerging carriers and wireless carriers
constitute rapidly growing industry segments that generally rely on PTTs and
wholesale carriers such as the Company to provide international connectivity.
As of December 31, 1997, the Company provided service to 77 carriers,
including nine of the ten largest U.S. carriers (based on outbound
international traffic), three wireless carriers and nine multinational
carriers that originate traffic in more than one of the Company's existing
markets.
To offer high quality international services and to control its termination
and network costs, FCI seeks to invest in undersea fiber optic cable systems
and international gateway switches in locations and on routes where customer
demand justifies such fixed asset investments. As of December 31, 1997, FCI
had implemented an international network comprising (i) three NorTel and two
Ericsson international gateway switches located in New York City; Jersey City,
New Jersey; Malmo, Sweden; Copenhagen and London; (ii) owned and leased
capacity in seven undersea fiber optic cable systems connecting the Company's
international gateway switches in the U.S. and Europe: CANTAT-3, CANUS-1, TAT
12/13, Kattegatt, Odin, FLAG and DKS-18; and (iii) PoPs in three U.S. and two
European cities for origination and termination of international traffic.
During 1998, the Company plans to install 13 additional switches in Australia,
Austria, Belgium, France, Germany, Italy, Japan, the Netherlands, Norway,
Spain, Switzerland and the U.S. (Los Angeles and Miami). In addition, the
Company plans to invest in fiber optic transmission capacity connecting North
America, Europe, Latin America, Asia and the Pacific Rim, including the
Americas-1, Gemini, TPC-5, APCN(A) and Southern Cross fiber optic cables, and
to acquire additional capacity in the FLAG system during 1998. FCI had
invested $29.7 million in network facilities as of December 31, 1997, and
plans to invest an additional $150.0 million during the next two calendar
years.
FCI currently has operating agreements with 18 foreign carriers, 15 of which
are the PTTs in their respective countries. The Company's operating agreements
permit it to terminate traffic directed to correspondent carriers
49
<PAGE>
in these countries and provide for the Company to receive return traffic. For
the three months ended December 31, 1997 and for the fiscal year ended
September 30, 1997, return traffic generated under such operating agreements
accounted for approximately 1.2% and 2.3%, respectively, of consolidated
revenues. The Company is currently negotiating additional operating agreements
with carriers in Europe, Latin America, Asia and the Pacific Rim.
INDUSTRY
Overview. The international long distance industry, which principally
consists of the transport of voice and data traffic from one country to
another, is undergoing a period of fundamental change that has resulted, and
is expected to continue to result, in significant growth in usage of
international telecommunications services. According to TeleGeography, in 1996
the international long distance telecommunications industry accounted for
approximately $61 billion in revenues and 70 billion minutes of use, up from
approximately $22 billion in revenues and 17 billion minutes of use in 1986.
According to TeleGeography, it is estimated that by the year 2000 this market
will have expanded to $86 billion in revenues and 122 billion minutes of use,
representing compound annual growth rates from 1996 of 9.0% and 15.0%,
respectively.
The Company believes that growth in international long distance services is
being driven by (i) the globalization of the world's economies and the
worldwide trend toward deregulation of the telecommunications sector, (ii)
declining prices and a wider selection of products and services driven by
greater competition resulting from deregulation, (iii) increased telephone
accessibility resulting from technological advances and greater investment in
telecommunications infrastructure, including deployment of wireless networks
and (iv) increased international business and leisure travel. The Company
believes that growth of traffic originated in markets outside the U.S. will be
higher than growth in traffic originated within the U.S. due to recent
deregulation in many foreign markets and increasing access to
telecommunications facilities in emerging markets.
Deregulation has encouraged competition, which in turn has prompted carriers
to offer a wider selection of products and services at lower prices. In recent
years, prices for international long distance services have decreased
substantially and are expected to continue to decrease in most of the markets
in which the Company currently competes. Several long distance carriers in the
U.S. have introduced pricing strategies that provide for fixed, low rates for
both domestic and international calls originating in the U.S. The Company
believes that revenue losses resulting from competition-induced price
decreases have been more than offset by cost decreases, as well as an increase
in telecommunications usage. For example, based on FCC data for the period
1989 through 1995, per minute settlement payments by U.S.-based carriers to
foreign PTTs fell 31.4%, from $0.70 per minute to $0.48 per minute. Over this
same period, however, per minute international billed revenues fell only
13.7%, from $1.02 in 1989 to $0.88 in 1995. The Company believes that as
settlement rates and costs for leased capacity continue to decline,
international long distance will continue to provide high revenues and gross
margin per minute. See "Risk Factors--Intense Competition."
The Company believes that the market opportunity for facilities-based
international wholesale carriers will continue to be attractive due to a
number of factors, including (i) the increasing demand for international
telecommunications services worldwide, (ii) the rapid pace of deregulation of
the approximately $61 billion international telecommunications market and
(iii) the erosion of the international ARM.
Regulatory and Competitive Environment. Prior to deregulation, long distance
carriers were generally government-owned monopoly carriers such as British
Telecom plc in the U.K., Tele Danmark AS ("Tele Danmark") in Denmark and Telia
AB in Sweden. Deregulation of a particular telecommunications market has
typically started with the introduction of a second long distance carrier,
followed by the governmental authorization of multiple carriers. In the U.S.,
one of the first deregulated markets, deregulation began in the 1960s with
MCI's authorization to provide long distance service and was followed in 1984
by AT&T's divestiture of the RBOCs and, most recently, by the passage of the
1996 Telecommunications Act. Deregulation has occurred elsewhere, such as the
U.K., Sweden and Denmark, and is currently being implemented in other
countries, including most EU countries, several Latin American countries and
selected Asian countries.
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In addition, on February 15, 1997, the U.S. and 68 other countries signed
the World Trade Organization Basic Telecom Agreement ("WTO Agreement") and
agreed to open their telecommunications markets to competition and foreign
ownership starting January 1, 1998. These 69 countries represent approximately
90% of worldwide telecommunications traffic. The Company believes that the WTO
Agreement will provide FCI with significant opportunities to compete in
markets where it did not previously have access, and to provide end-to-end
facilities-based services to and from these countries.
The FCC recently released an order that significantly changes U.S.
regulation of international services in order to implement the United States'
"open market" commitments under the WTO Agreement (the "Foreign Participation
Order"). Among other measures, the FCC's order (i) eliminated the FCC's
Effective Competitive Opportunities ("ECO") test for applicants affiliated
with carriers in WTO member countries, while imposing new conditions on
participation by dominant foreign carriers, (ii) allowed nondominant U.S.
carriers to enter into exclusive arrangements with nondominant foreign
carriers and scaled back the prohibition on exclusive arrangements with
dominant carriers and (iii) adopted rules that will facilitate approval of
flexible alternative settlement payment arrangements.
The Company believes that the Foreign Participation Order will have the
following effects on U.S. carriers: (i) fewer impediments to investments in
U.S. carriers by foreign entities; (ii) increased opportunities to enter into
innovative traffic arrangements with foreign carriers located in WTO member
countries; (iii) new opportunities to engage in international simple resale
("ISR") to additional foreign countries; and (iv) modified settlement rates
offered by foreign affiliates of U.S. carriers to U.S. carriers to comply with
the FCC's settlement rate benchmarks. In accordance with the recent criteria
set forth in its recent order, on April 22, 1998 the FCC authorized ISR to a
number of additional foreign countries, specifically, France, Belgium,
Denmark, Germany, Luxembourg, and Norway.
While the Foreign Participation Order is expected to increase competition
for international telecommunications services, and reduce prices for such
services, the Company believes that the order will provide it with
opportunities to enter into innovative and potentially more advantageous
traffic arrangements with foreign carriers from WTO member countries, thereby
allowing the Company to provide an increased volume of service in a more cost
effective manner. Moreover, the Company believes that the opportunities to
enter into innovative arrangements as well as the creation of new
opportunities for carriers to engage in ISR to additional foreign countries
likely will result in an increasing amount of international traffic and,
therefore, an increasing demand for services provided by international
wholesale carriers such as the Company. See "Risk Factors--Intense
Competition" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations Overview."
International Traffic Dynamics. A long distance telephone call consists of
three parts--origination, transport and termination. Generally, a domestic
long distance call originates on a local network and is transported to the
network of a long distance carrier, which in many countries is the same as the
local carrier. The call is then carried over the long distance network to
another local exchange network where the call is terminated. An international
long distance call is similar to a domestic long distance call, but typically
involves at least two long distance carriers: the first carrier transports the
call from the country of origination, and the second carrier terminates the
call in the country of termination. These long distance telephone calls are
classified as one of three types of traffic. For example, a call made from the
U.S. to the U.K. is referred to as outbound traffic for the U.S. carrier and
inbound traffic for the U.K. carrier. The third type of traffic, international
transit traffic, originates and terminates outside a particular country, but
is transported through that country on a carrier's network. Since most major
international fiber optic cable systems are connected to the U.S. and
international long distance prices are substantially lower in the U.S. than in
other countries, a large volume of international transit traffic is routed
through the U.S.
International calls are transported by land-based or undersea cable or via
satellites. A carrier can obtain voice circuits on cable systems either
through ownership or leases. Ownership in cables is acquired either through
IRUs or MAOUs. The fundamental difference between an IRU holder and an owner
of MAOUs is that the IRU holder is not entitled to participate in management
decisions relating to the cable system. Between two countries,
51
<PAGE>
a carrier from each country owns a "half-circuit" of a cable, essentially
dividing the ownership of the cable into two equal components. Additionally,
any carrier may generally lease circuits on a cable from another carrier.
Unless a carrier owns a satellite, capacity also must be leased from one of
several existing satellite systems.
Accounting Rate Mechanism. Under the ARM, which has been the traditional
model for handling traffic between international carriers, traffic is
exchanged under bilateral carrier agreements, or operating agreements, between
carriers in two countries. Operating agreements generally are three to five
years in length and provide for the termination of traffic in, and return of
traffic to, the carriers' respective countries at a negotiated accounting
rate, known as the Total Accounting Rate ("TAR"). In addition, operating
agreements provide for network coordination and accounting and settlement
procedures between the carriers. Both carriers are responsible for costs and
expenses related to operating their respective halves of the end-to-end
international connection.
Settlement costs, which typically equal one-half of the TAR, are the fees
owed to another international carrier for transporting traffic on its
facilities. Settlement costs are reciprocal between each party to an operating
agreement at a negotiated rate (which must be the same for all U.S.-based
carriers, unless the FCC approves an exception). For example, if a foreign
carrier charges a U.S. carrier $0.30 per minute to terminate a call in the
foreign country, the U.S. carrier would charge the foreign carrier the same
$0.30 per minute to terminate a call in the U.S. Additionally, the TAR is the
same for all carriers transporting traffic into a particular country, but
varies from country to country. The term "settlement costs" arises because
carriers essentially pay each other on a net basis determined by the
difference between inbound and outbound traffic between them. The following
chart illustrates an international long distance call originating in the U.S.
using the ARM:
[PHOTO APPEARS HERE]
Operating agreements typically provide that a carrier will return
terminating traffic ("return traffic") to a carrier in proportion to the
traffic it receives from that carrier. Return traffic generally is more
profitable than outgoing traffic because the settlement rate per minute is
substantially greater than the incremental cost of terminating a call in the
country due to the lack of marketing expense and billing costs, as well as the
lower cost structure associated with terminating calls within the country.
Generally, there is a six-month lag between outbound traffic and the
allocation of the corresponding return traffic and, in certain instances, a
minimum volume commitment must be achieved before qualifying for receipt of
return traffic.
Alternative Calling Procedures. As the international long distance market is
being deregulated, long distance companies have devised alternative calling
procedures ("ACPs") in order to complete calls more economically than under
the ARM. Some of the more significant ACPs include (i) transit, (ii) refiling
or "hubbing" and (iii) ISR. The most common method is transit, which allows
traffic between two countries to be carried through a third country on another
carrier's network. This procedure, which requires agreement among the
particular long distance companies and the countries involved, generally is
used either for overflow traffic during peak periods or where the direct
circuit may not be available or justified based on traffic volume. Refiling
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<PAGE>
or "hubbing" of traffic, which takes advantage of disparities in settlement
rates between different countries, allows traffic to a potential country to be
treated as if it originated in another country that enjoys lower settlement
rates with the destination country, thereby resulting in lower overall costs
on an end-to-end basis. U.S.-based carriers generally are beneficiaries of
refiling on behalf of other carriers because of low international rates in the
U.S. The difference between transit and refiling is that, with respect to
transit, the carrier in the destination country has a direct relationship with
the originating carrier, while with refiling, the carrier in the destination
country is likely not to even know the identity of the originating carrier.
The choice between transit and refiling is determined primarily by cost. With
ISR, a carrier may completely bypass the settlement system by connecting an
international leased line to the PSTN of a foreign country or directly to
customers' premises, which may be expected to result in reduced costs for such
carrier. It may be anticipated that routes where ISR is permitted will benefit
from increased competition, reduced prices, and increased demand. As discussed
above, it is anticipated that the Foreign Participation Order will create new
opportunities for carriers to engage in ISR to additional foreign countries.
As noted above, the FCC has recently authorized ISR to additional foreign
countries, specifically, France, Belgium, Denmark, Germany, Luxembourg, and
Norway.
Description of Operating Markets. As of December 31, 1997, FCI terminated
traffic through a combination of operating agreements, refiling, resale and
ISR to over 200 countries worldwide and originated traffic in the U.S.,
Sweden, Denmark and the U.K. The Company intends to establish facilities that
will permit it to originate traffic in 13 additional markets by the end of
1998.
United States. With a population of approximately 268 million people, the
U.S. has a telecommunications services market that generated revenues of
approximately $222.3 billion in 1996 according to the FCC. The U.S. long
distance market is highly deregulated and is the largest in the world.
According to the FCC, in 1996 long distance telephone revenues were
approximately $99.7 billion, including approximately $17.1 billion from
international services (representing 17.2% of the total market). According to
TeleGeography, AT&T is the largest international long distance carrier in the
U.S. market, with market share of approximately 50.2% of international
outgoing minutes in 1996, while MCI and Sprint had market shares of 28.4% and
13.2%, respectively. AT&T, MCI, WorldCom and Sprint constitute what generally
is regarded as the first-tier in the U.S. long distance market. Other large
long distance companies with more limited ownership of transmission capacity,
such as Frontier and LCI, constitute the second-tier of the industry. The
remainder of the U.S. long distance market is comprised of several hundred
smaller companies, largely resellers, which are known as third-tier carriers.
Sweden. With a population of approximately nine million people, Sweden has a
telecommunications market that generated approximately $6.0 billion in
revenues in 1996 according to the International Telecommunications Union (the
"ITU"). Sweden has fully liberalized its telecommunications market and Tele8,
together with its established competitor Tele-2 AB, accounted for
approximately 30.0% of the market for international outgoing minutes in 1996
according to TeleGeography. Telia AB, the PTT in Sweden, is a member of the
Unisource consortium and is also authorized to provide facilities-based end-
to-end services between the U.S. and Sweden.
Denmark. With a population of approximately five million people, Denmark has
a telecommunications market that generated approximately $3.6 billion in
revenues in 1996 according to the ITU. The Danish Parliament recently approved
legislation to liberalize its telecommunications industry. The new law allows
carriers to provide public voice services and to build and lease networks.
Most services, including voice telephony, may be provided under a general
class license. The international telecommunications market in Denmark has been
historically dominated by the PTT, Tele Danmark, which, according to
TeleGeography, accounted for approximately 92.5% of the international market
in 1996.
United Kingdom. With a population of over 58 million people, the U.K. has a
telecommunications market that generated approximately $25.4 billion in
revenues in 1995 according to the ITU. According to Oftel, the U.K.'s
international and domestic long distance services market accounted for
approximately $6.6 billion in revenues in the 12 months ended March 31, 1997.
In addition to British Telecom plc and Mercury
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<PAGE>
Communications Ltd. there are over 50 companies in the U.K. that presently
hold licenses authorizing the operation of systems which may be connected to
foreign systems.
Other Markets. As liberalization occurs in other European countries and in
Asia and the Pacific Rim, the Company intends to establish operating
facilities and/or obtain licenses to provide telecommunications services as
market conditions permit. The combined population of other European markets in
which the Company intends to install facilities during 1998, including
Belgium, France, Germany, Italy, the Netherlands, Norway and Switzerland, is
approximately 235 million people with combined international
telecommunications traffic, according to TeleGeography, of 15.5 billion
minutes, which represented 22.0% of worldwide international traffic in 1996.
The combined population of Australia, Japan and New Zealand, other countries
in which the Company intends to install facilities during 1998, is
approximately 148 million people and, according to TeleGeography, the combined
international telecommunications traffic generated in those markets in 1996
was approximately 3.4 billion minutes.
STRATEGY
FCI's objective is to become a leading provider of high quality,
competitively priced, dedicated and switched wholesale international
telecommunications services to established and emerging carriers worldwide. To
achieve this objective, the Company intends to continue to expand its carrier-
grade international network and to offer competitively priced network services
comparable in quality to that of major PTTs and first-tier carriers while
providing highly responsive technical support and customer service. The key
elements of the Company's strategy are as follows:
. Increase multinational presence. FCI seeks to expand its operations by
cultivating relationships with PTTs in strategic locations worldwide and
establishing operations in markets with significant international
traffic as soon as deregulation enables facilities-based carriers to
enter such markets. The Company believes that its ability to originate
traffic from multiple markets will allow it to benefit from the
relatively high growth of non-U.S. originated traffic, to serve
multinational carriers and to optimize the use of its facilities. As
part of its business strategy, the Company may enter into strategic
alliances with, acquire assets or businesses from, or invest in,
companies that are complementary to its current operations. The Company
has a dedicated Business Development Group which focuses on developing
relationships with correspondent carriers and which facilitates new
market entry.
. Expand carrier-grade international infrastructure. FCI intends to expand
its carrier-grade international network. The Company uses switches
similar to those used by first-tier carriers and PTTs, and continues to
implement advanced features, such as ATM technology, which will permit
the Company to transmit voice and data services over a single platform.
The Company believes that increasing the percentage of minutes of
traffic it carries on-net will enable it to increase margins and
profitability and ensure quality of service. By the end of 1998, the
Company expects to have such on-net capability on 25 of the top 50
international traffic routes and facilities in countries representing
over 60.0% of total international traffic.
. Focus on wholesale market. FCI's customer base consists primarily of
established and emerging competitive carriers and PTTs that purchase the
Company's services on a wholesale basis. The Company believes that the
wholesale telecommunications market will offer significant growth
opportunities as traditional international traffic settlement mechanisms
are replaced by competitive cost-based systems. In addition,
liberalization of telecommunications markets worldwide is expected to
lead to the establishment of new carriers and resellers that require
high quality international connectivity at competitive rates. FCI
believes that its wholesale strategy enables it to generate the high
traffic volumes required to justify investments in network
infrastructure, while controlling selling, general and administrative
expenses.
. Continue to leverage Tele8 status. Tele8's status as an established
carrier in Sweden has enabled FCI to enter into operating agreements
with a number of major European PTTs. The Company intends to continue to
leverage Tele8's carrier status and brand name to negotiate additional
operating
54
<PAGE>
agreements, acquire additional customers and obtain preferential pricing
on leased fiber and satellite transmission capacity worldwide.
. Maintain efficient operations and low cost base. The Company seeks to
maintain efficient operations and a low cost base through a disciplined
incremental approach to investments in fixed assets, strict control over
selling, general and administrative expenses and the operation of a
centralized, highly efficient network control center for its global
network, which enable the Company to be price competitive.
NETWORK
General. In its first two years of operation, the Company has successfully
installed an international facilities-based network comprised of international
gateway switches, related peripheral equipment and undersea fiber optic cable
systems, as well as leased satellite and cable capacity. FCI believes its
installation of a facilities-based network will permit it to terminate an
increasing percentage of traffic on-net, allowing the Company to control both
the quality and cost of telecommunications services it provides to its
customers. To provide high quality telecommunications services, the Company's
network employs digital switching and fiber optic technologies, uses SS7
signaling and is supported by comprehensive monitoring and technical services.
In addition, the Company is implementing an ATM network that will permit the
Company to transmit voice and data services over a single platform, enabling
the Company to diversify its service offerings.
The Company currently operates two major gateway switches in the U.S. and
similar switches in Sweden, Denmark and the U.K. These international gateway
switches are connected by undersea fiber optic cable systems. The Company
operates three additional PoPs in the U.S. and two additional PoPs in Sweden
which allow it to originate and terminate traffic outside of the international
gateway cities. The Company also operates an earth station in Sweden which
provides satellite coverage of all of Africa and most of Asia through
INTELSAT, to which the Company is a signatory. Using a combination of owned
network facilities, capacity leased on a fixed-cost basis and the resale of
third party capacity, the Company is able to provide service to any country in
the world.
The Company carries international traffic traditionally carried between U.S.
and foreign international long distance carriers over its own network. In
addition, FCI's international gateway switches and European hubs allow the
Company to terminate traffic within countries, thereby ensuring quality and
minimizing termination costs. The following chart illustrates a typical on-net
international long distance call originating in the U.S.
[PHOTO APPEARS HERE]
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<PAGE>
Operating Agreements. The Company's strategy is substantially based on its
ability to enter into: (i) operating agreements with PTTs in countries that
have yet to become deregulated so the Company can terminate traffic in, and
receive return traffic from, that country; (ii) operating agreements with PTTs
and emerging carriers in foreign countries whose telecommunications markets
have deregulated so it can terminate traffic in such countries; and (iii)
interconnection agreements with the PTT in each of the countries where the
Company has operating facilities (e.g., the U.K.) so it can terminate traffic
in that country. The Company believes that Tele8's status as an established
carrier in Sweden has been a significant factor in enabling the Company to
enter into operating agreements with first-tier carriers in Europe. As of
December 31, 1997, FCI had operating agreements with 15 PTTs and three
alternative carriers. The Company believes that it has more operating
agreements with European PTTs than most other emerging carriers. These
operating agreements allow the Company to terminate traffic at lower rates
than by resale in markets where it cannot establish an on-net connection due
to the current regulatory environment. The Company believes that it would not
be able to serve its customers at competitive prices without such operating or
interconnection agreements. Termination of such operating agreements by
certain of the Company's foreign carriers or PTTs would have a material
adverse effect on the Company's business. In addition, these operating
agreements provide a source of profitable return traffic for the Company. See
"Risk Factors--Dependence on Operating Agreements with Foreign Operators."
<TABLE>
<CAPTION>
COUNTRY CARRIER CARRIER STATUS
------- ------- --------------
<S> <C> <C>
Belgium.................... Belgacom N.V. PTT
Denmark.................... Tele Danmark PTT
Dominican Republic......... Tricom, S.A. Alternative carrier
Estonia.................... Eesti Tele Fon PTT
Finland.................... Telecom Finland PTT
Tele 1 Alternative carrier
Germany.................... Deutsche Telekom A.G. PTT
Hungary.................... MATAV PTT
Iceland.................... Post & Telecom Iceland PTT
Italy...................... Telecom Italia S.p.A. PTT
Nicaragua.................. ENITEL PTT
Norway..................... Telenor Carrier Services A.S. PTT
Poland..................... Telekomunikacja Polska S.A. PTT
Portugal................... Telecom Portugal PTT
Slovenia................... Telekom Slovenije PTT
United Kingdom............. British Telecom plc PTT
Mercury Communications Ltd. Alternative carrier
Venezuela.................. CANTV PTT
</TABLE>
Undersea Fiber Optic Cable Systems. The Company seeks ownership positions in
undersea fiber optic cable systems where it believes its customers' demand
will justify the investment in those fixed assets. To link its switches in the
U.S., Denmark, Sweden and the U.K., the Company currently either owns or
leases capacity on a number of undersea fiber optic cable systems, including
purchased capacity on the CANTAT-3, CANUS-1, TAT 12/13, Kattegatt and Odin
undersea fiber optic cable systems on an IRU basis, and on the CANTAT-3 and
DKS-18 undersea fiber optic cable systems on a MAOU basis. The Company
believes that its current and projected volume of wholesale international
traffic makes its investment in these fiber optic cable systems cost-
effective. Tele8 recently participated in a consortium that included Tele
Danmark, TeleNordia and Swedish Rail, which constructed and currently operates
a fiber cable (DKS-18) between Sweden and Denmark.
In addition, the Company is one of the signatory members of the FLAG
project, which, when completed, will be the world's longest undersea fiber
optic cable, originating in the U.K. and terminating in Japan. FLAG will
enable the Company to (i) target markets in Bangladesh, China, Hong Kong,
India, Italy, Japan, Malaysia, Pakistan, Singapore and Spain and (ii) provide
high quality seamless services over Company-owned fiber optic cable to those
regions by connecting to the Company's facilities in the U.K. and Sweden. The
Company's ability
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<PAGE>
to provide seamless telecommunications services to the countries served by
FLAG is contingent upon its ability to enter into operating agreements with
PTTs or other carriers in such countries. The Company plans to invest in the
Americas-1, Gemini, TPC-5, APCN(A) and Southern Cross cables, and acquire
additional capacity in the FLAG system to provide access to other markets,
including countries in Europe, Latin America, Asia and the Pacific Rim, and to
expand capacity to existing markets. The Company may also seek ownership
positions in digital microwave systems that link major sources and
destinations of international traffic to (i) lower the cost of its
international connections to a particular country or region and/or (ii) bypass
a transmission facility "bottleneck" that constrains the Company's ability to
enter the international market in that country or region.
INTERNATIONAL FIBER OPTIC CIRCUITS
<TABLE>
<CAPTION>
READY FOR
FIBER CIRCUIT MAOU/IRU/LEASE SERVICE DATE
------------- -------------- ------------
<S> <C> <C>
TRANSATLANTIC:
CANTAT-3
U.S.-Denmark................................... MAOU In Service
U.S.-Denmark................................... IRU In Service
U.S.-U.K....................................... IRU In Service
CANUS-1, U.S.-Canada............................. IRU In Service
TAT 12/13, U.S.-U.K.............................. IRU In Service
MFS, New York-London............................. Lease In Service
Gemini, U.S.-Europe.............................. IRU 1998
INTRAEUROPEAN:
CANTAT-3
U.K.-Denmark................................... Lease In Service
Germany-Denmark................................ IRU Q1/98
FLAG
U.K.-Spain..................................... MAOU Q1/98
Spain-Italy.................................... MAOU Q1/98
DKS-18, Denmark-Sweden........................... MAOU In Service
Kattegatt, Denmark-Sweden........................ IRU In Service
Hermes, Amsterdam-U.K............................ Lease In Service
Odin, Amsterdam-Denmark.......................... IRU In Service
OTHER ROUTES:
TPC-5, U.S.-Pacific Rim.......................... IRU 1998
Southern Cross, New Zealand-Australia............ IRU 1998
APCN(A), Australia-Japan......................... IRU 1998
Americas-1, U.S.-Latin America................... IRU 1998
FLAG
U.K.-India..................................... MAOU Q1/98
Japan-Hong Kong................................ MAOU Q1/98
Japan-China.................................... MAOU Q1/98
</TABLE>
International Gateway and Domestic Switches. As of December 31, 1997, the
Company operated three NorTel DMS 250/300 international gateway switches
located in Jersey City, New Jersey, Copenhagen and London, and two Ericsson
AXE-10 international gateway switches located in New York City and Malmo,
Sweden. Traffic from North America to Europe is generally routed through
either the New York City or Jersey City, New Jersey gateway to London or
Malmo, Sweden. The Company also operates smaller Ericsson switches in Sweden
for aggregating regional and domestic traffic and is considering the
installation of similar switches in other European countries for the same
purpose. In addition, the Company has PoPs to terminate and originate traffic
in Miami and Tampa, Florida and Washington, D.C.
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The Company intends to expand its switching network in the U.S. by adding
international gateway switches during 1998 in Los Angeles and Miami that will
generally serve as the Company's international gateways to Asia and the
Pacific Rim, and Latin America, respectively. The Company's plans for
expanding its switching network in Europe include the addition of switches in
Belgium, France, Germany, Italy, the Netherlands, Norway and Switzerland
during 1998. The Company also intends to install switches in Australia, Japan
and New Zealand during 1998. FCI is also considering installing switches in
Latin American, Asian and other Pacific Rim countries, as well as additional
European locations.
Backbone Transmission Network. The Company connects its switches over a
frame relay backbone network, which the Company intends to upgrade to ATM in
early 1998. ATM will enable the Company to combine switched voice, private
line and data traffic on the same international circuits. For example, the
Company will be able to add Internet capability and integrate Internet traffic
with its existing traffic.
Satellite Facilities. The Company owns and operates the Swedish
International Teleport, an INTELSAT, Standard B, 13-meter earth station in
Malmo, Sweden that connects to an INTELSAT satellite over the Indian Ocean.
Through its signatory status, the Company can acquire satellite transmission
capacity on a preferential basis worldwide. The earth station and INTELSAT
satellite, which provide coverage to Africa and most of Asia, currently
connect customers on the Indian subcontinent with locations in Europe and
North America on a private line basis. The Company uses this facility to
provide connectivity with carriers in developing countries before
international cable capacity becomes available in such countries and on low-
volume international routes. The Company is negotiating agreements with
several Asian carriers to interconnect with Sweden for the transmission of
public switched-voice traffic through the Company's earth station.
Network Monitoring and Technical Support. The Company's resilient network
has diverse switching and routing capabilities. For example, on the high
volume North America to Europe routes the Company splits customer traffic
between its New York City and Jersey City, New Jersey international gateway
switches, over two transatlantic cable routes and over its two European
gateways in London and Malmo, Sweden. All gateway switches have backup power
systems, and each cable has built-in redundancies that reroute traffic in the
event of an interruption in cable service.
The Company has technical staff located in Sweden, the U.S. and the U.K. to
provide support for the network. The Company's technical staff located in
Sweden provides network management and operations support for the Company's
Ericsson switches. The Company has entered into a one year agreement with
Northern Telecom to provide network management and operations services for the
Company's NorTel switches. The agreement also gives FCI the right to request
full-time on-site support at a new switch location. The agreement obligates
Northern Telecom to accept service calls on behalf of the Company 24 hours per
day, seven days per week, and to dispatch service personnel when necessary.
The Company believes that its network management arrangement with Northern
Telecom is a cost effective alternative to the Company providing such services
itself, which allows the Company to direct its resources toward expanding its
network while providing its customers with network support. The Company
expects to develop an internal network monitoring capability during 1998.
SERVICES
FCI offers high quality international telecommunications services over its
own international network and by interconnecting its network with the networks
of other carriers. The Company operates under the name FaciliCom
International(R) in the U.S. and the U.K., and the name "Tele8" in
Scandinavia. The Company provides primarily wholesale international
telecommunications services and, to a limited extent, retail domestic and
international long distance services in Sweden. For the three months ended
December 31, 1997 and for the fiscal year ended September 30, 1997, wholesale
services represented approximately 94.3% and 94.6%, respectively, of the
Company's consolidated revenues and retail services represented approximately
5.7% and 5.4%, respectively, of such consolidated revenues.
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Wholesale Services. The Company provides wholesale international long
distance voice services to carrier customers located in the U.S., Sweden,
Denmark and the U.K. FCI provides wholesale termination to over 200 countries
using a mix of owned facilities, operating agreements and by resale
agreements. The Company terminates international network traffic to the U.S.,
the U.K., Sweden and Denmark over its own network, and traffic to 16 countries
using operating agreements. In addition to wholesale voice services, the
Company also intends to offer value-added, back office and billing services to
its wholesale customers in Europe. The Company believes that offering
additional services on a wholesale basis will increase customer loyalty and
lead to higher margins. Wholesale value-added services are expected to include
international toll-free numbers, pre-paid calling cards, data services and
network access through FCI/Tele8 carrier access codes.
Retail Services. FCI provides international and domestic long distance voice
services to retail customers within Sweden using Tele8's carrier access codes
and service through pre-paid calling cards. The Company plans to provide pre-
selected long distance services in Sweden, as soon as regulations prescribe
equal access. In addition, FCI provides international private line service to
business customers, and intends to offer international toll-free services and
data services to business customers.
CUSTOMERS
The Company's wholesale marketing strategy is to offer wholesale
international telecommunications services to the broadest range of carriers,
focusing on carriers that originate traffic in multiple locations. The
Company's wholesale customers include first-tier carriers and PTTs as well as
emerging facilities-based, switched-based, switchless and wireless carriers
that purchase the Company's services for resale to their own customers. As of
December 31, 1997, the Company provided service to 77 carriers, including nine
of the ten largest U.S. carriers based on outbound international traffic,
three European wireless carriers and nine multinational carriers that
originate traffic in more than one of the Company's existing markets. For the
quarter ended December 31, 1997, the Company's 10 largest customers accounted
for 49.4% of the Company's revenues. For the fiscal year ended September 30,
1996, North American Gateway Inc. and Cherry Communications, Inc. accounted
for 30.0% and 11.0%, respectively, of the Company's total revenues. For the
fiscal year ended September 30, 1997, North American Gateway Inc. and
Telegroup, Inc. accounted for 14.0% and 10.3%, respectively, of the Company's
total revenues. The Company anticipates that the percentage of revenues
attributable to its largest customers will decrease as its customer base
grows. The Company's agreements with its customers do not currently establish
minimum term or usage requirements.
The Company uses a comprehensive credit screening process when identifying
new customers, which the Company believes has resulted in a bad debt expense
ratio below the industry average. For the three months ended December 31, 1997
and for the fiscal year ended September 30, 1997, FCI's bad debt expenses
represented approximately 0.8% and 1.8%, respectively, of its consolidated
revenues. The Company rates its potential customers' creditworthiness based on
several factors, including: (i) traditional bank and trade (e.g., Dun &
Bradstreet) reports; (ii) internal assessments of the Company's exposure based
on the costs of terminating international traffic in certain countries and the
capacity requested by the proposed carrier; and (iii) references provided by
the potential customer. Depending on the results of the Company's credit
analysis, a customer's payment terms and/or billing cycle may be adjusted to
shorten the length of time the Company's receivables are outstanding (and the
corresponding risk to the Company). In addition, the Company may require a
customer to post collateral in the form of a security deposit or an
irrevocable letter of credit.
The Company's target market for retail services in Sweden is primarily
small- and medium-size businesses, residential customers, travelers and
marketing organizations.
SALES AND MARKETING
FCI's approach to marketing and selling wholesale services consists of local
sales staff, who are responsible for day-to-day relationships with local
carrier representatives and who have experience in the industry and long
standing relationships with such carriers. In addition to local direct sales,
the Company has a multinational
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Global Account Group, which coordinates sales to major international accounts
in multiple locations and is responsible for client relationships at the
senior management level. The Company has several international carrier
customers which use FCI to transport traffic from multiple locations. FCI
focuses on hiring and retaining experienced marketing and sales people with
extensive knowledge of the industry and who have existing relationships with
decision makers at carrier customers. As of December 31, 1997, the Company's
sales and marketing staff included 39 employees.
The Company believes that its success in entering into customer agreements
in its target markets is due largely to (i) network quality which is
equivalent to that provided by PTTs and first-tier carriers, (ii)
responsiveness that is superior to that of PTTs and first-tier carriers and
(iii) pricing that is generally below the wholesale market price of the PTTs
and first-tier carriers.
The Company's sales and marketing employees utilize extensive, customer
specific usage reports and network utilization data generated daily by the
Company's customized information systems to negotiate agreements with
customers and prospective customers more effectively and to respond rapidly to
changing market conditions. The Company believes that it has been able to
compete more effectively as a result of the high quality personalized service
that is given to each customer. The Company supports its wholesale marketing
efforts in many ways, including direct mail campaigns, publishing articles in
industry journals, sponsoring and giving presentations at industry events,
networking through its membership in industry associations and advertising in
industry publications and at industry events.
FCI conducts retail sales and marketing in Sweden through agents and a
direct sales force.
BUSINESS DEVELOPMENT
The Company's Business Development Group is responsible for creating and
implementing an effective long-term growth strategy for the Company. The
Business Development Group's objective is to establish relationships with PTTs
and regulatory authorities in strategic markets worldwide in order to expedite
the execution of operating agreements and the grant of licenses to own,
operate and/or lease transmission facilities from such regulatory authorities.
The Business Development Group may pursue joint ventures, strategic alliances
or acquisitions to expand the Company's global presence or to establish a
strategic presence in markets with high telecommunications traffic volume. It
also seeks to optimize the Company's investment in fiber optic cable in order
to support the current and future operational requirements of the Company.
OPERATIONS AND SYSTEMS
The Company provides customer service and support, 24 hours per day network
monitoring, trouble reporting and response procedures, service implementation
coordination, billing assistance and problem resolution. The Company provides
a single point of contact for each customer and accepts total responsibility
for installation, maintenance and problem resolution.
The need to bill customers timely and accurately, and to monitor and manage
network traffic profitability, requires the accurate operation of management
information systems ("MIS"). To accommodate these needs, the Company currently
contracts with Armstrong for its billing and MIS services.
Armstrong provides billing, financial accounting and specialized information
technology ("IT") services to its subsidiary companies, including the Company,
from its data processing center headquartered in Butler, Pennsylvania.
Armstrong's subsidiaries include domestic local exchange telephone companies
and cable television companies. Based on its knowledge of billing in the
telecommunications industry, Armstrong has developed customized systems to
provide call collection, processing, rating, reporting and bill rendering for
the Company. These customized systems enable the Company to (i) analyze
accurately its traffic, revenues and margins by customer and by route on a
daily basis, (ii) validate carrier settlements and (iii) monitor least cost
routing of customer traffic. See "Certain Relationships and Related
Transactions."
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Armstrong and the Company are in the process of converting their respective
billing and computer systems to make them Year 2000 compliant. The Company
does not expect that the cost of converting its systems will be material to
its financial condition or results of operations. Each of Armstrong and the
Company believes that it will be able to achieve Year 2000 compliance by the
end of 1999. Neither Armstrong nor the Company currently has any information
concerning the Year 2000 compliance status of its suppliers and customers.
The Company believes that contracting with Armstrong for these customized
systems gives the Company a strategic advantage over many emerging carriers
because the Company receives timely and accurate reporting of its customer
traffic, revenues and margins without incurring the significant costs
associated with developing and maintaining its own data center. The Armstrong
data center utilizes an IBM AS/400 with full disaster recovery and back-up
facilities and provides 24 hours per day, seven days per week data center
support. Armstrong provides the Company with experienced IT professionals and
programmers to further customize and support the Company's growing and
changing MIS needs. To date, the Company has not experienced any significant
delays in billing customers. The Company attempts to bill its customers within
five business days after a billing cycle has been completed. The Company
believes that its arrangement with Armstrong enables it to most effectively
and efficiently manage the Company's growing IT requirements.
Pursuant to a contract it recently signed with the Company, Armstrong will
continue to provide billing and MIS support for the Company and its
subsidiaries on terms that the Company believes are competitive with similar
services offered in the industry. This contract extends through September 30,
2002 and may be terminated by Armstrong or the Company upon 180 days' notice
to the other party.
In consultation with Armstrong's IT staff, the Company is currently
considering advanced billing and MIS software solutions to provide billing for
enhanced products and services and to further enhance the Company's ability to
monitor its growing operations.
COMPETITION
The international telecommunications industry is intensely competitive and
subject to rapid change precipitated by advances in technology and regulation.
The Company's competitors in the international wholesale switched long
distance market include large facilities-based multinational carriers and
PTTs, smaller facilities-based wholesale long distance service providers in
the U.S. and overseas that have emerged as a result of deregulation, switched-
based resellers of international long distance services and international
joint ventures and global alliances among many of the world's largest
telecommunications carriers. International telecommunications providers such
as the Company compete on the basis of price, customer service, transmission
quality, breadth of service offerings and value-added services, and the
Company's carrier customers are especially price sensitive.
Within the U.S.-based international telecommunications services market, the
Company competes with AT&T, MCI, Sprint and WorldCom, and to a lesser extent,
with other emerging international carriers. Many of these providers have
considerably greater financial and other resources and more extensive domestic
and international communications networks than the Company. The Company
anticipates that it will encounter additional competition as a result of the
formation of global alliances among large long distance telecommunications
providers. Recent examples of such alliances include AT&T's alliance with
Unisource, known as "Uniworld;" AT&T's recent alliance with Italy's
STET/Telecom Italia to serve international customers with a primary focus on
the Latin American and European regions; WorldCom's proposed merger with MCI;
and Sprint's alliance with Deutsche Telekom and France Telecom, known as
"Global One." Consolidation in the telecommunications industry may create even
larger competitors with greater financial and other resources. The effect of
the proposed mergers and alliances could create increased competition in the
telecommunications services market and potentially reduce the number of
customers that purchase wholesale international long distance services from
the Company. Because many of the Company's current competitors are also the
Company's customers, the Company's business would be materially adversely
affected to the extent that
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a significant number of such customers limit or cease doing business with the
Company for competitive or other reasons.
The telecommunications industry is in a period of rapid technological
evolution, marked by the introduction of new product and service offerings and
increasing satellite and undersea cable transmission capacity for services
similar to those provided by the Company. Such technologies include satellite-
based systems, such as those proposed by Iridium LLC and Globalstar, L.P.,
utilization of the Internet for international voice and data communications
and digital wireless communication systems such as PCS. The Company is unable
to predict which of many possible future product and service offerings will be
important to maintain its competitive position or what expenditures will be
required to develop and provide such products and services.
The 1996 Telecommunications Act permits, and is designed to promote,
additional competition in the intrastate, interstate and international
telecommunications markets by both U.S.-based and foreign companies, including
the RBOCs. RBOCs, as well as other existing or potential competitors of the
Company, have significantly more resources than the Company. The Company also
expects that competition from carriers will increase in the future as
deregulation increases in telecommunications markets worldwide. In addition,
the Company believes that the FCC's recently released order implementing the
United States' "open market" commitments under the WTO Agreement will make it
easier for certain foreign carriers to enter the U.S. market, thereby
increasing competition in the U.S. market for the Company. As a result of
these and other factors, there can be no assurance that the Company will
continue to compete favorably in the future. See "Risk Factors--Substantial
Government Regulation" and "Risk Factors--Intense Competition."
The Company believes that it competes favorably on the basis of price,
transmission quality and customer service. The number of the Company's
competitors is likely to increase as a result of the new competitive
opportunities created by the WTO Agreement. FCI believes, however, that its
focus on providing wholesale international services will enable it to benefit
from the emergence of new carriers as it will be able to provide them with
switched international telecommunications services. FCI believes that Tele8,
its Swedish subsidiary, provides the Company with a competitive advantage
because of Tele8's existing relationships with European PTTs. Tele8's
relationships with other PTTs allow the Company to accelerate its in-country
presence in certain markets, to obtain administrative leases in Europe and to
negotiate operating agreements.
LICENSES AND REGULATION
United States. In the U.S., provision of the Company's services is subject
to the provisions of the Communications Act, as amended by the 1996
Telecommunications Act, and the FCC regulations thereunder, as well as the
applicable laws and regulations of the various states administered by the
relevant state PSCs. The FCC and relevant state PSCs continue to regulate
ownership of transmission facilities, provision of services and the terms and
conditions under which the Company's services are provided. Non-dominant
carriers, such as the Company, are required by federal and state law and
regulations to file tariffs listing the rates, terms and conditions of the
services they provide.
For domestic services, the FCC and certain state agencies also impose prior
approval requirements on transfers of control. With regard to international
services, the FCC administers a variety of international service regulations,
including the ISP. The ISP governs the permissible arrangements between U.S.
carriers and their foreign correspondents to settle the cost of terminating
traffic over each other's networks, the rates for such settlement and
permissible deviations from these policies. As a consequence of the
increasingly competitive global telecommunications market, the FCC has adopted
a number of policies that permit carriers to deviate from the ISP under
certain circumstances that promote competition. The FCC also requires carriers
such as the Company to report any affiliations, as defined by the FCC, with
foreign carriers.
Regulatory requirements pertinent to the Company's operations will continue
to evolve as a result of the WTO Agreement, federal legislation, court
decisions, and new and revised policies of the FCC and state PSCs. The FCC
continues to refine its international service rules to promote competition,
reflect and encourage
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liberalization in foreign countries and reduce international accounting rates
toward cost. The FCC recently adopted new lower accounting rate "benchmarks"
that became effective January 1, 1998. Under the FCC's new benchmarks, after a
transition period of one to four years depending on a country's income level,
U.S. carriers will be required to pay foreign carriers significantly lower
rates for the termination of international services.
International Service Regulation. International common carriers, such as the
Company, are required to obtain authority under Section 214 of the
Communications Act and file a tariff containing the rates, terms and
conditions applicable to their services prior to initiating their
international telecommunications services. The Company has obtained "global"
Section 214 authority from the FCC to use, on a facilities and resale basis,
various transmission media for the provision of international switched and
private line services. Non-dominant international carriers, such as the
Company, must file their international tariffs and any revisions thereto with
one day's notice. The Company has filed international tariffs for switched and
private line services with the FCC. Additionally, international
telecommunications service providers are required to file copies of their
contracts with other carriers, including foreign carrier agreements, with the
FCC within 30 days of execution. The Company has filed each of its foreign
carrier agreements with the FCC. The FCC's rules also require that the Company
periodically file a variety of reports regarding the volume of its
international traffic and revenues and use of international facilities. In
addition to the general common carrier principles, the Company is also
required to conduct its facilities-based international business in compliance
with the FCC's ISP, or an FCC-approved alternative accounting rate
arrangement.
The FCC has decided to allow U.S. carriers, subject to certain competitive
safeguards, to propose methods to pay for international call termination that
deviate from traditional bilateral accounting rates and the ISP. The Company's
FCC authorizations also permit the Company to resell international private
lines interconnected to the PSTNs for the provision of switched services in
those countries that have been found by the FCC to offer "equivalent
opportunities" to U.S. carriers. To date, the FCC has found that only Canada,
Australia, the U.K., Sweden, the Netherlands and New Zealand offer such
opportunities. The FCC currently imposes certain restrictions upon the use of
the Company's private lines between the U.S. and "equivalent" countries. The
Company may not route traffic to or from the U.S. over a private line between
the U.S. and an "equivalent" country (e.g., the U.K.) if such traffic
originates or terminates in a third country and such third country has not
been found by the FCC to offer "equivalent" resale opportunities. Following
implementation of the Full Competition Directive by EU member states, and the
WTO Agreement by the signatories, the FCC may authorize the Company to
originate and terminate traffic over its private line between the U.S. and the
U.K. and (pursuant to ISR authority) over additional private lines to
additional member states if the FCC finds that such additional member states
provide equivalent resale opportunities or that such authority would otherwise
promote competition. The FCC recently adopted rules to permit U.S. carriers to
provide ISR to WTO member countries without a finding of equivalency. These
rules became effective on February 9, 1998. Among other rules, the FCC's new
rules provide that ISR will be permitted to any WTO member country if
settlement rates for at least 50% of the settled U.S.-billed traffic on the
route or routes in question are at or below the settlement rate benchmark or
the destination country offers equivalent resale opportunities. Once a carrier
makes such a showing and the FCC approves ISR on a route, all carriers holding
a global section 214 authorization will be permitted to offer ISR on that
route. On April 22, 1998, the FCC granted the application of Unisource USA,
Inc. for ISR authority to France, Germany, Belgium, Norway, Denmark, and
Luxembourg. As a result, the Company and all other carriers holding global
section 214 authorizations will be permitted to offer ISR to these additional
foreign countries. The Company anticipates that these new opportunities to
engage in ISR will result in reduced costs and prices, increased competition
and increased demand on these routes.
The FCC's Policies on Transit and Refile. The FCC is currently considering
whether to limit or prohibit the practice whereby a carrier routes, through
its facilities in a third country, traffic originating from one country and
destined for another country. The FCC has permitted third country calling
where all countries involved consent to the routing arrangements (referred to
as "transiting"). Under certain arrangements referred to as "refiling," the
carrier in the destination country does not consent to receiving traffic from
the originating country and does not realize the traffic it receives from the
third country is actually originating from a different country.
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To date, the FCC has made no pronouncement as to whether refiling arrangements
are inconsistent with U.S. or ITU regulations, although it is considering
these issues in connection with MCI's 1995 petition to the FCC for declaratory
ruling regarding Sprint's FONACCESS service. It is possible that the FCC will
determine that refiling violates U.S. and/or international law.
Domestic Service Regulation. The Company's provision of domestic long
distance service in the U.S. is subject to regulation by the FCC and relevant
state PSCs, which regulate interstate and intrastate rates, respectively. The
majority of the states require the Company to register or apply for
certification prior to initiating intrastate interexchange telecommunications
services. Fines and other penalties also may be imposed for such violations.
Europe. In Europe, each country regulates its telecommunications industry.
The member states of the European Union (consisting of the following
countries: Austria, Belgium, Denmark, Finland, France, Germany, Greece,
Ireland, Italy, Luxembourg, the Netherlands, Portugal, Spain, Sweden and the
U.K.) are obligated to implement legislation issued by the European
Commission, which is responsible for creating pan-European policies and
developing a regulatory framework to ensure an open, competitive
telecommunications market.
In 1990, the European Commission issued the Services Directive requiring
each EU member state to abolish existing monopolies in telecommunications
services with the exception of voice telephony. The intended effect of the
Services Directive was to permit the competitive offering of all services,
other than voice telephony, including value-added services and voice services
to closed user groups ("CUGs"). However, as a consequence of local
implementation of the Services Directive through the adoption of national
legislation, there are differing interpretations of the definition of
prohibited voice telephony and permitted value-added and CUG services. Voice
services accessed by customers through leased lines are permissible in all EU
member states. The European Commission has generally taken a narrow view of
the services classified as voice telephony, declaring that voice services may
not be reserved to the PTTs if (i) dedicated customer access is used to
provide the service, (ii) the service confers new value-added benefits on
users (such as alternative billing methods) or (iii) calling is limited by a
service provider to a group having legal, economic or professional ties.
In March 1996, the EU adopted the Full Competition Directive containing two
provisions which required EU member states to allow the creation of
alternative telecommunications infrastructures by July 1, 1996, and which
reaffirmed the obligation of EU member states to abolish the PTTs' monopolies
in voice telephony by 1998. The Full Competition Directive encouraged EU
member states to accelerate liberalization of voice telephony. To date,
Denmark, Finland, the Netherlands, Sweden and the U.K. have liberalized
facilities-based competition. Certain EU countries may delay the abolition of
the voice telephony monopoly based on exemptions established in the Full
Competition Directive. These countries include Luxembourg (July 1, 1998),
Spain (November 30, 1998), Portugal and Ireland (January 1, 2000) and Greece
(December 31, 2000).
Each EU member state in which the Company currently conducts or plans to
conduct its business has a different regulatory regime and such differences
are expected to continue beyond January 1998. The requirements for the Company
to obtain necessary approvals vary considerably from country to country and
are likely to change as competition is permitted in new service sectors.
Asia and the Pacific Rim. The extent and timing of liberalization, and the
scope and nature of regulation varies among the Pacific Rim and Asian
countries. The Company's ability to provide voice telephony services is
restricted in some Asian and Pacific Rim countries e.g., China which remains
largely closed to competition. The Company has a pending application to
provide international telecommunications services in Hong Kong, where the
regulator has encouraged limited competition. On July 1, 1997, the People's
Republic of China resumed sovereignty over Hong Kong, and there can be no
assurance that China will continue the existing licensing regime with respect
to the Hong Kong telecommunications industry. In New Zealand, regulation of
the Company's proposed provision of telecommunications services is relatively
permissive, and the Company has been granted registration as an international
services operator.
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The Company's services in Japan are or will be subject to regulation by the
Ministry of Post and Telecommunications (the "Japanese Ministry") under the
Telecommunications Business Law (the "Japanese Law"). In Japan, the Company
must obtain a license as a Type I facilities-based business before it provides
telecommunications services over its own facilities. It must register as a
Special Type II business before it provides telecommunications services over
international circuits leased from another carrier, or provides domestic
service in Japan over leased circuits if the volume of traffic exceeds a
certain amount. A registered Special Type II business may provide over leased
lines value-added and/or basic telecommunications services, and/or services to
closed user groups. The Company must notify the Japanese Ministry as a General
Type II business only if it provides domestic service in Japan over leased
circuits and does not exceed the traffic threshhold applicable to Special Type
II businesses. Although the Japanese government until recently prohibited
greater than 33.0% foreign ownership of a Type I business, as well as the
resale of international private lines interconnected to the PSTN at both ends,
the Japanese Ministry recently has begun awarding authorizations to foreign-
affiliated carriers to provide telecommunications services using their own
facilities and to resell interconnected international private lines. The
Japanese Ministry also regulates the interconnection charges imposed by Type I
businesses, and must approve intercarrier agreements between Type I carriers
or between Type I and Special Type II carriers. The Company has also filed an
application in Japan requesting a Type I (facilities-based) telecommunications
license requesting authorization to allow the Company to construct and operate
its own network facilities, as well as to originate and terminate traffic over
resold lines. The Type I license process is onerous and involves extensive
consultation with the Japanese Ministry. To date, WorldCom is the only U.S.-
based carrier to have successfully completed the process and been awarded a
Type I license.
Licenses. Consistent with its global strategy, the Company or its local
operating subsidiary has received facilities-based and resale authorization to
provide telecommunications services in Sweden, Denmark, the Netherlands,
Germany and the U.K. The Company also participates in the numbering plans of
Sweden, Denmark and the U.K. The Company is also licensed in Belgium as a
provider of non-reserved services, including voice services for CUGs and
value-added services, and has requested additional authorization to provide
ISR. The Company has been awarded an access code in El Salvador to allow the
Company to operate as a facilities-based provider of international
telecommunications services. The Company has been granted registration by the
New Zealand Ministry of Commerce as an operator under the Telecommunications
(International Services) Regulation 1994.
The Company has pending applications for various authorizations in Belgium,
France and Hong Kong. The Company also anticipates filing requests for
authorization to provide services open to competition in Australia, Italy,
Japan, Guatemala, Norway, Spain and Switzerland, where it is engaging in
discussions with foreign regulators, as well as in other countries as
appropriate in furtherance of its strategic goal of establishing a
multinational presence.
In the U.S., the Company has obtained facilities and resale licenses from
the FCC. In addition, the Company is certified or registered to provide
intrastate interexchange telecommunications services or may provide such
services based upon its unregulated status in 25 states. Applications for
registration or certification have been filed in an additional 17 states.
Applications for certification are pending in 25 states. State issued
certificates of authority to provide intrastate interexchange
telecommunications services generally can be conditioned, modified, canceled,
terminated or revoked by state PSCs for failure to comply with state law
and/or the rules, regulations and policies of the state PSCs.
EMPLOYEES
As of December 31, 1997, the Company had 113 employees. None of the
Company's employees are covered by a collective bargaining agreement.
Management believes that the Company's relationship with its employees is
good.
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LEGAL PROCEEDINGS
The Company makes routine filings and is a party to customary regulatory
proceedings with the FCC relating to its operations. The Company is not a
party to any lawsuit or proceeding which, in the opinion of management, is
likely to have a material adverse effect on the Company's business, financial
condition and results of operations.
INTELLECTUAL PROPERTY AND PROPRIETARY INFORMATION
Intellectual Property. The Company owns U.S. registration number 2,107,157
for the service mark FaciliCom International(R) for international long
distance telecommunications services. The Company relies primarily on common
law rights to establish and protect its intellectual property, its name,
products and long distance services. There can be no assurance that the
Company's measures to protect its intellectual property will deter or prevent
the unauthorized use of the Company's intellectual property. If the Company is
unable to protect its intellectual property rights, including existing
trademarks and service marks, it could have a material adverse effect upon the
Company's business, financial condition and results of operations.
Proprietary Information. To protect rights to its proprietary know-how and
technology, the Company requires certain of its employees and consultants to
execute confidentiality and invention agreements that prohibit the disclosure
of confidential information to anyone outside the Company. These agreements
also require disclosure and assignment to the Company of discoveries and
inventions made by such persons while employed by the Company. There can be no
assurance that these agreements will not be breached, that the Company will
have adequate remedies for any such breach or that the Company's confidential
information will not otherwise become known or be independently developed by
competitors or others.
PROPERTY
The Company leases certain office space under operating leases and subleases
that expire at various dates through November 2008, including the Company's
principal headquarters in Washington, D.C. The principal offices currently
leased or subleased by the Company as of December 31, 1997 are as follows:
<TABLE>
<CAPTION>
SQUARE
LOCATION FOOTAGE LEASE EXPIRATION
-------- ------- ----------------
<S> <C> <C>
Washington, DC (Corporate Headquarters)............ 15,007 February 2000
New York, NY (Switch Location)..................... 1,500 September 2000
Jersey City, NJ (Switch Location).................. 1,404 July 1999
Los Angeles, CA (Switch Location).................. 5,350 November 2002
Miami, FL (Switch Location)........................ 3,578 November 2008
London, U.K. (Switch Location)..................... 838 April 2002
London, U.K. (Sales Office)........................ 3,839 December 2002
Amsterdam, the Netherlands (Switch Location)....... 1,122 May 2003
Amsterdam, the Netherlands (Sales Office).......... 3,264 December 2002
Copenhagen, Denmark (Sales & Switch Location)...... 5,870 August 2007
Malmo, Sweden (Sales Office)....................... 8,160 December 1999
Malmo, Sweden (Switch Location).................... 8,302 September 2000
</TABLE>
The Company's switches in New York City, Jersey City, New Jersey, Malmo,
Sweden, London and Copenhagen are located in various facilities pursuant to
separate agreements. The Company's aggregate rent expense for its domestic and
international operations was $339,330 and $889,380, respectively, for the
three months ended December 31, 1997 and for the fiscal year ended September
30, 1997.
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MANAGEMENT
For purposes of this "Management" section, unless the context otherwise
requires, (i) references to offices held by certain individuals with the
Company prior to December 1997 reflect officer positions held by those
individuals with FCI LLC prior to the Recapitalization and (ii) references to
directorships held by certain individuals with the Company prior to December
1997 reflect positions held by those individuals as members of the management
committee of FCI LLC prior to the Recapitalization. For a discussion of the
Recapitalization, see "Prospectus Summary--Recent Developments," "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Overview" and "Certain Relationships and Related Transactions--Relationship
with Armstrong."
OFFICERS AND DIRECTORS
The officers and directors of the Company, and their ages as of January 1,
1998, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Walter J. Burmeister...... 58 Chief Executive Officer, President, Director
Anand Kumar............... 54 Executive Vice President--Business Development
Jeffrey J. Guzy........... 46 Executive Vice President--Marketing, Sales &
Product Development
Juan Carlos Valls......... 43 Executive Vice President--Latin America
Christopher S. King....... 36 Vice President--Finance and Administration,
Chief Financial Officer
Donald Dodd............... 64 Managing Director--Operations & Engineering
Peter Gardener............ 46 Managing Director--FCI-U.K.
Robert M. Trehin.......... 53 Managing Director--FCI-France
Ronald L. Honselaar....... 43 Managing Director--FCI-Netherlands
Rainer L. Zettl........... 33 Managing Director--FCI-Germany
Kirby J. Campbell......... 50 Treasurer, Vice President, Director
Dru A. Sedwick............ 33 Secretary, Vice President, Director
Bryan Cipoletti........... 37 Director
Robert L. Reed............ 46 Director
Jay L. Sedwick............ 62 Director
William C. Stewart........ 58 Director
</TABLE>
WALTER J. BURMEISTER is a co-founder of the Company and has served as its
Chief Executive Officer, President, and as a Director of the Company since its
inception in May 1995. Prior to co-founding the Company, Mr. Burmeister
founded Telecommunications Management Group, Inc. ("TMG"), a
telecommunications consulting firm, and has served as its Chairman from 1992
to present. Prior to founding TMG, Mr. Burmeister served as Vice President and
Chief Financial Officer of Bell Atlantic International from 1989 to 1992. In
these positions, Mr. Burmeister was responsible for overseeing business
development in Central and South America, the Middle East and Africa, as well
as managing that company's financial affairs. During his 31 years with Bell
Atlantic, Mr. Burmeister served as Vice President of Bell of Pennsylvania and
Diamond State Telephone sales organization and headed the C&P Telephone
Operations Staff. Mr. Burmeister has served as a director of Skysat
Communications Network Corp. since 1992.
ANAND KUMAR is a co-founder of the Company and has served as its Executive
Vice President--Business Development since its inception in May 1995. Prior to
co-founding the Company, Mr. Kumar founded and served as President of
Communications Strategy Group, a technology consulting firm, from 1980 to
1996. Mr. Kumar was founder and, from 1986 to 1992, President of Washington
International Teleport ("WIT"), a privately held transport facility with more
than 25 earth stations. Prior to founding WIT, Mr. Kumar served in various
positions with GTE and AT&T.
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JEFFREY J. GUZY is a co-founder of the Company and has served as its
Executive Vice President-- Marketing, Sales of Product Development since its
inception in May 1995. Prior to co-founding the Company, Mr. Guzy served as
Vice President of Business Development at Interferometrics from 1993 to 1995,
a scientific organization dedicated to low earth orbit satellite technology.
Mr. Guzy served as Director of Information Services at Bell Atlantic from 1991
to 1993. Before joining Bell Atlantic, Mr. Guzy served as Marketing Director
at Sprint International from 1989 to 1991 and as a Vice President at Overseas
Telecommunications Inc., an international private line carrier, from 1983 to
1989.
JUAN CARLOS VALLS has served as the Company's Executive Vice President--
Latin America since January 1997. Prior to joining the Company, Mr. Valls co-
founded TMG and has served as its President from 1992 to present. Prior to
founding TMG, Mr. Valls served as Director of Business Development for Bell
Atlantic International and held various positions with Bell Atlantic.
CHRISTOPHER S. KING has served as the Company's Vice President--Finance and
Administration and Chief Financial Officer since July 1996. Prior to joining
the Company, Mr. King was employed by Bell Atlantic from 1987 to 1996 where he
served in a variety of management positions in corporate finance, business
planning, marketing and new product development. In his last position at Bell
Atlantic, Mr. King served as Director of Public Calling Services and Director
of Video Services. Before joining Bell Atlantic, Mr. King served as Assistant
Comptroller for Creative Technologies Incorporated, a manufacturer of graphic
arts and video presentation products.
DONALD DODD has served as the Company's Managing Director--Operations and
Engineering since April 1996. Prior to joining the Company, Mr. Dodd served as
Senior Director of Marketing from 1994 to 1996 at Tekelec Incorporated, an
equipment manufacturer. From 1992 to 1994, Mr. Dodd served as a consultant
with TMG. Prior to that time, Mr. Dodd held a number of positions with Bell
Atlantic and Northern Telecom, where he was General Manager of Operations for
the eastern region from 1984 to 1992.
PETER GARDENER has served as Managing Director--FCI-U.K. since July 1996.
Prior to joining FCI-U.K., Mr. Gardener was a managing consultant with
Commslogic, a leading communications consulting company, from 1986 to 1996.
Before working at Commslogic, Mr. Gardener held a number of senior management
positions with National Westminster Bank and British Telecom plc.
ROBERT M. TREHIN has served as Managing Director--FCI-France since December
1997. Prior to joining FCI-France, Mr. Trehin served as Managing Director of
Cable & Wireless France from 1993 to 1997. Mr. Trehin served as Director for
Sales and Support for Quest Standard Telematique from 1989 to 1993 and in
various management positions at Tymnet, a global data communications company,
for over 10 years.
RONALD L. HONSELAAR has served as Managing Director--FCI-Netherlands since
December 1997. Prior to joining FCI-Netherlands, Mr. Honselaar served in
various management positions, including Business Unit Manager, at Racal
Datacom B.V., a data communications company, from 1995 to 1997. Prior to that
time, Mr. Honselaar served in various sales and management positions at
Memorex Telex from 1986 to 1995.
RAINER L. ZETTL has served as Managing Director--FCI-Germany since December
1997. Prior to joining FCI-Germany, Mr. Zettl served in various management
positions, including Sales Office Manager, at Viag Interkom, from 1993 to
1997. Prior to that time, Mr. Zettl served as Product Manager for Markt &
Technik, a software company, from 1991 to 1992.
KIRBY J. CAMPBELL has served as a Vice President, Treasurer and as Director
of the Company since its inception in May 1995. Mr. Campbell has served since
June 1997 as Chief Executive Officer of Armstrong Holdings, Inc., the
Company's indirect majority stockholder and previously served as Executive
Vice President of Armstrong Holdings, Inc. Mr. Campbell also holds various
executive and board positions with Armstrong's affiliated companies.
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<PAGE>
DRU A. SEDWICK has served as Vice President, Secretary and as a Director of
the Company since its inception in May 1995. Mr. Sedwick has served since June
1997 as President of Armstrong Holdings, Inc., the Company's indirect majority
stockholder, and previously served as Senior Vice President of Armstrong
Holdings, Inc. Mr. Sedwick also holds various executive and board positions
with Armstrong's affiliated companies.
BRYAN CIPOLETTI has served as a Director of the Company since September
1997. Mr. Cipoletti has served as Vice President of Finance of Armstrong
Holdings Inc., the Company's indirect majority stockholder, since 1993. Mr.
Cipoletti also holds various executive and board positions with Armstrong's
affiliated companies.
ROBERT L. REED has served as a Director of the Company since its inception
in May 1995. In 1987, Mr. Reed founded EPIC Capital Corp., an investment
banking firm that specializes in the privately-held business market, and has
served as its Chairman since that time.
JAY L. SEDWICK has served as a Director of the Company since its inception
in May 1995. Since 1992, Mr. Sedwick has served as the Chairman of the Board
of Armstrong Holdings, Inc., the Company's indirect majority stockholder. Mr.
Sedwick also serves as Chairman of many of Armstrong's affiliated companies
and has served as a director of North Pittsburgh Systems, Inc. since 1980.
WILLIAM C. STEWART has served as a Director of the Company since September
1997. Mr. Stewart has served as President and Chief Executive Officer of
Armstrong Utilities, Inc., an affiliate of the Company's majority stockholder,
since June 1997 and previously served as Executive Vice President and Chief
Operating Officer of Armstrong Utilities, Inc. Mr. Stewart also holds various
executive and board positions for Armstrong's affiliated companies.
Members of the Company's Board of Directors hold office for the term for
which they are elected. Currently, each director has been elected to serve
until the next annual stockholders meeting or until his death, resignation or
removal. Officers of the Company serve at the discretion of the Board of
Directors.
Jay L. Sedwick is a brother-in-law of William C. Stewart. Jay L. Sedwick is
the father of Dru A. Sedwick. There are no other family relationships among
any of the directors and executive officers of the Company.
MANAGEMENT RELATIONSHIP WITH ARMSTRONG
Kirby J. Campbell and Dru A. Sedwick devote approximately 10% of their
working time to activities related to the Company. Other than the Company,
Armstrong owns six independent local telephone companies. These local
telephone companies provide primarily local exchange services and long
distance access to residential and business customers in defined service
areas. The activities of these independent local telephone companies are
neither competitive with, nor complementary to, the activities of the Company.
The Company believes that this avoids any potential conflicts of interest.
MANAGEMENT RELATIONSHIP WITH TELECOMMUNICATIONS MANAGEMENT GROUP
TMG, co-founded by Messrs. Burmeister and Valls, provides international
telecommunications consulting services. TMG has provided consulting services
to the Company since the Company's inception in May 1995, principally with
respect to business development opportunities in Latin America. Since the
Company's inception, Mr. Burmeister has devoted less than 5% of his working
time to performing services for TMG. Prior to January 1, 1998, at which time
he was hired as an executive officer of the Company, Mr. Valls devoted all of
his working time to performing services for TMG. Since January 1, 1998, Mr.
Valls has devoted less than 5% of his working time to performing services for
TMG. To avoid possible conflicts of interest, TMG has refused several requests
from competitors of the Company to provide consulting services for such
competitors. The majority of TMG's revenues are generated from providing
consulting services to governmental entities in Latin America and the Middle
East as well as to non-governmental organizations worldwide. Although Messrs.
Burmeister and Valls could be subject to conflicts of interest in the future,
TMG intends to continue to decline requests for consulting services from the
Company's direct competitors. See "Certain Relationships and Related
Transactions."
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<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
FCI LLC's Management Committee did not have a compensation committee in the
fiscal year ended September 30, 1997. Messrs. Burmeister, Campbell and Dru
Sedwick, each an executive officer of FCI LLC and the Company, comprised all
of the members of the Management Committee in 1997. The Management Committee
is responsible for reviewing executive officer compensation matters, including
Mr. Burmeister's compensation. Other than members of the Management Committee,
no other directors, officers or employees of the Company or FCI LLC performed
functions equivalent to those discharged by a compensation committee during
1997. Messrs. Campbell and Dru Sedwick did not receive compensation from FCI
LLC in the fiscal year ended September 30, 1997 for their participation on the
Management Committee or their service as officers of FCI LLC. During fiscal
year 1997, Messrs. Campbell, Dru Sedwick, Jay Sedwick, Cipoletti and Stewart,
directors of the Company, served on the board of directors and as executive
officers of various Armstrong entities.
Management Relationships with Armstrong
Financing Transactions. FCI LLC, the Company's predecessor, was formed as a
Delaware limited liability company in May 1995 by AIT and FMG, with AIT and
FMG contributing $180,000 and $60,000, respectively, in exchange for ownership
interests of 75.0% and 25.0% in the Company, respectively.
As the Company's majority stockholder, AIT has supplied substantially all of
the Company's capital. In September 1996, AIT provided FCI LLC with the
Additional Capital in the amount of $10.2 million. As a result of the
Additional Capital, AIT was entitled to a guaranteed return through September
30, 1997 for the use of the Additional Capital, pursuant to the terms of FCI
LLC's limited liability company agreement. In November 1996, AIT provided FCI
LLC with additional working capital in the form of a $5.0 million convertible
line of credit and a guaranteed $10.0 million letter of credit facility for
the benefit of FCI LLC.
In September 1997, AIT increased its equity ownership in the Company from
75.0% to 81.0% by converting into permanent equity (1) the Convertible
Debenture (which, together with accrued interest, totaled $5.4 million) and
(2) capital contributions of $10.9 million (representing the $10.2 million
furnished by AIT in September 1996 plus a guaranteed return of $724,000
related thereto). Also in September 1997, AIT established a bridge loan for
the benefit of the Company, pursuant to which AIT advanced funds to the
Company for working capital purposes at a rate equal to the prime rate plus
1.0% per annum.
In November 1997, the Company's stockholders, AIT and FMG, formed FaciliCom
International, Inc. On December 22, 1997, as a result of the Reorganization,
FCI LLC became a wholly owned subsidiary of the Company. Also, on December 22,
1997, AIT made the Equity Investment of $20.0 million by making a cash
contribution of $13.7 million and a noncash contribution of $6.3 million in
the form of cancellation of amounts outstanding under the bridge loan, thereby
increasing AIT's equity ownership in the Company from 81.0% to 84.0%. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Overview."
MIS Services Agreement. The Company has entered into a contract with
Armstrong pursuant to which Armstrong will provide billing and MIS support
services, including, but not limited to, call collection, processing, rating
and reporting for the Company and its subsidiaries. In addition, Armstrong
will also provide the Company with access to experienced MIS professionals and
programmers on an as-needed basis. The costs for such services are as follows:
(i) professional services are billed at up to $75 per hour, (ii) data center
management, operations and hardware services are billed at a rate of $40 per
megasecond (iii) AS/400 disk storage services are billed at a rate of $25 per
gigabyte, (iv) software applications and direct hardware purchased by the
Company are billed at actual cost and (v) telecommunications facilities are
billed based on actual facilities used by the Company. Armstrong has reserved
the right to increase the cost of its services upon thirty days'
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<PAGE>
written notice. During the fiscal years ended September 30, 1997 and 1996, the
Company paid $431,000 and $0, respectively, to Armstrong for MIS services
provided under this agreement. The agreement may be terminated by the Company
or Armstrong upon 180 days' notice to the other party. Armstrong provides
similar services to other telecommunications companies with which it is
affiliated. The Company believes that the terms of its MIS Services Agreement
with Armstrong are competitive with those offered by other providers of MIS
services. The agreement expires on September 30, 2002.
Financial Accounting Services Agreement. The Company also has entered into
an agreement with Armstrong whereby Armstrong provides to the Company certain
financial accounting services, such as payroll, accounts payable, general
ledger services and income tax return preparation services. The costs for
these services are as follows: (i) payroll processing is billed at $2.75 per
check, (ii) accounts payable processing is billed at $2.75 per check, (iii)
income tax return preparation is billed at $75 per hour and (iv) paralegal
services are billed at $40 per hour. Armstrong has reserved the right to
increase the cost of its services upon thirty days' written notice. During the
fiscal years ended September 30, 1997 and 1996, the Company paid $7,800 and
$7,400, respectively, to Armstrong for financial accounting services provided
under this agreement. The agreement may be terminated by the Company or
Armstrong upon 180 days' notice to the other party. Armstrong provides similar
services to other telecommunications companies with which it is affiliated.
The Company believes that the terms of its Financial Accounting Services
Agreement with Armstrong are competitive with those offered by other providers
of financial accounting services in the industry. The agreement expires on
June 30, 2002.
In December 1997, the Company adopted a tax sharing agreement with
Armstrong, whereby the Company is obligated to file a consolidated federal
income tax return with Armstrong and its subsidiaries. Under the agreement,
the Company is obligated to pay, with certain exceptions, its share of the
consolidated tax liability to Armstrong, and the Company will not be paid by
Armstrong for tax benefits realized in the consolidated returns. To date, the
Company has not made any payment to Armstrong under the tax sharing agreement.
Management Relationships with Telecommunications Management Group
Messrs. Burmeister and Valls are the co-founders, sole shareholders and
directors of TMG. TMG is an international telecommunications consulting
company. During 1997, the Company utilized the consulting services of TMG
principally for business development opportunities in Latin America. Since the
Company's inception in May 1995, Mr. Burmeister has devoted less than 5% of
his working time to performing services for TMG. Prior to January 1, 1998, at
which time he was hired as an executive officer of the Company, Mr. Valls
devoted all of his working time to performing services for TMG. Since January
1, 1998, Mr. Valls has devoted less than 5% of his working time to performing
services for TMG. Since becoming employees of the Company, neither Mr.
Burmeister nor Mr. Valls has provided any of the services provided by TMG to
the Company. Pursuant to its arrangements with TMG, the Company paid TMG fees
of $2,471 and $85,097 in the three months ended December 31, 1997 and the
fiscal year ended September 30, 1997, respectively. During the three months
ended December 31, 1996 and the fiscal year ended September 30, 1996, the
Company paid TMG fees of $26,123 and $58,274, respectively. The Company
believes that the fees paid to TMG for the services rendered are competitive
with those charged for comparable services by other companies in the industry.
DIRECTOR COMPENSATION
Members of the Management Committee of FCI LLC did not, and members of the
Company's Board of Directors currently do not, receive any compensation for
their participation at meetings of the Management Committee or the Board of
Directors, respectively, or any committees thereof. Directors are not
currently reimbursed for out-of-pocket expenses incurred in connection with
their attendance at meetings of the Board of Directors or any committee
thereof. The Company may, from time to time and in the sole discretion of the
Company's Board of Directors, grant options and/or phantom stock rights to
directors under the Company's Stock option plans and Phantom Stock Plan. See
"--Phantom Stock Plan" and "--Stock Option Plans."
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PHANTOM STOCK PLAN
The Board of Directors adopted the Phantom Stock Plan on December 22, 1997.
The Phantom Stock Plan provides for the grant of phantom stock rights
("Phantom Shares") to certain directors, officers and key employees of the
Company and its subsidiaries. Each Phantom Share entitles the holder thereof
(the "participant") to receive a cash payment upon the occurrence of (i) the
retirement of the participant from the Company or a subsidiary if the
participant is over 65 years old and has been continuously employed by the
Company or a subsidiary for not fewer than ten years, (ii) the Company's
written agreement that the termination of the participant's employment with
the Company or a subsidiary will not result in such forfeiture or (iii) the
death or total disability of the participant (the "Triggering Event") equal to
the excess of the fair market value of the Phantom Share (as determined in
good faith by the Board of Directors) less the value assigned to that Phantom
Share on the date the Phantom Share is granted. The total number of Phantom
Shares which may be granted pursuant to the Phantom Stock Plan is 6,175,
subject to adjustments for stock splits and stock dividends. The plan is
administered by persons who have been designated by the Board of Directors to
serve as administrator (the "administrator"). The administrator is charged
with determining, among other things, the eligibility of directors, officers
and employees to receive Phantom Shares under the plan, how many Phantom
Shares will be granted to directors, officers and employees, and the rules,
regulations and procedures in connection with the operation of the plan.
In determining the eligibility of a director, officer or employee to receive
Phantom Shares, the administrator will consider the position and
responsibilities of such director, officer or employee, the nature and value
to the Company or a subsidiary of his or her services and accomplishments, his
or her present and potential contribution to the success of the Company or its
subsidiaries and such other factors as the administrator may deem relevant.
Phantom Shares that have not vested may be forfeited upon the termination of
the participant's employment for a reason other than a Triggering Event. In
addition, the Board of Directors may terminate all rights in Phantom Shares
held by a participant, whether or not they have vested, if the participant (i)
actively competes with the Company or a subsidiary, (ii) is terminated from
the Company or a subsidiary for the commission of any crime, (iii) is
terminated from the Company or a subsidiary for cause or (iv) is terminated
from the Company or a subsidiary for gross negligence or willful misconduct.
Phantom Shares granted under the Phantom Stock Plan may not be transferred
by a participant other than by operation of a will or by the laws of descent
and distribution. Phantom Shares will immediately vest upon the occurrence of
certain events, including a merger or consolidation in which the Company is
not the surviving entity, the acquisition of 50% or more of the combined
voting power of the Company (other than by AIT or FMG) or a transaction
requiring stockholder approval involving the disposition of all or
substantially all of the Company's assets.
STOCK OPTION PLANS
1998 Stock Option Plan
The Board of Directors adopted the Facilicom International, Inc. 1998 Stock
Option Plan ( the "1998 Stock Option Plan") on March 31, 1998. The 1998 Stock
Option Plan provides for the grant of options to purchase shares of the
Company's non-voting common stock to certain directors, officers, key
employees and advisors of the Company and its subsidiaries. The purpose of the
1998 Stock Option Plan is to promote the growth and profitability of the
Company by enabling it to attract and retain the best available personnel for
positions of substantial responsibility, to provide directors, officers, key
employees and advisors with an opportunity for investment in the Company's
non-voting common stock and to give them an additional incentive to increase
their efforts on behalf of the Company. The aggregate number of shares of
Common Stock as to which options may be granted pursuant to the 1998 Stock
Option Plan is 22,574, subject to adjustments for stock splits and stock
dividends, and no option may be granted under the plan after March 31, 2008.
The plan is administered by persons who have been designated by the Board of
Directors to serve as administrator, consisting of one or more, but no more
than three, members of the Board of Directors. The administrator is charged
with, among other things, granting options and determining the purchase price
of the shares of common stock covered by each
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<PAGE>
option, determining the term of each option, determining the persons to whom
(and the times at which) options are granted, and determining the number of
shares of common stock to be covered by each option, interpreting the plan,
determining the rules, regulations and procedures in connection with the
operation of the plan, and determining the provisions of stock option
agreements. In determining the eligibility of a director, officer or employee
to receive options, the administrator will consider the position and
responsibilities of such director, officer or employee, the nature and value
to the Company or a subsidiary of his or her services and accomplishments, his
or her present and potential contribution to the success of the Company or its
subsidiaries and such other factors as the administrator may deem relevant.
The exercise price for options is determined by the administrator in its
discretion. The exercise price for options may be paid in full in cash, or in
an combination of cash and installment payments, and/or in shares of common
stock. Options immediately vest upon the occurrence of certain events,
including a merger or consolidation in which the Company is not the surviving
entity, the acquisition of 50% or more of the combined voting power of the
Company (other than by AIT or FMG) or a transaction requiring stockholder
approval involving the disposition of all or substantially all of the
Company's assets. Options granted under the 1998 Stock Option Plan may not be
transferred by an optionee other than by operation of a will or by the laws of
descent and distribution.
If the employment or status as an optionee director or officer terminates
for any reason other than voluntary termination with the consent of the
Company or subsidiary, retirement under any retirement plan of the Company or
subsidiary, death or involuntary termination without cause, the rights of the
optionee under any option shall terminate at the time of such termination. In
addition, the administrator may terminate all rights in options held by an
optionee, whether or not they have vested, if the optionee actively competes
with the Company or subsidiary.
1997 Stock Option Plan No. 1
The Board of Directors adopted the Facilicom International, Inc. 1997 Stock
Option Plan No. 1 ("Stock Option Plan No. 1") on December 22, 1997. Stock
Option Plan No. 1 provides for the grant of options to purchase shares of the
Company's common stock to certain directors, officers and key employees of the
Company and its subsidiaries. The purpose of Stock Option Plan No. 1 is to
provide to the Company the discretionary ability to grant options in
replacement and substitution of Phantom Shares which have been granted
pursuant to the Phantom Stock Plan. The aggregate number of shares of Common
Stock as to which options may be granted pursuant to Stock Option Plan No. 1
is 6,175, subject to adjustments for stock splits and stock dividends, and no
option may be granted under the plan after December 22, 2007. The plan is
administered by persons who have been designated by the Board of Directors to
serve as administrator, consisting of one or more, but no more than three,
members of the Board of Directors. The administrator is charged with, among
other things, granting options and determining the purchase price of the
shares of common stock covered by each option, determining the term of each
option, determining the persons to whom (and the times at which) options are
granted, and determining the number of shares of common stock to be covered by
each option, interpreting the plan, determining the rules, regulations and
procedures in connection with the operation of the plan, and determining the
provisions of stock option agreements. In determining the eligibility of a
director, officer or employee to receive options, the administrator will
consider the position and responsibilities of such director, officer or
employee, the nature and value to the Company or a subsidiary of his or her
services and accomplishments, his or her present and potential contribution to
the success of the Company or its subsidiaries and such other factors as the
administrator may deem relevant.
The exercise price for options is determined by the administrator in its
discretion. The exercise price for options may be paid in full in cash, or in
an combination of cash and installment payments, and/or in shares of common
stock. Subject to certain limited exceptions for death and disability during
the first six months of an option term and those discussed in the following
sentence, no option is exercisable during the first six months of its term and
no option is exercisable after the expiration of ten years and six months from
the date of grant. Options immediately vest upon the occurrence of certain
events, including a merger or consolidation in which
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the Company is not the surviving entity, the acquisition of 50% or more of the
combined voting power of the Company (other than by AIT or FMG) or a
transaction requiring stockholder approval involving the disposition of all or
substantially all of the Company's assets. Options granted under Stock Option
Plan No. 1 may not be transferred by an optionee other than by operation of a
will or by the laws of descent and distribution.
If the employment or status as a director or officer of an optionee
terminates for any reason other than voluntary termination with the consent of
the Company or subsidiary, retirement under any retirement plan of the Company
or subsidiary, death or involuntary termination without cause, the rights of
the optionee under any option shall terminate at the time of such termination.
In addition, the administrator may terminate all rights in options held by an
optionee, whether or not they have vested, if the optionee actively competes
with the Company or subsidiary.
1997 Stock Option Plan No. 2
On December 22, 1997, the Board of Directors also adopted the Facilicom
International, Inc. 1997 Stock Option Plan No. 2 ("Stock Option Plan No. 2"),
which, like Stock Option Plan No. 1, provides for the grant of options to
purchase shares of common stock to certain directors, officers and key
employees of the Company and its subsidiaries. The principal terms of Stock
Option Plan No. 1 and Stock Option Plan No. 2 are substantially identical with
the following exceptions: (i) the aggregate number of shares of common stock
as to which options may be granted pursuant to Stock Option Plan No. 2 is
5,135, subject to adjustments for stock splits and stock dividends; (ii)
options under Stock Option Plan No. 2 are intended to be granted for reasons
other than replacement and substitution of Phantom Shares that have been
granted pursuant to the Phantom Stock Plan; and (iii) the exercise price for
options granted under Stock Option Plan No. 2 is determined by the
administrator but, except as may be approved by the Board of Directors, such
price may not be less than 100% of the fair market value per share of the
common stock on the date of grant.
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EXECUTIVE COMPENSATION
The following table sets forth certain summary information concerning
compensation for services in all capacities awarded to, earned by or paid to,
the Company's Chief Executive Officer and each of the four other most highly
compensated executive officers of the Company, whose aggregate cash and cash
equivalent compensation exceeded $100,000 (collectively, the "Named
Officers"), with respect to the fiscal year ended September 30, 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
1997 ANNUAL LONG-TERM
COMPENSATION COMPENSATION AWARDS(/1/)
NAME OF INDIVIDUAL AND --------------------- ------------------------
PRINCIPAL POSITION SALARY BONUS RESTRICTED STOCK AWARDS
- ---------------------- -------- ------- ------------------------
<S> <C> <C> <C>
Walter J. Burmeister.......... $191,857(/2/) $54,000 $949,981(/3/)(/7/)
Chief Executive Officer,
President
Anand Kumar................... 139,539 52,628 237,495(/4/)(/7/)
Executive Vice President--
Business Development
Jeffrey J. Guzy............... 100,154 66,845 189,996(/5/)(/7/)
Executive Vice President--
Marketing, Sales
& Product Development
Christopher S. King........... 96,962 41,836 90,060(/6/)(/7/)
Vice President--Finance and
Administration, Chief
Financial Officer
Donald Dodd................... 88,261 16,553 --
Managing Director--Operations
& Engineering
</TABLE>
- --------
(1) For accounting purposes, the Company recognizes expense under the Phantom
Stock Plan over the employee's respective service period. The fair market
value of the phantom units granted pursuant to FCI LLC's Amended and
Restated Performance Unit Plan (the "Performance Unit Plan") and Phantom
Shares granted pursuant to the Phantom Stock Plan was determined, in each
case at the time of grant, by the Board of Directors. The fair market
value for Phantom Shares granted for the fiscal year ended September 30,
1997, and the value of Phantom Shares at that date, was based on a value
of $500 per share, as determined by the Board of Directors.
(2) Mr. Burmeister owns 50% of the equity interests in TMG, an international
telecommunications consulting company which provides consulting services
to the Company. For the fiscal year ended September 30, 1997, the Company
paid fees totaling $85,097 to TMG. Mr. Burmeister's salary for the fiscal
year ended September 30, 1997, includes $42,549, reflecting Mr.
Burmeister's 50% interest in such fees.
(3) Represents the fair market value of 190,000 phantom units granted pursuant
to the Performance Unit Plan in the fiscal year ended September 30, 1997,
at an exercise price of $.01 per phantom unit, which units were exchanged
for 1,900 Phantom Shares under the Phantom Stock Plan. All 1,900 Phantom
Shares vested immediately. No prior grants of Phantom Shares were received
by him.
(4) Represents the fair market value of 47,500 phantom units granted pursuant
to the Performance Unit Plan in the fiscal year ended September 30, 1997
at an exercise price of $.01 per phantom unit, which units were exchanged
for 475 Phantom Shares under the Phantom Stock Plan. Of the 475 Phantom
Shares granted in the fiscal year ended September 30, 1997, 50% vest one
year after the date of grant and the remaining 50% vest two years after
the date of grant. Together with prior grants of Phantom Shares received
by him, Mr. Kumar's aggregate holdings are 1,330 Phantom Shares with an
aggregate dollar value of $664,987, of which 617.5 Phantom Shares had
vested as of September 30, 1997.
(5) Represents the fair market value of 38,000 phantom units granted pursuant
to the Performance Unit Plan in the fiscal year ended September 30, 1997
at an exercise price of $.01 per phantom unit, which units were exchanged
for 380 Phantom Shares under the Phantom Stock Plan. Of the 380 Phantom
Shares granted in the fiscal year ended September 30, 1997, 50% vest one
year after the date of grant and the remaining 50% vest two years after
the date of grant. Together with prior grants of Phantom Shares received
by him, Mr. Guzy's aggregate holdings are 1,045 Phantom Shares with an
aggregate dollar value of $522,489, of which 475 Phantom Shares had vested
as of September 30, 1997.
(6) Represents the fair market value of 38,000 phantom units granted pursuant
to the Performance Unit Plan in the fiscal year ended September 30, 1997
at an exercise price of $2.63 per phantom unit, which units were exchanged
for 380 Phantom Shares under the Phantom Stock Plan. Of the 380 Phantom
Shares granted in the fiscal year ended September 30, 1997, 50% vest one
year after the date of grant and the remaining 50% vest two years after
the date of grant. Together with prior grants of Phantom Shares received
by him, Mr. King's aggregate holdings are 570 Phantom Shares with an
aggregate dollar value of $135,090, of which 190 Phantom Shares had vested
as of September 30, 1997.
(7) No dividends will be paid on the Phantom Shares.
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PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Company's common stock as of April 30, 1998, by (i) each
person known by the Company to beneficially own five percent or more of any
class of the Company's capital stock, (ii) each director of the Company, (iii)
each executive officer of the Company that is a Named Officer and (iv) all
directors and executive officers of the Company as a group. All information
with respect to beneficial ownership has been furnished to the Company by the
respective shareholders of the Company.
<TABLE>
<CAPTION>
NUMBER OF SHARES OF PERCENT AS OF
COMMON STOCK APRIL 30,
BENEFICIAL OWNER BENEFICIALLY OWNED 1998
- ---------------- ------------------- -------------
<S> <C> <C>
Armstrong International Telecommunications,
Inc.(/1/).................................. 189,641 82.8%
Jay L. Sedwick(/2/)......................... 189,641 82.8
Walter J. Burmeister(/3/)................... 38,000 16.6
Juan Carlos Valls(/4/)...................... 36,100 15.8
Robert L. Reed(/5/)......................... 36,100 15.8
Anand Kumar(/6/)............................ 618 *
Jeffrey J. Guzy(/7/)........................ 475 *
Christopher S. King(/8/).................... 190 *
Donald Dodd................................. 0 0
Kirby J. Campbell........................... 0 0
Bryan Cipoletti............................. 0 0
Dru A. Sedwick.............................. 0 0
William C. Stewart.......................... 0 0
All directors and executive officers as a
group (16 persons)......................... 228,924 100.0%
</TABLE>
- --------
* Represents beneficial ownership of less than 1% of the outstanding shares
of common stock.
(1) The address for Armstrong International Telecommunications, Inc. is One
Armstrong Place, Butler, PA 16001.
(2) Represents shares of common stock owned by AIT, a wholly owned subsidiary
of Armstrong. Mr. Sedwick, a director of the Company, is the Chairman of
the Board of, and controls, Armstrong. The address for Mr. Sedwick is One
Armstrong Place, Butler, PA 16001.
(3) Represents 36,100 shares of common stock owned beneficially by Mr.
Burmeister through FMG, in which Mr. Burmeister has a 33.3% ownership
interest, and 1,900 shares of common stock that were issued upon the
conversion of Phantom Shares granted pursuant to the 1998 Stock Option
Plan. Mr. Burmeister shares with Messrs. Valls and Reed voting and
investment control with respect to 36,100 shares of common stock owned by
FMG. The address for Mr. Burmeister is c/o FaciliCom International, 1401
New York Avenue, NW, Washington, D.C. 20005.
(4) Represents shares of common stock owned beneficially by Mr. Valls through
FMG, in which Mr. Valls has a 33.3% ownership interest. The address for
Mr. Valls is c/o FaciliCom International, 1401 New York Avenue, NW,
Washington, D.C. 20005. Mr. Valls shares with Messrs. Burmeister and Reed
voting and investment control with respect to 36,100 shares of common
stock owned by FMG.
(5) Represents shares of common stock owned beneficially by Mr. Reed through
FMG, in which Mr. Reed has a 33.3% ownership interest. The address for Mr.
Reed is c/o FaciliCom International, 1401 New York Avenue, NW, Washington,
D.C. 20005. Mr. Reed shares with Messrs. Burmeister and Valls voting and
investment control with respect to 36,100 shares of common stock owned by
FMG.
(6) Represents shares of common stock that were issued upon the conversion of
Phantom Shares granted pursuant to the 1998 Stock Option Plan. The address
for Mr. Kumar is c/o FaciliCom International, 1401 New York Avenue, NW,
Washington, D.C. 20005.
(7) Represents shares of common stock that were issued upon the conversion of
Phantom Shares granted pursuant to the 1998 Stock Option Plan. The address
for Mr. Guzy is c/o FaciliCom International, 1401 New York Avenue, NW,
Washington, D.C. 20005.
(8) Represents shares of common stock that were issued upon the conversion of
Phantom Shares granted pursuant to the 1998 Stock Option Plan. The address
for Mr. King is c/o FaciliCom International, 1401 New York Avenue, NW,
Washington, D.C. 20005.
THE ARMSTRONG GROUP OF COMPANIES
The Armstrong Group of Companies, headquartered in Butler, Pennsylvania, is
a diversified, privately held group of companies that own and operate cable
television systems, independent telephone companies, real estate companies, a
residential and commercial security company and various other businesses. AIT,
a wholly owned subsidiary of Armstrong, is the Company's majority stockholder.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
RELATIONSHIP WITH ARMSTRONG
FCI LLC, the Company's predecessor, was formed as a Delaware limited
liability company in May 1995 by AIT and FMG, with AIT and FMG contributing
$180,000 and $60,000, respectively, in exchange for ownership interests of
75.0% and 25.0% in the Company, respectively. In July 1995, FCI LLC acquired
66.5% of Tele8, an established competitive carrier based in Sweden. In October
1997, FCI LLC acquired additional equity from a minority stockholder in Tele8,
thereby increasing its total ownership interest in Tele8 to approximately
98.9%.
As the Company's majority stockholder, AIT has supplied substantially all of
the Company's capital. In September 1996, AIT provided FCI LLC with the
Additional Capital in the amount of $10.2 million for working capital
purposes. As a result of the Additional Capital, AIT was entitled to a
guaranteed return through September 30, 1997 for the use of the Additional
Capital, pursuant to the terms of FCI LLC's limited liability company
agreement. In November 1996, AIT provided FCI LLC the Convertible Debenture in
the form of a $5.0 million convertible line of credit and a guaranteed $10.0
million letter of credit facility for the benefit of FCI LLC.
In September 1997, AIT increased its equity ownership in the Company from
75.0% to 81.0% by converting into permanent equity (1) the Convertible
Debenture (which, together with accrued interest, totaled $5.4 million) and
(2) capital contributions of $10.9 million (representing the $10.2 million
furnished by AIT in September 1996 plus a guaranteed return of $724,000
related thereto). Also in September 1997, AIT established a bridge loan for
the benefit of the Company, pursuant to which AIT advanced funds to the
Company for working capital purposes at a rate equal to the prime rate plus
1.0% per annum.
In November 1997, the Company's stockholders, AIT and FMG, formed FaciliCom
International, Inc. On December 22, 1997, as a result of the Reorganization,
FCI LLC became a wholly owned subsidiary of the Company. Also, on December 22,
1997, AIT made the Equity Investment of $20.0 million by making a cash
contribution of $13.7 million and a noncash contribution of $6.3 million in
the form of cancellation of amounts outstanding under the bridge loan, thereby
increasing AIT's equity ownership in the Company from 81.0% to 84.0%.
MIS Services Agreement. The Company has entered into a contract with
Armstrong pursuant to which Armstrong will provide billing and MIS support
services, including, but not limited to, call collection, processing, rating
and reporting for the Company and its subsidiaries. In addition, Armstrong
will also provide the Company with access to experienced MIS professionals and
programmers on an as-needed basis. The costs for such services are as follows:
(i) professional services are billed at up to $75 per hour, (ii) data center
management, operations and hardware services are billed at a rate of $40 per
megasecond, (iii) AS/400 disk storage services are billed at a rate of $25 per
gigabyte, (iv) software applications and direct hardware purchased by the
Company are billed at actual cost and (v) telecommunications facilities are
billed based on actual facilities used by the Company. Armstrong has reserved
the right to increase the cost of its services upon thirty days' written
notice. During the fiscal years ended September 30, 1997 and 1996, the Company
paid $431,000 and $0, respectively, to Armstrong for MIS services provided
under this agreement. The agreement may be terminated by the Company or
Armstrong upon 180 days' notice to the other party. Armstrong provides similar
services to other telecommunications companies with which it is affiliated.
The Company believes that the terms of its MIS Services Agreement with
Armstrong are competitive with those offered by other providers of MIS
services. The agreement expires on September 30, 2002.
Financial Accounting Services Agreement. The Company also has entered into
an agreement with Armstrong whereby Armstrong provides to the Company certain
financial accounting services, such as payroll, accounts payable, general
ledger services and income tax return preparation services. The costs for
these services are as follows: (i) payroll processing is billed at $2.75 per
check, (ii) accounts payable processing is billed at $2.75 per check, (iii)
income tax return preparation is billed at $75 per hour and (iv) paralegal
services are billed
77
<PAGE>
at $40 per hour. Armstrong has reserved the right to increase the cost of its
services upon thirty days' written notice. During the fiscal years ended
September 30, 1997 and 1996, the Company paid $7,800 and $7,400, respectively,
to Armstrong for financial accounting services provided under this agreement.
The agreement may be terminated by the Company or Armstrong upon 180 days'
notice to the other party. Armstrong provides similar services to other
telecommunications companies with which it is affiliated. The Company believes
that the terms of its Financial Accounting Services Agreement with Armstrong
are competitive with those offered by other providers of financial accounting
services in the industry. The agreement expires on June 30, 2002.
In December 1997, the Company and Armstrong entered into a tax sharing
agreement to define the method by which the federal income tax liability will
be allocated between the Company and Armstrong and the manner in which such
allocated tax liability will be paid. To date, the Company has not made any
payment to under the tax sharing agreement.
Management Relationship with Telecommunications Management Group
Messrs. Burmeister and Valls are the co-founders, sole shareholders and
directors of TMG. TMG is an international telecommunications consulting
company. During 1997, the Company utilized the consulting services of TMG
principally for exploring business development opportunities in Latin America.
Since the Company's inception in May 1995, Mr. Burmeister has devoted less
than 5% of his working time to performing services for TMG. Prior to January
1, 1998, at which time he was hired as an executive officer of the Company,
Mr. Valls devoted all of his working time to performing services for TMG.
Since January 1, 1998, Mr. Valls has devoted less than 5% of his working time
to performing services for TMG. Since becoming employees of the Company,
neither Mr. Burmeister nor Mr. Valls has provided any of the services provided
by TMG to the Company. Pursuant to its arrangements with TMG, the Company paid
TMG fees of $2,471 and $85,097 in the three months ended December 31, 1997 and
the fiscal year ended September 30, 1997, respectively. During the three
months ended December 31, 1996 and the fiscal year ended September 30, 1996,
the Company paid TMG fees of $26,123 and $58,274, respectively. The Company
believes that the fees paid to TMG for the services rendered are competitive
with those charged for comparable services by other companies in the industry.
78
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 300,000 shares of
common stock, par value $.01 per share ("Common Stock"). As of March 1, 1998,
after giving effect to the Recapitalization, there were 225,741 shares of
Common Stock issued and outstanding.
Holders of shares of Common Stock are entitled to one vote per share on all
matters to be voted upon by the stockholders and are entitled to receive such
dividends as the Company's Board of Directors may declare in its discretion
out of funds legally available therefor. In the event of a liquidation,
dissolution or winding up of the Company, the holders of shares of Common
Stock are entitled to a distribution of any remaining assets of the Company.
Holders of shares of Common Stock have no cumulative voting or preemptive
rights. All outstanding shares of Common Stock are fully paid and
nonassessable.
STOCKHOLDERS AGREEMENT
Pursuant to the Stockholders Agreement, FMG and AIT agreed to certain rights
and restrictions with respect to the shares of Common Stock they hold,
including the following:
Transfer Restrictions. The parties agreed that no shares of Common Stock may
be issued by the Company or sold, exchanged, pledged, encumbered, given,
bequeathed or otherwise disposed of by AIT or FMG unless and until the
proposed transferee agrees to be bound by the provisions of the Stockholders
Agreement.
Designation of Directors by AIT and FMG. The parties agreed that the Board
of Directors will be comprised of seven persons, five of whom will be
designated by AIT and two of whom will be designated by FMG.
Board Approval of Significant Actions. The parties agreed that certain
actions may not be taken by officers of the Company without the prior approval
of the Board of Directors. Such actions include: (a) issuance or sale of any
securities of the Company other than securities issued pursuant to the 1997
Stock Option Plan No. 1, the 1997 Stock Option Plan No. 2 and the Phantom
Stock Plan; (b) sale, lease or transfer of a material portion of the assets of
the Company or transfer of any material governmental permit or license
relating to the business of the Company; (c) adoption of budgets, modification
of any approved budgets or expenditure of funds in excess of then-current
budgets; (d) guarantee indebtedness, extension of credit, incurrence of
certain types of indebtedness or the pledge of any assets of the Company; (e)
certain of management personnel decisions, including paying annual
compensation to an employee in excess of $100,000 or paying a bonus to an
employee; (f) execution of a contract obligating the Company for amounts in
excess of $500,000; (g) modification of any employee benefit plan; or (h)
certain transactions with affiliates of the Company.
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<PAGE>
SUMMARY OF OTHER INDEBTEDNESS
THE ERICSSON EQUIPMENT FINANCING
On November 1, 1995, the Company entered into a loan agreement (the
"Ericsson Facility") pursuant to which Ericsson agreed to finance the purchase
price of certain telecommunications equipment and installation services
purchased by the Company in an amount not to exceed approximately $1.2
million. The Ericsson Facility has been amended three times. The Ericsson
Facility was first amended to, among other things, increase the maximum amount
that could be advanced thereunder to $7.0 million. Subsequently, the Ericsson
Facility was amended to delete the limited guaranty and to increase the
security with an additional letter of credit of $1.0 million. A third
amendment extended the termination date for advances under the Ericsson
Facility to June 29, 1998, amended various financial covenants as well as
security provisions relating to an adjustable letter of credit of $1.75
million, removed the limitation on capital expenditures and added an Event of
Default. All outstanding advances are secured by the telecommunications system
equipment purchased with the proceeds thereof. As of December 31, 1997,
approximately $6.6 million was outstanding under the Ericsson Facility. All
amounts outstanding under the Ericsson Facility become due and payable on
October 1, 2002. However, the Company intends to repay all outstanding
indebtedness under the Ericsson Facility with a portion of the net proceeds
from the Offering.
Interest on the outstanding balance under the Ericsson Facility is payable
quarterly in arrears at an annual rate, which is reset quarterly, equal to the
lesser of (i) a rate equal to LIBOR (measured at the beginning of such
quarterly period) plus 4.0% and (ii) an applicable statutory maximum rate.
The Ericsson Facility contains certain financial covenants which require the
Company to attain certain financial targets for each quarter, including with
respect to (i) EBITDA (as defined in the Ericsson Facility), (ii) reserves,
(iii) net worth, (iv) the ratio of current assets to current liabilities and
(v) the ratio of debt to net worth. The Ericsson Facility also includes
covenants which limits the Company's ability to, among other things, (i)
effect certain mergers and other corporate transactions, (ii) distribute
earnings or capital or make payments on debts owed by the Company to its
shareholders, (iii) engage in certain transactions with affiliates, (iv)
prepay, redeem or otherwise satisfy prior to stated maturities any
indebtedness except as otherwise permitted, (v) agree with a party other than
Ericsson not to create liens on its assets, (vi) materially change the nature
of its business, (vii) materially alter any agreement between the Company and
its affiliates and (viii) become a general partner in a general or limited
partnership or joint venture. The Ericsson Facility also contains certain
standard events of default. At September 30, 1997, the Company was in
compliance with all of the Ericsson Facility covenants, except those covenants
entitled Mandatory Prepayment; Subsidiaries; Patents, Licenses and Franchises;
Prohibition of Fundamental Changes; Limited Liability Company Agreement; and
Certain Financial Covenants for which the Company has obtained a waiver
covering the period of noncompliance. The Company was in compliance with all
modified covenants at December 31, 1997.
THE NTFC EQUIPMENT FINANCING
On March 27, 1997, the Company entered into an equipment loan and security
agreement (the "NTFC Facility") with NTFC, under which NTFC agreed to loan the
Company up to $5.0 million for the purchase from Nortel of certain
telecommunications equipment and related software and services (of which up to
$1.0 million may be located in the U.K. and Sweden). All outstanding advances
are secured by a lien on the equipment and software purchased with the
proceeds of the NTFC Facility and certain related assets. As of December 31,
1997, approximately $10.3 million was outstanding. All amounts outstanding
under the NTFC Facility will become due and payable on March 31, 2003.
However, the Company intends to repay all outstanding indebtedness under the
NTFC Facility with a portion of the net proceeds from the Offering.
Interest on the outstanding balance under the NTFC Facility is payable
quarterly in arrears at an annual rate equal to LIBOR (measured at the
beginning of such quarterly period) plus 4.0%.
The NTFC Facility contains certain financial covenants which require the
Company to attain certain financial targets for each quarter, including with
respect to (i) the ratio of the Company's reported EBITDA (as
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<PAGE>
defined in the NTFC Facility) to aggregate principal and interest payments on
certain specified indebtedness and (ii) the ratio of total liabilities
(excluding the liabilities of certain subsidiaries) to net worth. The NTFC
Facility also includes covenants which restrict the Company's ability to,
among other things, (i) incur indebtedness above $50,000, (ii) create certain
liens on, or dispose of, its assets, (iii) effect certain mergers and other
corporate transactions, (iv) change its name, structure or fiscal year, (v)
enter into a new business or materially change its business, (vi) make capital
expenditures in excess of projected levels, (vii) remove collateral and (viii)
engage in certain transactions with affiliates. The NTFC Facility also
contains certain standard events of default. At September 30, 1997, the
Company was in compliance with all of the NTFC Facility covenants, except
those covenants entitled Payment of Taxes, Charges, Claims and Current
Liabilities; Financial Covenants; Prohibition of Mergers, Acquisitions, Name,
Office or Business Changes, Etc.; Limitation on Investments; Advances and
Loans in or to Excluded Subsidiaries; and Transactions with Affiliates for
which the Company has obtained a waiver covering the period of noncompliance.
The Company was not in compliance with certain covenants at December 31, 1997.
FCI used a portion of the net proceeds from the offering of the Old Notes to
pay-off the amounts outstanding under these vendor financing agreements. See
"Use of Proceeds."
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DESCRIPTION OF NOTES
The Old Notes were and the Exchange Notes will be issued pursuant to an
Indenture, dated as of January 28, 1998 (the "Indenture"), between the
Company, and State Street Bank and Trust Company, as trustee (the "Trustee").
Upon issuance of the Exchange Notes or the effectiveness of a Shelf
Registration Statement, the Indenture will be subject to and governed by the
Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"). The
following summary of certain provisions of the Notes, the Indenture and the
Pledge Agreement does not purport to be complete and is subject to, and is
qualified by reference to, all the provisions of the Notes, the Indenture and
the Pledge Agreement, including the definitions of certain terms therein and
those terms made a part thereof by the Trust Indenture Act. Whenever
particular sections or defined terms of the Indenture not otherwise defined
herein are referred to, such sections or defined terms are incorporated herein
by reference. Copies of the Indenture, the Registration Rights Agreement and
the Pledge Agreement have been filed with the Commission as Exhibits to the
Exchange Offer Registration Statement of which this Prospectus is a part. The
definitions of certain terms used in the following summary are set forth below
under "--Certain Definitions."
GENERAL
The Old Notes were and the Exchange Notes will be senior obligations of the
Company, limited to $300,000,000 million aggregate principal amount, and will
mature on January 15, 2008. The Notes bear interest at the rate of 10 1/2% per
annum, payable semiannually in arrears on January 15 and July 15 of each year,
commencing July 15, 1998, to the Person in whose name the Note (or any
predecessor Note) is registered at the close of business on the preceding
January 1 or July 1, as the case may be. Interest will be computed on the
basis of a 360-day year of twelve 30-day months.
Principal of, premium, if any, interest and Liquidated Damages, if any, on
the Notes will be payable, and the Notes may be exchanged or transferred, at
the office or agency of the Company (which initially will be the corporate
trust operations office of the Trustee at State Street Bank and Trust Company,
N.A., 61 Broadway, 15th Floor, New York, New York 10006, Attention: Corporate
Trust Department); or, at the option of the Company, payment of interest may
be made by check mailed to the address of the holders as such address appears
in the Register; provided that all payments with respect to Global Notes and
Certificated Notes (as such terms are defined below under the caption "--Book-
Entry, Delivery and Form") the holders of which have given wire transfer
instructions to the Company will be required to be made by wire transfer of
immediately available funds to the accounts specified by the holders thereof.
(Section 202)
The Notes will be issued only in fully registered form, without coupons, in
denominations of $1,000 of principal amount and any integral multiple thereof.
See "--Book-Entry, Delivery and Form." No service charge will be made for any
registration of transfer or exchange of Notes, but the Company may require
payment of a sum sufficient to cover any transfer tax or other similar
governmental charge payable in connection therewith. (Section 203)
OPTIONAL REDEMPTION
Except as otherwise provided, the Notes will not be redeemable at the option
of the Company prior to January 15, 2003. At any time on or after that date,
the Notes may be redeemed at the Company's option, in whole or in part, at any
time or from time to time, on or after January 15, 2003 and prior to maturity,
upon not less than 30 nor more than 60 days' prior notice mailed by first
class mail to each holder's last address as it appears in the Register, at the
following Redemption Prices (expressed in percentages of principal amount
thereof), plus accrued and unpaid interest and Liquidated Damages, if any,
thereon to the Redemption Date (subject to the right of holders of record on
the relevant Regular Record Date to receive interest due on an
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Interest Payment Date that is on or prior to the Redemption Date), if redeemed
during the 12-month period commencing on January 15, of the years set forth
below:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
---- ----------
<S> <C>
2003.............................. 105.25%
2004.............................. 103.50%
2005.............................. 101.75%
2006 (and thereafter)............. 100.00%
</TABLE>
Notwithstanding the foregoing, prior to January 15, 2001, the Company may on
any one or more occasions redeem up to 35.0% of the originally issued
aggregate principal amount of Notes at a redemption price of 110.5% of the
aggregate principal amount thereof, plus accrued and unpaid interest and
Liquidated Damages, if any, thereon to the Redemption Date, with the Net Cash
Proceeds of one or more Public Equity Offerings; provided, that at least 65.0%
of the originally issued principal amount of the Notes remains outstanding
immediately after the occurrence of such redemption; and provided further that
notice of such redemptions shall be given within 60 days of the closing of any
such Public Equity Offering. (Sections 203 and 1101)
In the case of any partial redemption, selection of the Notes for redemption
will be made by the Trustee in compliance with the requirements of the
principal national securities exchange, if any, on which the Notes are listed
or, if the Notes are not listed on a national securities exchange, on a pro
rata basis, by lot or by such other method as the Trustee in its sole
discretion shall deem to be fair and appropriate; provided that no Note of
$1,000 or less in principal amount at maturity shall be redeemed in part. If
any Note is to be redeemed in part only, the notice of redemption relating to
such Note shall state the portion of the principal amount thereof to be
redeemed. A new Note in principal amount equal to the unredeemed portion
thereof will be issued in the name of the holder thereof upon cancellation of
the original Note.
SECURITY
The Indenture requires the Company to purchase and pledge to the Trustee as
security for the benefit of the holders of the Notes the Pledged Securities in
such amount as will be sufficient upon receipt of scheduled interest and/or
principal payments of such securities to provide for payment in full of the
first six scheduled interest payments due on the Notes. The Company used
approximately $86.5 million of the net proceeds of the offering of the Old
Notes to acquire the Pledged Securities. The Pledged Securities were pledged
by the Company to the Trustee for the benefit of the holders of the Notes
pursuant to the Pledge Agreement and will be held by the Trustee in the Pledge
Account pending disposition pursuant to the Pledge Agreement. Pursuant to the
Pledge Agreement, immediately prior to one of the first six scheduled interest
payments on the Notes, the Company may either deposit with the Trustee from
funds otherwise available to the Company cash sufficient to pay the interest
scheduled to be paid on such date or the Company may direct the Trustee to
release from the Pledge Account proceeds sufficient to pay interest then due.
In the event that the Company exercises the former option, the Company may
thereafter direct the Trustee to release to the Company proceeds or Pledged
Securities from the Pledge Account in like amount. A failure by the Company to
pay interest on the Notes in a timely manner through the first six scheduled
interest payment dates will constitute an immediate Event of Default under the
Indenture, with no grace or cure period.
Interest earned on the Pledged Securities will be added to the Pledge
Account. In the event that the funds or Pledged Securities held in the Pledge
Account exceed the amount sufficient, in the opinion of a nationally
recognized firm of independent public accountants selected by the Company, to
provide for payment in full of the first six scheduled interest payments due
on the Notes (or, in the event an interest payment or payments have been made,
an amount sufficient to provide for payment in full of any interest payments
remaining, up to and including the sixth scheduled interest payment) the
Trustee will be permitted to release to the Company, at the Company's request,
any such excess amount.
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The Notes are secured by a first priority security interest in the Pledged
Securities and in the Pledge Account and, accordingly, the Pledged Securities
and the Pledge Account will also secure repayment of the principal amount of
the Notes to the extent of such security.
Under the Pledge Agreement, assuming that the Company makes the first six
scheduled interest payments on the Notes in a timely manner, any remaining
Pledged Securities will be released from the Pledge Account and the Notes will
be unsecured.
RANKING
The Notes will be unsecured (except as described above) obligations of the
Company and will rank senior in right of payment to any existing and future
obligations of the Company expressly subordinated in right of payment to the
Notes and pari passu in right of payment with all other existing and future
unsecured and unsubordinated obligations of the Company, including trade
payables. As of December 31, 1997, after giving pro forma effect to the
offering of the Old Notes and the application of the net proceeds thereof, the
Company would have had approximately $304.3 million of Indebtedness. Because
the Company is a holding company that conducts its business through its
subsidiaries, all existing and future Indebtedness and other liabilities and
commitments of the Company's subsidiaries, including trade payables, will be
effectively senior to the Notes. The Indenture limits, but does not prohibit,
the incurrence of certain additional Indebtedness by the Company and its
Restricted Subsidiaries and does not limit the amount of Indebtedness Incurred
to finance the cost of Telecommunications Assets. The Company anticipates that
it and its Subsidiaries will Incur substantial additional Indebtedness in the
future. As of December 31, 1997, the Company's consolidated subsidiaries had
aggregate liabilities of $60.5 million, which included $21.2 million of
Indebtedness.
COVENANTS
Limitation on Indebtedness.
(a) The Company will not, and will not permit any of its Restricted
Subsidiaries to, Incur any Indebtedness; provided, however, that the
Company may Incur Indebtedness if immediately thereafter the ratio of (i)
the aggregate principal amount (or accreted value, as the case may be) of
Indebtedness of the Company and its Restricted Subsidiaries on a
consolidated basis outstanding as of the Transaction Date to (ii) the Pro
Forma Consolidated Cash Flow for the preceding two full fiscal quarters
multiplied by two, determined on a pro forma basis as if any such
Indebtedness had been Incurred and the proceeds thereof had been applied
at the beginning of such two fiscal quarters, would be greater than zero
and less than 5.0 to 1.
(b) The foregoing limitations of paragraph (a) of this covenant will not apply
to any of the following Indebtedness ("Permitted Indebtedness"), each of
which shall be given independent effect:
(i) Indebtedness of the Company evidenced by the Notes;
(ii) Indebtedness of the Company or any Restricted Subsidiary outstanding
on the Issue Date;
(iii) Indebtedness of the Company or any Restricted Subsidiary under one or
more Credit Facilities, in an aggregate principal amount at any one
time outstanding not to exceed the greater of (x) $35.0 million and (y)
80.0% of Eligible Accounts Receivable at any one time outstanding,
subject to any permanent reductions required by any other terms of the
Indenture;
(iv) Indebtedness of the Company or any Restricted Subsidiary Incurred to
finance the cost (including the cost of design, development,
construction, acquisition, installation or integration) of
Telecommunications Assets;
(v) Indebtedness of a Restricted Subsidiary owed to and held by the Company
or another Restricted Subsidiary, except that (A) any transfer of such
Indebtedness by the Company or a Restricted Subsidiary (other than to
the Company or another Restricted Subsidiary) and (B) the sale,
transfer or
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other disposition by the Company or any Restricted Subsidiary of
Capital Stock of a Restricted Subsidiary which is owed Indebtedness of
another Restricted Subsidiary shall, in each case, be an incurrence of
Indebtedness by such Restricted Subsidiary, subject to the other
provisions of the Indenture;
(vi) Indebtedness of the Company owed to and held by a Restricted
Subsidiary which is unsecured and subordinated in right to the payment
and performance to the obligations of the Company under the Indenture
and the Notes, except that (A) any transfer of such Indebtedness by a
Restricted Subsidiary (other than to another Restricted Subsidiary)
and (B) the sale, transfer or other disposition by the Company or any
Restricted Subsidiary of Capital Stock of a Restricted Subsidiary
which is owed Indebtedness of the Company shall, in each case, be an
incurrence of Indebtedness by the Company, subject to other provisions
of the Indenture;
(vii) Indebtedness of the Company or a Restricted Subsidiary issued in
exchange for, or the net proceeds of which are used to refinance
(whether by amendment, renewal, extension or refunding), then
outstanding Indebtedness of the Company or a Restricted Subsidiary,
other than Indebtedness Incurred under clauses (iii), (v), (vi),
(viii), (ix), (xi) and (xii) of this paragraph, and any refinancings
thereof in an amount not to exceed the amount so refinanced or
refunded (plus premiums, accrued interest, and reasonable fees and
expenses); provided that such new Indebtedness shall only be
permitted under this clause (vii) if: (A) in case the Notes are
refinanced in part or the Indebtedness to be refinanced is pari passu
with the Notes, 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 pari
passu with, or subordinate in right of payment to, the remaining
Notes, (B) in case the Indebtedness to be refinanced is subordinated
in right of payment to the Notes, 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 the Notes at least to the extent
that the Indebtedness to be refinanced is subordinated to the Notes
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 Indebtedness of
the Company be refinanced by means of any Indebtedness of any
Restricted Subsidiary pursuant to this clause (vii);
(viii) Indebtedness of (x) the Company not to exceed, at any one time
outstanding, 2.00 times the Net Cash Proceeds from the issuance and
sale, other than to a Subsidiary, of Common Stock (other than
Redeemable Stock) of the Company (less the amount of such proceeds
used to make Restricted Payments as provided in clause (iii) or (iv)
of the second paragraph of the "Limitation on Restricted Payments"
covenant) and (y) the Company or Acquired Indebtedness of a
Restricted Subsidiary not to exceed, at one time outstanding, the
fair market value of any Telecommunications Assets acquired by the
Company in exchange for Common Stock of the Company issued after the
Issue Date; provided, however, that in determining the fair market
value of any such Telecommunications Assets so acquired, if the
estimated fair market value of such Telecommunications Assets
exceeds (A) $2.0 million (as estimated in good faith by the Board of
Directors), then the fair market value of such Telecommunications
Assets will be determined by a majority of the Board of Directors of
the Company, which determination will be evidenced by a resolution
thereof, and (B) $10.0 million (as estimated in good faith by the
Board of Directors), then the Company will deliver the Trustee a
written appraisal as to the fair market value of such
Telecommunications Assets prepared by a nationally recognized
investment banking or public accounting firm (or, if no such
investment banking or public accounting firm is qualified to prepare
such an appraisal, by a nationally recognized appraisal firm); and
provided further that such Indebtedness does not mature prior to the
Stated Maturity of the Notes and the Average Life of such
Indebtedness is longer than that of the Notes;
(ix) Indebtedness of the Company or any Restricted Subsidiary (A) in
respect of performance, surety or appeal bonds or letters of credit
supporting trade payables, in each case provided in the ordinary
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course of business, (B) under Currency Agreements and Interest Rate
Agreements covering Indebtedness of the Company; provided that such
agreements do not increase the Indebtedness of the obligor 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 obligations of the Company or any of its
Restricted Subsidiaries pursuant to such agreements, in any case
Incurred in connection with the disposition of any business, assets or
Restricted Subsidiary of the Company (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 the Company or any Restricted Subsidiary
in connection with such disposition;
(x) Indebtedness of the Company, to the extent that the net proceeds
thereof are promptly (A) used to repurchase Notes tendered in a Change
of Control offer or (B) deposited to defease all of the Notes as
described below under "Defeasance and Covenant Defeasance of
Indenture";
(xi) Indebtedness of a Restricted Subsidiary represented by a Guarantee of
the Notes permitted by and made in accordance with the "Limitation on
Issuances of Guarantees of Indebtedness by Restricted Subsidiaries"
covenant; and
(xii) Indebtedness of the Company or any Restricted Subsidiary in addition
to that permitted to be incurred pursuant to clauses (i) through (xi)
above in an aggregate principal amount not in excess of $10.0 million
(or, to the extent not denominated in United States dollars, the
United States Dollar Equivalent thereof) at any one time outstanding.
(c) For purposes of determining any particular amount of Indebtedness under
this "Limitation on Indebtedness" covenant, 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; provided, however, that the foregoing shall not in any
way be deemed to limit the provision of "--Limitation on Issuances of
Guarantees of Indebtedness by Restricted Subsidiaries." 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, the Company,
in its sole discretion may, at the time of such Incurrence, (i) classify
such item of Indebtedness under and comply with either of paragraph (a) or
(b) of this covenant (or any of such definitions), as applicable, (ii)
classify and divide such item of Indebtedness into more than one of such
paragraphs (or definitions), as applicable, and (iii) elect to comply with
such paragraphs (or definitions), as applicable in any order.
Limitation on Restricted Payments.
The Company will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, (i) (A) declare or pay any dividend or make any
distribution in respect of the Company's Capital Stock to the holders thereof
(other than dividends or distributions payable solely in shares of Capital
Stock (other than Redeemable Stock) of the Company or in options, warrants or
other rights to acquire such shares of Capital Stock) or (B) declare or pay
any dividend or make any distribution in respect of the Capital Stock of any
Restricted Subsidiary to any Person other than dividends and distributions
payable to the Company or any Restricted Subsidiary or to all holders of
Capital Stock of such Restricted Subsidiary on a pro rata basis;
(ii) purchase, redeem, retire or otherwise acquire for value any shares of
Capital Stock of the Company (including options, warrants or other rights to
acquire such shares of Capital Stock) held by any Person or any shares of
Capital Stock of any Restricted Subsidiary (including options, warrants and
other rights to acquire such shares of Capital Stock) held by any Affiliate of
the Company (other than a wholly owned Restricted Subsidiary) or any
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holder (or any Affiliate thereof) of 5.0% or more of the Company's Capital
Stock; (iii) make any voluntary or optional principal payment, or voluntary or
optional redemption, repurchase, defeasance, or other acquisition or
retirement for value, of Indebtedness of the Company that is subordinated in
right of payment to the Notes; or (iv) make any Investment, other than a
Permitted Investment, in any Person (such payments or any other actions
described in clauses (i) through (iv) being collectively "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) the Company could not Incur at least $1.00 of Indebtedness under
paragraph (a) of the "Limitation on Indebtedness" covenant; and
(C) the aggregate amount of all Restricted Payments declared or made from
and after the Closing Date would exceed the sum of:
(1) Cumulative Consolidated Cash Flow minus 200% of Cumulative
Consolidated Fixed Charges;
(2) 100% of the aggregate Net Cash Proceeds from the issue or sale to a
Person, which is not a Subsidiary of the Company, of Capital Stock
of the Company (other than Redeemable Stock) or of debt securities
of the Company which have been converted into or exchanged for such
Capital Stock (except to the extent such Net Cash Proceeds are used
to Incur new Indebtedness outstanding pursuant to clause (viii) of
paragraph (b) of the "Limitation on Indebtedness" covenant); and
(3) to the extent any Permitted Investment that was made after the
Closing Date is sold for cash or otherwise liquidated or repaid for
cash, the lesser of (i) the cash return of capital with respect to
such Permitted Investment (less the cost of disposition, if any)
and (ii) the initial amount of such Permitted Investment.
The foregoing provision shall not be violated by reason of: (i) 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; (ii) the redemption, repurchase, defeasance or other acquisition or
retirement for value of Indebtedness that is subordinated in right of payment
to the Notes including a premium, if any, and accrued and unpaid interest and
Liquidated Damages, if any, with the net proceeds of, or in exchange for,
Indebtedness Incurred under clause (viii) of paragraph (b) of the "Limitation
on Indebtedness" covenant; (iii) the repurchase, redemption or other
acquisition of Capital Stock of the Company in exchange for, or out of the Net
Cash Proceeds of a substantially concurrent (A) capital contribution to the
Company or (B) offering of, shares of Capital Stock (other than Redeemable
Stock) of the Company (except to the extent such proceeds are used to incur
new Indebtedness outstanding pursuant to clause (viii) of paragraph (b) of the
"Limitation on Indebtedness" covenant); (iv) the acquisition of Indebtedness
of the Company which is subordinated in right of payment to the Notes in
exchange for, or out of the proceeds of, a substantially concurrent (A)
capital contribution to the Company or (B) offering of, shares of the Capital
Stock of the Company (other than Redeemable Stock) (except to the extent such
proceeds are used to incur new Indebtedness outstanding pursuant to clause
(viii) of paragraph (b) of the "Limitation on Indebtedness" covenant); (v)
payments or distributions to dissenting stockholders in accordance with
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 the property and assets of the Company; and (vi) other Restricted
Payments not to exceed $2.0 million; provided that, except in the case of
clause (i), 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. (Section 1012)
Each Restricted Payment permitted pursuant to the immediately preceding
paragraph (other than the Restricted Payment referred to in clause (ii)
thereof) and the Net Cash Proceeds from any capital contributions to the
Company or issuance of Capital Stock referred to in clauses (iii) and (iv) of
the immediately preceding paragraph, shall be included in calculating whether
the conditions of clause (C) of the first paragraph of this "Limitation on
Restricted Payments" covenant have been met with respect to any subsequent
Restricted
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Payments. In the event the proceeds of an issuance of Capital Stock of the
Company are used for the redemption, repurchase or other acquisition of the
Notes, then the Net Cash Proceeds of such issuance shall be included in clause
(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 the Notes.
Limitation on Dividend and Other Payment Restrictions Affecting Restricted
Subsidiaries.
So long as any of the Notes are outstanding, the Company 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 (i) pay dividends or make
any other distributions permitted by applicable law on any Capital Stock of
such Restricted Subsidiary owned by the Company or any other Restricted
Subsidiary, (ii) pay any Indebtedness owed to the Company or any other
Restricted Subsidiary, (iii) make loans or advances to the Company or any
other Restricted Subsidiary or (iv) transfer any of its property or assets to
the Company or any other Restricted Subsidiary.
The foregoing provisions shall not restrict any encumbrances or
restrictions: (i) existing on the Closing Date in the Indenture or any other
agreements or instruments in effect on the Closing Date, and any extensions,
refinancings, renewals or replacements of such agreements; provided that the
encumbrances and restrictions in any such 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; (ii) contained in the terms
of any Indebtedness or any agreement pursuant to which such Indebtedness was
issued if the encumbrance or restriction applies only in the event of a
default with respect to a financial covenant contained in such Indebtedness or
agreement and such encumbrance or restriction is not materially more
disadvantageous to the holders of the Notes than is customary in comparable
financings (as determined by the Company) and the Company determines that any
such encumbrance or restriction will not materially affect the Company's
ability to make principal or interest payments on the Notes; (iii) existing
under or by reason of applicable law; (iv) existing with respect to any Person
or the property or assets of such Person acquired by the Company 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 Person so acquired; (v) in the
case of clause (iv) 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, or is subject to, a lease, purchase mortgage
obligation, 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 property or assets of the Company or any
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 property or assets of the Company or any Restricted Subsidiary in
any manner material to the Company or any Restricted Subsidiary; or (vi) 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. Nothing contained in this "Limitation on Dividend and Other
Payment Restrictions Affecting Restricted Subsidiaries" covenant shall prevent
the Company or any Restricted Subsidiary from (1) creating, incurring,
assuming or suffering to exist any Liens otherwise permitted in the
"Limitation on Liens" covenant or (2) restricting the sale or other
disposition of property or assets of the Company or any of its Restricted
Subsidiaries that secure Indebtedness of the Company or any of its Restricted
Subsidiaries. (Section 1013)
Limitation on the Issuance and Sale of Capital Stock of Restricted
Subsidiaries.
The Company will not, and will not permit any Restricted Subsidiary,
directly or indirectly, to issue, transfer, convey, sell, lease or otherwise
dispose of any shares of Capital Stock (including options, warrants or other
rights to purchase shares of such Capital Stock) of such or any other
Restricted Subsidiary (other than
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to the Company or a wholly owned Restricted Subsidiary or in respect of any
director's qualifying shares or sales of shares of Capital Stock to foreign
nationals mandated by applicable law) to any Person unless (A) the Net Cash
Proceeds from such issuance, transfer, conveyance, sale, lease or other
disposition are applied in accordance with the provisions of the "Limitation
on Asset Sales" covenant, (B) immediately after giving effect to such
issuance, transfer, conveyance, sale, lease or other disposition, such
Restricted Subsidiary would no longer constitute a Restricted Subsidiary and
(C) any Investment in such Person remaining after giving effect to such
issuance, transfer, conveyance, sale, lease or other disposition would have
been permitted to be made under the "Limitation on Restricted Payments"
covenant if made on the date of such issuance, transfer, conveyance, sale,
lease or other disposition (valued as provided in the definition of
"Investment"). (Section 1014)
Limitation on Transactions with Stockholders and Affiliates.
The Company 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 any holder (or any
Affiliate of such holder) of 5.0% or more of any class of Capital Stock of the
Company or any Restricted Subsidiary or with any Affiliate of the Company or
any Restricted Subsidiary, unless (i) such transaction or series of
transactions is on terms no less favorable to the Company or such Restricted
Subsidiary than those that could be obtained in a comparable arm's-length
transaction with a Person that is not such a holder or an Affiliate, (ii) if
such transaction or series of transactions involves aggregate consideration in
excess of $2.0 million, then such transaction or series of transactions is
approved by a majority of the Board of Directors of the Company and is
evidenced by a resolution therein and (iii) if such transaction or series of
transactions involves aggregate consideration in excess of $10.0 million, then
the Company or such Restricted Subsidiary will deliver to the Trustee a
written opinion as to the fairness to the Company or such Restricted
Subsidiary of such transaction from a financial point of view from a
nationally recognized investment banking firm (or, if an investment banking
firm is generally not qualified to give such an opinion, by a nationally
recognized appraisal firm or accounting firm).
The foregoing limitation does not limit, and will not apply to (i) any
transaction between the Company and any of its Restricted Subsidiaries or
between Restricted Subsidiaries; (ii) the payment of reasonable and customary
regular fees to directors of the Company who are not employees of the Company;
(iii) any Restricted Payments not prohibited by the "Limitation on Restricted
Payments" covenant; (iv) loans and advances to officers or employees of the
Company and its Subsidiaries not exceeding at any one time outstanding $1.5
million in the aggregate, made in the ordinary course of business; and (v)
arrangements with TMG, Armstrong and/or its subsidiaries existing on the date
of the Indenture and listed on a schedule attached thereto as such arrangement
may be extended or renewed; provided that the terms of any arrangement altered
by any such extension or renewal may not be altered in a manner adverse to the
Company or the holders of the Notes. (Section 1015)
Limitation on Liens.
Under the terms of the Indenture, the Company will not, and will not permit
any Restricted Subsidiary to, directly or indirectly, create, incur, assume or
suffer to exist any Lien (other than Permitted Liens) on any of its assets or
properties of any character (including, without limitation, licenses and
trademarks), or any shares of Capital Stock or Indebtedness of any Restricted
Subsidiary, whether owned at the date of the Indenture or thereafter acquired,
or any income, profits or proceeds therefrom, or assign or otherwise convey
any right to receive income thereof, without making effective provision for
all of the Notes and all other amounts ranking pari passu with the Notes to be
directly secured equally and ratably with the obligation or liability secured
by such Lien, or, if such obligation or liability is subordinated to the Notes
and other amounts ranking pari passu with the Notes, without making provision
for the Notes and such other amounts to be directly secured prior to the
obligation or liability secured by such Lien. (Section 1016)
Limitation on Sale-Leaseback Transactions.
The Company will not, and will not permit any of its Restricted Subsidiaries
to, enter into any Sale-Leaseback Transaction with respect to any property of
the Company or any of its Restricted Subsidiaries.
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Notwithstanding the foregoing, the Company may enter into Sale-Leaseback
Transactions; provided, however, that (a) the Attributable Value of such Sale-
Leaseback Transaction shall be deemed to be Indebtedness of the Company and
(b) after giving pro forma effect to any such Sale-Leaseback Transaction and
the foregoing clause (a), the Company would be able to incur $1.00 of
additional Indebtedness (other than Permitted Indebtedness) pursuant to the
covenant described under "--Limitation on Indebtedness."
Limitation on Asset Sales.
The Company will not, and will not permit any Restricted Subsidiary to, make
any Asset Sale, unless (i) the Company or the Restricted Subsidiary, as the
case may be, receives consideration at the time of such sale or other
disposition at least equal to the fair market value of the assets sold or
disposed of as determined by the good faith judgment of the Board of Directors
evidenced by a Board Resolution and (ii) at least 80.0% of the consideration
received for such sale or other disposition consists of cash or cash
equivalents or the assumption of unsubordinated Indebtedness.
The Company shall, or shall cause the relevant Restricted Subsidiary to,
within 270 days after the date of receipt of the Net Cash Proceeds from an
Asset Sale, (i) (A) apply an amount equal to such Net Cash Proceeds to
permanently repay unsubordinated Indebtedness of the Company or Indebtedness
of any Restricted Subsidiary, in each case owing to a Person other than the
Company or any of its Restricted Subsidiaries or (B) invest an equal amount,
or the amount not so applied pursuant to clause (A), 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, the Company and its 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
(ii) apply (no later than the end of the 270-day period referred to above)
such excess Net Cash Proceeds (to the extent not applied pursuant to clause
(i)) as provided in the following paragraphs of this "Limitation on Asset
Sales" covenant. The amount of such Net Cash Proceeds required to be applied
(or to be committed to be applied) during such 270-day period referred to
above in 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 Excess Proceeds Offer (as
defined below) totals at least $10.0 million, the Company must, not later than
the 30th Business Day thereafter, make an offer (an "Excess Proceeds Offer")
to purchase from the holders on a pro rata basis an aggregate principal amount
of Notes equal to the Excess Proceeds on such date, at a purchase price equal
to 100% of the principal amount of the Notes, plus, in each case, accrued and
unpaid interest and Liquidated Damages, if any, to the date of purchase (the
"Excess Proceeds Payment").
The Company shall commence an Excess Proceeds Offer by mailing a notice to
the Trustee and each holder stating: (i) that the Excess Proceeds Offer is
being made pursuant to this "Limitation on Asset Sales" covenant and that all
Notes validly tendered will be accepted for payment on a pro rata basis; (ii)
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 "Excess Proceeds Payment Date"); (iii) that any Note not
tendered will continue to accrue interest pursuant to its terms; (iv) that,
unless the Company defaults in the payment of the Excess Proceeds Payment, any
Note accepted for payment pursuant to the Excess Proceeds Offer shall cease to
accrue interest and Liquidated Damages, if any, on and after the Excess
Proceeds Payment Date; (v) that holders electing to have a Note purchased
pursuant to the Excess Proceeds Offer will be required to surrender the Note,
together with the form entitled "Option of the Holder to Elect Purchase" on
the reverse side of the Note 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 Excess Proceeds Payment Date; (vi) 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
Excess Proceeds Payment Date, a telegram, facsimile transmission or letter
setting forth the name of such holder, the principal amount of Notes delivered
for purchase and a statement that such holder is withdrawing his election to
have such Notes purchased; and (vii) that holders whose Notes are being
purchased
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only in part will be issued new Notes equal in principal amount to the
unpurchased portion of the Notes surrendered; provided that each Note
purchased and each new Note issued shall be in a principal amount of $1,000 or
integral multiples thereof.
On the Excess Proceeds Payment Date, the Company shall (i) accept for
payment on a pro rata basis Notes or portions thereof tendered pursuant to the
Excess Proceeds Offer; (ii) deposit with the Paying Agent money sufficient to
pay the purchase price of all Notes or portions thereof so accepted; and (iii)
deliver, or cause to be delivered, to the Trustee all Notes or portions
thereof so accepted together with an Officers' Certificate specifying the
Notes or portions thereof accepted for payment by the Company. The Paying
Agent shall promptly mail to the holders of Notes so accepted payment in an
amount equal to the purchase price, and the Trustee shall promptly
authenticate and mail to such holders a new Note equal in principal amount to
any unpurchased portion of the Note surrendered; provided that each Note
purchased and each new Note issued shall be in a principal amount of $1,000 or
integral multiples thereof. To the extent that the aggregate principal amount
of Notes tendered is less than the Excess Proceeds, the Company may use any
remaining Excess Proceeds for general corporate purposes. The Company will
publicly announce the results of the Excess Proceeds Offer as soon as
practicable after the Excess Proceeds Payment Date. For purposes of this
"Limitation on Asset Sales" covenant, the Trustee shall act as the Paying
Agent.
The Company will comply with Rule 14e-1 under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and any other securities laws and
regulations thereunder to the extent such laws and regulations are applicable,
in the event that such Excess Proceeds are received by the Company under this
"Limitation on Asset Sales" covenant and the Company is required to repurchase
Notes as described above. (Section 1017)
Limitation on Issuances of Guarantees of Indebtedness by Restricted
Subsidiaries.
The Company will not permit any Restricted Subsidiary, directly or
indirectly, to Guarantee, assume or in any other manner become liable with
respect to any Indebtedness of the Company, other than Indebtedness under
Credit Facilities incurred under clause (iii) of paragraph (b) in the
"Limitation on Indebtedness" covenant, unless (i) such Restricted Subsidiary
simultaneously executes and delivers a supplemental indenture to the Indenture
providing for a Guarantee of the Notes on terms substantially similar to the
guarantee of such Indebtedness, except that if such Indebtedness is by its
express terms subordinated in right of payment to the Notes, any such
assumption, Guarantee or other liability of such Restricted Subsidiary with
respect to such Indebtedness shall be subordinated in right of payment to such
Restricted Subsidiary's assumption, Guarantee or other liability with respect
to the Notes substantially to the same extent as such Indebtedness is
subordinated to the Notes and (ii) 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
the Company or any other Restricted Subsidiary as a result of any payment by
such Restricted Subsidiary under its Guarantee.
Notwithstanding the foregoing, any Guarantee by a Restricted Subsidiary may
provide by its terms that it will be automatically and unconditionally
released and discharged upon (i) any sale, exchange or transfer, to any Person
not an Affiliate of the Company, of all of the Company's and each Restricted
Subsidiary's Capital Stock in, or all or substantially all of the assets of,
such Restricted Subsidiary (which sale, exchange or transfer is not prohibited
by the Indenture) or (ii) the release or discharge of the guarantee which
resulted in the creation of such Guarantee, except a discharge or release by
or as a result of payment under such Guarantee. (Section 1018)
Business of the Company; Restriction on Transfers of Existing Business.
The Company will not, and will not permit any Restricted Subsidiary to, be
principally engaged in any business or activity other than a Permitted
Business. In addition, the Company and any Restricted Subsidiary will not be
permitted to, directly or indirectly, transfer to any Unrestricted Subsidiary
(i) any of the licenses, material agreements or instruments, permits or
authorizations used in the Permitted Business of the Company and any
Restricted Subsidiary on the Closing Date or (ii) any material portion of the
"property and equipment" (as such term is used in the Company's consolidated
financial statements) of the Company or any Restricted
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Subsidiary used in the licensed service areas of the Company and any
Restricted Subsidiary as they exist on the Closing Date. (Section 1019)
Limitation on Investments in Unrestricted Subsidiaries.
The Company will not make, and will not permit any of its Restricted
Subsidiaries to make, any Investments in Unrestricted Subsidiaries if, at the
time thereof, the aggregate amount of such Investments would exceed the amount
of Restricted Payments then permitted to be made pursuant to the "Limitation
on Restricted Payments" covenant. Any Investments in Unrestricted Subsidiaries
permitted to be made pursuant to this covenant (i) will be treated as the
making of a Restricted Payment in calculating the amount of Restricted
Payments made by the Company or a Subsidiary and (ii) may be made in cash or
property (if made in property, the Fair Market Value thereof as determined by
the Board of Directors of the Company (whose determination shall be conclusive
and evidenced by a Board Resolution) shall be deemed to be the amount of such
Investment for the purpose of clause (i)). (Section 1020)
Provision of Financial Statements and Reports.
After the Company has completed the Exchange Offer, the Company will file on
a timely basis with the Commission, to the extent such filings are accepted by
the Commission and whether or not the Company has a class of securities
registered under the Exchange Act, the annual reports, quarterly reports and
other documents that the Company would be required to file if it were subject
to Section 13 or 15 of the Exchange Act. All such annual reports shall include
the geographic segment financial information required to be disclosed by the
Company under Item 101(d) of Regulation S-K under the Securities Act. The
Company will also be required (a) to file with the Trustee, and provide to
each holder, without cost to such holder, copies of such reports and documents
within 15 days after the date on which the Company files such reports and
documents with the Commission or the date on which the Company would be
required to file such reports and documents if the Company were so required
and (b) if filing such reports and documents with the Commission is not
accepted by the Commission or is prohibited under the Exchange Act, to supply
at the Company's cost copies of such reports and documents to any prospective
holder promptly upon request. (Section 1009)
REPURCHASE OF NOTES UPON A CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each holder shall have the right
to require the Company to repurchase all or any part of its Notes at a
purchase price in cash pursuant to the offer described below (the "Change of
Control Offer") equal to 101.0% of the principal amount thereof, plus accrued
and unpaid interest and Liquidated Damages, if any, to the date of purchase
(subject to the right of holders of record to receive interest on the relevant
Interest Payment Date) (the "Change of Control Payment").
Within 30 days of the Change of Control, the Company will mail a notice to
the Trustee and each holder stating, among other things: (i) that a Change of
Control has occurred, that the Change of Control Offer is being made pursuant
to this "Repurchase of Notes upon a Change of Control" covenant and that all
Notes validly tendered will be accepted for payment; (ii) the circumstances
and relevant facts regarding such Change of Control; (iii) 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 "Change
of Control Payment Date"); (iv) that any Note not tendered will continue to
accrue interest pursuant to its terms; (v) that, unless the Company defaults
in the payment of the Change of Control Payment, any Note accepted for payment
pursuant to the Change of Control Offer shall cease to accrue interest and
Liquidated Damages, if any, on and after the Change of Control Payment Date;
(vi) that holders electing to have any Note or portion thereof purchased
pursuant to the Change of Control Offer will be required to surrender such
Note, together with the form entitled "Option of the Holder to Elect Purchase"
on the reverse side of such Note 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 Change of Control Payment Date; (vii) that holders
will be entitled to withdraw their election if the Paying Agent receives, not
later
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than the close of business on the third Business Day immediately preceding the
Change of Control Payment Date, a telegram, facsimile transmission or letter
setting forth the name of such holder, the principal amount of Notes delivered
for purchase and a statement that such holder is withdrawing his election to
have such Notes purchased; and (viii) that holders whose Notes are being
purchased only in part will be issued new Notes equal in principal amount to
the unpurchased portion of the Notes surrendered; provided that each Note
purchased and each new Note issued shall be in a principal amount of $1,000 or
integral multiples thereof.
On the Change of Control Payment Date, the Company shall: (i) accept for
payment Notes or portions thereof tendered pursuant to the Change of Control
Offer; (ii) deposit with the Paying Agent money sufficient to pay the purchase
price of all Notes or portions thereof so accepted; and (iii) deliver, or
cause to be delivered, to the Trustee, all Notes or portions thereof so
accepted together with an Officer's Certificate specifying the Notes or
portions thereof accepted for payment by the Company. The Paying Agent shall
promptly mail, to the holders of Notes so accepted, payment in an amount equal
to the purchase price, and the Trustee shall promptly authenticate and mail to
such holders a new Note equal in principal amount to any unpurchased portion
of the Notes surrendered; provided that each Note purchased and each new Note
issued shall be in a principal amount of $1,000 or integral multiples thereof.
The Company will publicly announce the results of the Change of Control Offer
on or as soon as practicable after the Change of Control Payment Date. For
purposes of this "Repurchase of Notes upon a Change of Control" covenant, the
Trustee shall act as Paying Agent.
The Company shall not be required to make a Change of Control Offer upon a
Change of Control if a third party makes a Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements
applicable to a Change of Control Offer made by the Company and purchases all
Notes validly tendered and not withdrawn under such Change of Control Offer.
The Company will comply with Rule 14e-1 under the Exchange Act and any other
securities laws and regulations thereunder to the extent such laws and
regulations are applicable in the event that a Change of Control occurs and
the Company is required to repurchase the Notes under this "Repurchase of
Notes upon a Change of Control" covenant. (Section 1010)
If the Company is unable to repay all of its Indebtedness that would
prohibit repurchase of the Notes or is unable to obtain the consents of the
holders of Indebtedness, if any, of the Company outstanding at the time of a
Change of Control whose consent would be so required to permit the repurchase
of Notes, then the Company will have breached such covenant. This breach will
constitute an Event of Default under the Indenture if it continues for a
period of 30 consecutive days after written notice is given to the Company by
the Trustee or the holders of at least 25.0% in aggregate principal amount of
the Notes outstanding. In addition, the failure by the Company to repurchase
Notes at the conclusion of the Change of Control Offer will constitute an
Event of Default without any waiting period or notice requirements.
There can be no assurances that the Company will have sufficient funds
available at the time of any Change of Control to make any debt payment
(including repurchases of Notes) required by the foregoing covenant (as well
as may be contained in other securities or Indebtedness of the Company which
might be outstanding at the time). The above covenant requiring the Company to
repurchase the Notes will, unless the consents referred to above are obtained,
require the Company to repay all indebtedness then outstanding which by its
terms would prohibit such Note repurchase, either prior to or concurrently
with such Note repurchase.
CONSOLIDATION, MERGER AND SALE OF ASSETS
The Company will not consolidate with, merge with or into, or sell, convey,
transfer, lease or otherwise dispose of all or substantially all of its
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 the Company and the Company will not permit any
of its Restricted Subsidiaries to enter into any such transaction or series of
transactions if such transaction or series of transactions, in the aggregate,
would result in the sale, assignment, conveyance, transfer, lease or other
disposition of all or substantially all of the properties and assets
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of the Company or the Company and its Restricted Subsidiaries, taken as a
whole, to any other Person or Persons, unless: (i) either the Company will be
the continuing Person, or the Person (if other than the Company) formed by
such consolidation or into which the Company is merged or that acquired or
leased such property and assets of the Company will 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 the obligations of the Company
with respect to the Notes and under the Indenture; (ii) immediately after
giving effect to such transaction on a pro forma basis, no Default or Event of
Default shall have occurred and be continuing; (iii) immediately after giving
effect to such transaction on a pro forma basis, the Company, or any Person
becoming the successor obligor of the Notes, shall have a Consolidated Net
Worth equal to or greater than the Consolidated Net Worth of the Company
immediately prior to such transaction; (iv) immediately after giving effect to
such transaction on a pro forma basis, the Company, or any Person becoming the
successor obligor of the Notes, as the case may be, could Incur at least $1.00
of Indebtedness under paragraph (a) of the "Limitation on Indebtedness"
covenant; and (v) the Company delivers to the Trustee an Officers' Certificate
(attaching the arithmetic computations to demonstrate compliance with clauses
(iii) and (iv)) and an 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
clauses (iii) and (iv) above do not apply if, in the good faith determination
of the Board of Directors of the Company, whose determination shall be
evidenced by a Board Resolution, the principal purpose of such transaction is
to change the state of incorporation of the Company; and provided further that
any such transaction shall not have as one of its purposes the evasion of the
foregoing limitations. (Section 801)
EVENTS OF DEFAULT
The following events will be defined as "Events of Default" in the
Indenture: (a) default in the payment of interest or Liquidated Damages, if
any, on the Notes when due and payable as to any Interest Payment Date falling
on or prior to January 15, 2001; (b) default in the payment of interest or
Liquidated Damages, if any, on the Notes when due and payable as to any
Interest Payment Date following after January 15, 2001, and any such failure
continued for a period of 30 days; (c) default in the payment of principal of
(or premium, if any, on) any Note when the same becomes due and payable at
maturity, upon acceleration, redemption or otherwise; (d) default in the
payment of principal or interest or Liquidated Damages, if any, on Notes
required to be purchased pursuant to an Excess Proceeds Offer as described
under "Limitation on Asset Sales" or pursuant to a Change of Control Offer as
described under "Repurchase of Notes upon a Change of Control"; (e) failure to
perform or comply with the provisions described under "Consolidation, Merger
and Sale of Assets"; (f) default in the performance of or breach of any other
covenant or agreement of the Company in the Indenture or under the Notes and
such default or breach continues for a period of 30 consecutive days after
written notice by the Trustee or the holders of 25.0% or more in aggregate
principal amount of the Notes then outstanding; (g) there occurs with respect
to any issue or issues of Indebtedness of the Company or any Restricted
Subsidiary having an outstanding principal amount of $5.0 million or more in
the aggregate for all such issues of all such Persons, whether such
Indebtedness now exists or shall hereafter be created, (I) 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 or annulled by
expiration of any applicable grace period and/or (II) the failure to make a
principal payment at the final (but not any interim) fixed maturity date
thereon and such defaulted payment shall not have been made, waived or
extended by the expiration of any applicable grace period; (h) any final
judgment or order (not covered by insurance) for the payment of money in
excess of $5.0 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 the Company or any
Restricted Subsidiary and shall not be paid or discharged, and there shall be
any period of 30 consecutive days following entry of the final judgment or
order that causes the aggregate amount for all such final judgments or orders
outstanding and not paid or discharged against all such Persons to exceed $5.0
million during which a stay of enforcement of such final judgment or order, by
reason of a pending appeal or otherwise, shall not be in effect; (i) a court
having jurisdiction in the premises enters a decree or order
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for (A) relief in respect of the Company or any of its Significant
Subsidiaries 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 the Company or any of its Significant Subsidiaries or for all or
substantially all of the property and assets of the Company or any of its
Significant Subsidiaries or (C) the winding up or liquidation of the affairs
of the Company or any of its Significant Subsidiaries and, in each case, such
decree or order shall remain unstayed and in effect for a period of 30
consecutive days; (j) the Company or any of its Significant Subsidiaries (A)
commences a voluntary case under any applicable bankruptcy, insolvency or
other similar law now or hereafter in effect, or consents to the entry of an
order for relief in an involuntary case under any such law, (B) consents to
the appointment of or taking possession by a receiver, liquidator, assignee,
custodian, trustee, sequestrator or similar official of the Company or any of
its Significant Subsidiaries or for all or substantially all of the property
and assets of the Company or any of its Significant Subsidiaries or (C)
effects any general assignment for the benefit of creditors; or (k) the
Company asserts in writing that the Pledge Agreement ceases to be in full
force and effect before payment in full of the obligations thereunder.
(Section 501)
If an Event of Default (other than an Event of Default specified in clause
(i) or (j) above) occurs and is continuing under the Indenture, the Trustee or
the holders of at least 25% in aggregate principal amount of the Notes then
outstanding, by written notice to the Company (and to the Trustee if such
notice is given by the holders), may, and the Trustee at the request of such
holders shall, declare the principal of, premium, if any, accrued and unpaid
interest and Liquidated Damages, if any, on the Notes to be immediately due
and payable. Upon a declaration of acceleration, such principal of, premium,
if any, accrued interest and Liquidated Damages, if any, shall become
immediately due and payable. In the event of a declaration of acceleration
because an Event of Default set forth in clause (g) above has occurred and is
continuing, such declaration of acceleration shall be automatically rescinded
and annulled if the default triggering such Event of Default pursuant to
clause (g) shall be remedied or cured by the Company and/or the relevant
Significant Subsidiaries 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 clause (i) or (j) above occurs, the principal
of, premium, if any, accrued interest and Liquidated Damages, if any, on the
Notes then outstanding shall ipso facto 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 aggregate principal amount of
the outstanding Notes, by written notice to the Company 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, accrued and unpaid
interest and Liquidated Damages, if any, on the Notes that have become due
solely by such declaration of acceleration, have been cured or waived (subject
to certain limitations) and (ii) the rescission, in the opinion of counsel,
would not conflict with any judgment or decree of a court of competent
jurisdiction. For information as to the waiver of defaults, see "--
Modification and Waiver." (Section 502)
The holders of at least a majority in aggregate principal amount of the
outstanding Notes 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 Notes 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 Notes. No
holder may pursue any remedy with respect to the Indenture or the Notes
unless: (i) the holder gives the Trustee written notice of a continuing Event
of Default; (ii) the holders of at least 25% in aggregate principal amount of
outstanding Notes make a written request to the Trustee to pursue the remedy;
(iii) such holder or holders offer the Trustee indemnity satisfactory to the
Trustee against any costs, liability or expense; (iv) the Trustee does not
comply with the request within 60 days after receipt of the request and the
offer of indemnity; and (v) during such 60-day period, the holders of a
majority in aggregate principal amount of the outstanding Notes 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 a Note to receive
payment of the principal of, premium, if any, interest or Liquidated Damages,
if any, on, such Note or to bring suit for the enforcement of any such
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payment, on or after the due date expressed in the Notes, which right shall
not be impaired or affected without the consent of the holder. (Sections 507
and 508)
The Indenture will require certain officers of the Company to certify, on or
before a date not more than 120 days after the end of each fiscal year, that a
review has been conducted of the activities of the Company and the Company's
performance under the Indenture and that the Company has 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. The Company will also be obligated to notify the Trustee of any
default or defaults in the performance of any covenants or agreements under
the Indenture. For these purposes, such compliance shall be determined without
regard to any grace period or notice requirement under the Indenture. (Section
1008)
DEFEASANCE AND COVENANT DEFEASANCE OF INDENTURE
The Company may, at its option and at any time, elect to have the
obligations of the Company upon the Notes discharged with respect to the
outstanding Notes ("defeasance"). Such defeasance means that the Company will
be deemed to have paid and discharged the entire Indebtedness represented by
the outstanding Notes and to have satisfied all its other obligations under
such Notes and the Indenture insofar as such Notes are concerned except for
(i) the rights of holders of outstanding Notes to receive payments (solely
from monies deposited in trust) in respect of the principal of, premium, if
any, interest and Liquidated Damages, if any, on such Notes when such payments
are due, (ii) the Company's obligations to issue temporary Notes, register the
transfer or exchange of any Notes, replace mutilated, destroyed, lost or
stolen Notes, maintain an office or agency for payments in respect of the
Notes and segregate and hold such payments in trust, (iii) the rights, powers,
trusts, duties and immunities of the Trustee and (iv) the defeasance
provisions of the Indenture. In addition, the Company may, at its option and
at any time, elect to have the obligations of the Company released with
respect to certain covenants and other provisions set forth in the Indenture,
and any omission to comply with such obligations will not constitute a Default
or an Event of Default with respect to the Notes ("covenant defeasance").
(Sections 1301, 1302 and 1303)
In order to exercise either defeasance or covenant defeasance, (i) the
Company must irrevocably deposit or cause to be deposited with the Trustee, as
trust funds in trust, specifically pledged as security for, and dedicated
solely to, the benefit of the holders of the Notes, cash in United States
dollars, U.S. Government Obligations (as defined in the Indenture), or a
combination thereof, in such amounts as will be sufficient, in the opinion of
a nationally recognized firm of independent public accountants, to pay and
discharge the principal of, premium, if any, and interest and Liquidated
Damages, if any, on the outstanding Notes on the Stated Maturity (or upon
redemption, if applicable) of such principal, premium, if any, or installment
of interest and Liquidated Damages, if any; (ii) no Default or Event of
Default with respect to the Notes will have occurred and be continuing on the
date of such deposit or, insofar as an event of bankruptcy under clause (i) or
(j) of "Events of Default" above is concerned, at any time during the period
ending on the 123rd day after the date of such deposit; (iii) such defeasance
or covenant defeasance will not result in a breach or violation of, or
constitute a default under any material agreement or instrument (other than
the Indenture) to which the Company is a party or by which it is bound; (iv)
in the case of defeasance, the Company shall have delivered to the Trustee an
Opinion of Counsel stating that the Company has received from, or there has
been published by, the Internal Revenue Service a ruling, or since January 15,
1998, there has been a change in applicable federal income tax law, in either
case to the effect that, and based thereon such opinion shall confirm that,
the holders of the outstanding Notes will not recognize income, gain or loss
for federal income tax purposes as a result of such defeasance and will be
subject to federal income tax on the same amounts, in the same manner and at
the same times as would have been the case if such defeasance had not
occurred; (v) in the case of covenant defeasance, the Company shall have
delivered to the Trustee an Opinion of Counsel to the effect that the holders
of the Notes outstanding will not recognize income, gain or loss for federal
income tax purposes as a result of such covenant defeasance and will be
subject to federal income tax on the same amounts, in the same manner and at
the same times as would have been the case if such covenant defeasance had not
occurred; and (vi) the Company shall have delivered to the Trustee an
Officer's Certificate and an Opinion of Counsel, each stating that all
conditions precedent provided for relating to either the defeasance or the
covenant defeasance, as the case may be, have been complied with. (Section
1304)
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SATISFACTION AND DISCHARGE
The Indenture will be discharged and will cease to be of further effect
(except as to surviving rights or registration of transfer or exchange of the
Notes, as expressly provided for in the Indenture) as to all outstanding Notes
when (i) either (A) all the Notes theretofore authenticated and delivered
(except lost, stolen or destroyed Notes which have been replaced or repaid and
Notes for whose payment money has theretofore been deposited in trust or
segregated and held by the Company and thereafter repaid to the Company or
discharged from such trust) have been delivered to the Trustee for
cancellation or (B) all Notes not theretofore delivered to the Trustee for
cancellation (except lost, stolen or destroyed Notes which have been replaced
or paid) have become due and payable and the Company has irrevocably deposited
or caused to be deposited with the Trustee funds in an amount sufficient to
pay and discharge the entire Indebtedness on the Notes not theretofore
delivered to the Trustee for cancellation, for principal of, premium, if any,
interest and Liquidated Damages, if any, on the Notes to the date of deposit
together with irrevocable instructions from the Company directing the Trustee
to apply such funds to the payment thereof at maturity or redemption, as the
case may be; (ii) the Company had paid all other sums payable under the
Indenture by the Company; and (iii) the Company has delivered to the Trustee
an officers' certificate and an opinion of counsel stating that all conditions
precedent under the Indenture relating to the satisfaction and discharge of
the Indenture have been complied with.
MODIFICATION AND WAIVER
Modifications and amendments of the Indenture may be made by the Company and
the Trustee with the consent of the holders of not less than a majority in
aggregate principal amount of the outstanding Notes; provided, however, that
no such modification or amendment may, without the consent of each holder
affected thereby, (i) change the Stated Maturity of the principal of, or any
installment of interest on, any Note, (ii) reduce the principal amount of, or
premium, if any, or interest on any Note or extend the time for payment of
interest on, or alter the redemption provisions of, any Note, (iii) change the
place or currency of payment of principal of, or premium, if any, or interest
on any Note, (iv) impair the right of any holder of the Notes to receive
payment of, principal of and interest on such holder's Notes on or after the
due dates therefor or to institute suit for the enforcement of any payment on
or after the Stated Maturity (or, in the case of a redemption, on or after the
Redemption Date) of any Note, (v) reduce the above-stated percentage of
outstanding Notes the consent of whose holders is necessary to modify, amend,
waive, supplement or consent to take any action under the Indenture or the
Notes, (vi) waive a default in the payment of principal of, premium, if any,
or accrued and unpaid interest or Liquidated Damages, if any, on the Notes,
(vii) reduce or change the rate or time for payment of interest on the Notes,
(viii) reduce or change the rate or time for payment of Liquidated Damages, if
any, (ix) modify any provisions of any Guarantees in a manner adverse to the
holders or (x) reduce the percentage or aggregate principal amount of
outstanding Notes the consent of whose holders is necessary for waiver of
compliance with certain provisions of the Indenture or for waiver of certain
defaults.
GOVERNING LAW AND SUBMISSION TO JURISDICTION
The Notes and the Indenture are governed and construed in accordance with
the laws of the State of New York. The Company submits to the jurisdiction of
the U.S. federal and New York state courts located in the Borough of
Manhattan, City and State of New York for purposes of all legal actions and
proceedings instituted in connection with the Notes and the Indenture.
CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases or to realize on certain property received in respect of any
such claim as security or otherwise. The Trustee will be permitted to engage
in other transactions; provided, however, if the Trustee acquires any
conflicting interest, it must eliminate such conflict as soon as practicable,
but in any event within 90 days.
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The holders of a majority in aggregate principal amount of the outstanding
Notes will have the right to direct the time, method and place of conducting
any proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that in case an Event of Default
shall occur (which shall not be cured), the Trustee will be required, in the
exercise of its power, to use the degree of care of a prudent man in the
conduct of his own affairs. Subject to such provisions, the Trustee will be
under no obligation to exercise any of its rights or powers under the
Indenture at the request of any holder of Notes, unless such holder shall have
offered to the Trustee security and indemnity satisfactory to it against any
loss, liability or expense.
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 full definition of all terms as well as any other
capitalized term used herein for which no definition is provided.
"Acquired Indebtedness" is defined to mean Indebtedness of a Person existing
at the time such Person becomes a Restricted Subsidiary or assumed in
connection with an Asset Acquisition by the Company or 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 the consummation of the transactions
by which such Person becomes a Restricted Subsidiary or such Asset Acquisition
shall not be considered as Indebtedness.
"Affiliate" is defined to mean, 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 "controlling," "controlled
by" and "under common control with"), as applied to any Person, is defined to
mean 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" is defined to mean (i) an investment by the Company or
any of its Restricted Subsidiaries in any other Person pursuant to which such
Person shall become a Restricted Subsidiary of the Company or shall be merged
into or consolidated with the Company or any of its Restricted Subsidiaries or
(ii) an acquisition by the Company or any of its Restricted Subsidiaries of
the property and assets of any Person (other than the Company or any of its
Restricted Subsidiaries) that constitute substantially all of a division or
line of business of such Person.
"Asset Disposition" is defined to mean the sale or other disposition by the
Company or any of its Restricted Subsidiaries (other than to the Company or
another Restricted Subsidiary of the Company) of (i) all or substantially all
of the Capital Stock of any Restricted Subsidiary of the Company or (ii) all
or substantially all of the assets that constitute a division or line of
business of the Company or any of its Restricted Subsidiaries.
"Asset Sale" is defined to mean any sale, transfer or other disposition
(including by way of merger, consolidation or sale-leaseback transactions) in
one transaction or a series of related transactions by the Company or any of
its Restricted Subsidiaries to any Person (other than the Company or any of
its Restricted Subsidiaries) of (i) all or any of the Capital Stock of any
Restricted Subsidiary (other than in respect of any director's qualifying
shares or investments by foreign nationals mandated by applicable law), (ii)
all or substantially all of the property and assets of an operating unit or
business of the Company or any of its Restricted Subsidiaries or (iii) any
other property and assets of the Company or any of its Restricted Subsidiaries
outside the ordinary course of business of the Company or such Restricted
Subsidiary and, in each case, that is not governed by the provisions of the
Indenture applicable to mergers, consolidations and sales of assets of the
Company and which, in the case of any of clause (i), (ii) or (iii) above,
whether in one transaction or a series of related transactions, (a) have a
fair market value in excess of $1.0 million or (b) are for net proceeds in
excess of $1.0 million; provided that sales or other dispositions of
inventory, receivables and other current assets in the ordinary course of
business shall not be included within the meaning of "Asset Sale."
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"Attributable Value" is defined to mean, as to any particular lease under
which any Person is at the time liable other than a Capitalized Lease
Obligation, and at any date as of which the amount thereof is to be
determined, the total net amount of rent required to be paid by such person
under such lease during the remaining term thereof (whether or not such lease
is terminable at the option of the lessee prior to the end of such term),
including any period for which such lease has been, or may, at the option of
the lessor, be extended, discounted from the last date of such term to the
date of determination at a rate per annum equal to the discount rate which
would be applicable to a Capitalized Lease Obligation with like term in
accordance with GAAP. The net amount of rent required to be paid under any
lease for any such period shall be the aggregate amount of rent payable by the
lessee with respect to such period after excluding amounts required to be paid
on account of insurance, taxes, assessments, utility, operating and labor
costs and similar charges. "Attributable Value" means, as to a Capitalized
Lease Obligation under which any Person is at the time liable and at any date
as of which the amount thereof is to be determined, the capitalized amount
thereof that would appear on the face of a balance sheet of such Person in
accordance with GAAP.
"Average Life" is defined to mean, with respect to any Indebtedness, as at
any date of determination, the quotient obtained by dividing (i) the sum of
the products of (a) the number of years from such date to the date or dates of
each successive scheduled principal payment (including, without limitation,
any sinking fund requirements) of such Indebtedness and (b) the amount of each
such principal payment by (ii) the sum of all such principal payments.
"Board of Directors" is defined to mean the board of directors of the
Company or its equivalent, including managers of a limited liability company,
general partners of a partnership or trustees of a business trust, or any duly
authorized committee thereof.
"Capital Stock" is defined to mean, with respect to any Person, any and all
shares, interests, participations, rights in or other equivalents (however
designated, whether voting or non-voting) in equity of such Person, whether
now outstanding or issued after the date of the Indenture, including, without
limitation, all Common Stock and Preferred Stock.
"Capitalized Lease Obligation" is defined to mean any obligation under a
lease of (or other agreement conveying the right to use) any property (whether
real, personal or mixed) that is required to be classified and accounted for
as a capital lease obligation under GAAP, and, for the purpose of the
Indenture, the amount of such obligation at any date shall be the capitalized
amount thereof at such date, determined in accordance with GAAP.
"Change of Control" is defined to mean such time as (i) a "person" or
"group" (within the meaning of Sections 13(d) and 14(d)(2) of the Exchange
Act) (other than Armstrong or FMG) becomes the ultimate "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act) of more than 50.0% of the total
voting power of the then outstanding Voting Stock of the Company on a fully
diluted basis; (ii) individuals who at the beginning of any period of two
consecutive calendar years constituted the Board of Directors (together with
any directors who are members of the Board of Directors on the date hereof and
any new directors whose election by the Board of Directors or whose nomination
for election by the Company's stockholders was approved by a vote of at least
two-thirds of the members of the Board of Directors then still in office who
either were members of the Board of Directors at the beginning of such period
or whose election or nomination for election was previously so approved) cease
for any reason to constitute a majority of the members of such board of
directors then in office; (iii) the sale, lease, transfer, conveyance or other
disposition (other than by way of merger or consolidation), in one or a series
of related transactions, of all or substantially all of the assets of the
Company and its Subsidiaries taken as a whole to any such "person" or "group"
(other than to the Company or a Restricted Subsidiary); (iv) the merger or
consolidation of the Company with or into another corporation or the merger of
another corporation with or into the Company in one or a series of related
transactions with the effect that immediately after such transaction any such
"person" or "group" of persons or entities shall have become the beneficial
owner of securities of the surviving corporation of such merger or
consolidation representing a
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majority of the total voting power of the then outstanding Voting Stock of the
surviving corporation; or (v) the adoption of a plan relating to the
liquidation or dissolution of the Company.
"Closing Date" is defined to mean the date on which the Notes are originally
issued under the Indenture.
"Common Stock" is defined to mean, with respect to any Person, any and all
shares, interests, participations, rights in or other equivalents (however
designated, whether voting or non-voting) of such Person's common stock,
whether now outstanding or issued after the date of the Indenture, including,
without limitation, all series and classes of such common stock.
"Consolidated Cash Flow" is defined to mean, for any period, the sum of the
amounts for such period of (i) Consolidated Net Income, (ii) Consolidated
Interest Expense, (iii) income taxes, to the extent such amount was deducted
in calculating Consolidated Net Income (other than income taxes (either
positive or negative) attributable to extraordinary and non-recurring gains or
losses or sales of assets), (iv) depreciation expense, to the extent such
amount was deducted in calculating Consolidated Net Income, (v) amortization
expense, to the extent such amount was deducted in calculating Consolidated
Net Income, and (vi) all other non-cash items reducing Consolidated Net Income
(excluding any non-cash charge to the extent that it represents an accrual of
or reserve for cash charges in any future period), less all non-cash items
increasing Consolidated Net Income, all as determined on a consolidated basis
for the Company and its Restricted Subsidiaries in conformity with GAAP.
"Consolidated Fixed Charges" is defined to mean, for any period,
Consolidated Interest Expense plus dividends declared and payable on Preferred
Stock.
"Consolidated Interest Expense" is defined to mean, for any period, the
aggregate amount of interest in respect of Indebtedness (including capitalized
interest, 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 the Company or
any of its Restricted Subsidiaries) and all but the principal component of
rentals in respect of Capitalized Lease Obligations paid, accrued or scheduled
to be paid or to be accrued by the Company and its Restricted Subsidiaries
during such period.
"Consolidated Net Income" means, with respect to any Person, for any period,
the consolidated net income (or loss) of such Person and its Restricted
Subsidiaries for such period as determined in accordance with GAAP, adjusted,
to the extent included in calculating such net income, by excluding, without
duplication, (i) all extraordinary gains or losses, (ii) net income (or loss)
of any Person combined in such Person or one of its Restricted Subsidiaries on
a "pooling of interests" basis attributable to any period prior to the date of
combination, (iii) gains or losses (on an after-tax basis) in respect of any
Asset Sales by such Person or one of its Restricted Subsidiaries, (iv) the net
income of any Restricted Subsidiary of such Person to the extent that the
declaration of dividends or similar distributions by that Restricted
Subsidiary of that income is not at the time permitted, directly or
indirectly, by operation of the terms of its charter or any agreement,
instrument, judgment, decree, order, statute, rule or governmental regulations
applicable to that Restricted Subsidiary or its stockholders, (v) any gain or
loss realized as a result of the cumulative effect of a change in accounting
principles, (vi) any amount paid or accrued as dividends on Preferred Stock of
the Company or Preferred Stock of any Restricted Subsidiary owned by Persons
other than the Company and any of its Restricted Subsidiaries and (vii) the
net income (or loss) of any Person (other than net income (or loss)
attributable to a Restricted Subsidiary) in which any Person (other than the
Company or any of its Restricted Subsidiaries) has a joint interest, except to
the extent of the amount of dividends or other distributions actually paid to
the Company or any of its Restricted Subsidiaries by such other Person during
such period.
"Consolidated Net Worth" is defined to mean, at any date of determination,
stockholders' equity as set forth on the most recently available quarterly or
annual consolidated balance sheet of the Company and its Subsidiaries (which
shall be as of a date not more than 90 days prior to the date of such
computation), less any
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amounts attributable to Redeemable Stock or any equity security convertible
into or exchangeable for Indebtedness, the cost of treasury stock and the
principal amount of any promissory notes receivable from the sale of the
Capital Stock of the Company or any of its 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 Facilities" is defined to mean one or more debt facilities or
commercial paper facilities with banks or other institutional lenders
providing for revolving credit loans, term loans, receivables financing
(including through the sale of receivables to such lenders or to special
purpose entities formed to borrow from such lenders against such receivables)
or letters of credit, in each case, as amended, restated, modified, renewed,
refunded, replaced or refinanced in whole or in part from time to time.
"Cumulative Consolidated Cash Flow" is defined to mean, for the period
beginning on the Closing Date through and including the end of the last fiscal
quarter (taken as one accounting period) preceding the date of any proposed
Restricted Payment, Consolidated Cash Flow of the Company and its Restricted
Subsidiaries for such period determined on a consolidated basis in accordance
with GAAP.
"Cumulative Consolidated Fixed Charges" are defined to mean the Consolidated
Fixed Charges of the Company and its Restricted Subsidiaries for the period
beginning on the Closing Date through and including the end of the last fiscal
quarter (taken as one accounting period) preceding the date of any proposed
Restricted Payment, determined on a consolidated basis in accordance with
GAAP.
"Cumulative Consolidated Interest Expense" is defined to mean, for the
period beginning on the Closing Date through and including the end of the last
fiscal quarter (taken as one accounting period) preceding the date of any
proposed Restricted Payment, Consolidated Interest Expense of the Company and
its Restricted Subsidiaries for such period determined on a consolidated basis
in accordance with GAAP.
"Currency Agreement" is defined to mean any foreign exchange contract,
currency swap agreement and any other arrangement and agreement designed to
provide protection against fluctuations in currency (or currency unit) values.
"Default" is defined to mean any event that is, or after notice or passage
of time or both would be, an Event of Default.
"Eligible Accounts Receivable" is defined to mean the accounts receivable
(net of any reserves and allowances for doubtful accounts in accordance with
GAAP) of any Person that are not more than 60 days past their due date and
that were entered into in the ordinary course of business on normal payment
terms as shown on the most recent consolidated balance sheet of such Person
filed with the Commission, all in accordance with GAAP.
"Eligible Institution" is defined to mean a commercial banking institution
that has combined capital and surplus of not less than $500.0 million or its
equivalent in foreign currency, and has outstanding debt with a rating of "A-
3" or higher according to Moody's Investors Service, Inc., or "A-" or higher
according to Standard & Poor's Ratings Services (or such similar equivalent
rating by at least one "nationally recognized statistical rating organization"
(as defined in Rule 436 under the Securities Act)) at the time as of which any
investment or rollover therein is made.
"Event of Default" has the meaning set forth under "Events of Default"
herein.
"Fair Market Value" is defined to mean, with respect to any asset or
property, the sale value that would be obtained 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.
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"GAAP" is defined to mean generally accepted accounting principles in the
United States as in effect from time to time, 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 of the United States.
"Guarantee" is defined to mean any obligation, contingent or otherwise, of
any Person directly or indirectly guaranteeing any Indebtedness or other
obligation of any other Person and, without limiting the generality of the
foregoing, any obligation, direct or indirect, contingent or otherwise, of
such Person (i) to purchase or pay (or advance or supply funds for the
purchase or payment of) such Indebtedness or other obligation of such other
Person (whether arising by virtue of partnership arrangements, or by
agreements to keep-well, to purchase assets, goods, securities or services, to
take-or-pay, or to maintain financial statement conditions or otherwise) or
(ii) entered into for purposes of assuring in any other manner the obligee of
such Indebtedness or other obligation of the 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" or "Incurrence" is defined to mean, with respect to any
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
Indebtedness by reason of the acquisition of more than 50.0% of the Capital
Stock of any Person; provided that neither the accrual of interest nor the
accretion of original issue discount shall be considered an Incurrence of
Indebtedness.
"Indebtedness" is defined to mean, with respect to any Person at any date of
determination (without duplication), (i) all indebtedness of such Person for
borrowed money, (ii) all obligations of such Person evidenced by bonds,
debentures, notes or other similar instruments, (iii) all obligations of such
Person in respect of letters of credit or other similar instruments (including
reimbursement obligations with respect thereto), (iv) 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, (v) all obligations of
such Person as lessee under Capitalized Lease Obligations and the Attributable
Value under any Sale-Leaseback Transaction of such Person, (vi) 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 or (B) the amount of such
Indebtedness, (vii) all Indebtedness of other Persons Guaranteed by such
Person to the extent such Indebtedness is Guaranteed by such Person, (viii)
the maximum fixed redemption or repurchase price of Redeemable Stock of such
Person at the time of determination and (ix) 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 (x) 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 such time as determined in conformity with
GAAP and (y) that Indebtedness shall not include any liability for federal,
state, local or other taxes.
"Interest Rate Agreement" is defined to mean interest rate swap agreements,
interest rate cap agreements, interest rate insurance, and other arrangements
and agreements designed to provide protection against fluctuations in interest
rates.
"Interest Rate Protection Obligations" is defined to mean the obligations of
any Person pursuant to any Interest Rate Agreements.
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"Investment" in any Person is defined to mean 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 the balance sheet of the Company or its 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.
For purposes of the definition of "Unrestricted Subsidiary," the "Limitation
on Restricted Payments" covenant and the "Limitation on Issuance and Sale of
Capital Stock of Restricted Subsidiaries" covenant described above, (i)
"Investment" shall include (a) the fair market value of the assets (net of
liabilities) of any Restricted Subsidiary of the Company at the time that such
Restricted Subsidiary of the Company is designated an Unrestricted Subsidiary
and shall exclude the fair market value of the assets (net of liabilities) of
any Unrestricted Subsidiary at the time that such Unrestricted Subsidiary is
designated a Restricted Subsidiary of the Company and (b) the fair market
value, in the case of a sale of Capital Stock in accordance with the
"Limitation on the Issuance and Sale of Capital Stock of Restricted
Subsidiaries" covenant such that a Person no longer constitutes a Restricted
Subsidiary, of the remaining assets (net of liabilities) of such Person after
such sale, and shall exclude the fair market value of the assets (net of
liabilities) of any Unrestricted Subsidiary at the time that such Unrestricted
Subsidiary is designated a Restricted Subsidiary of the Company and (ii) any
property transferred to or from an Unrestricted Subsidiary shall be valued at
its fair market value at the time of such transfer, in each case as determined
by the Board of Directors in good faith.
"Lien" is defined to mean any mortgage, charge, pledge, security interest,
encumbrance, lien (statutory or other), hypothecation, assignment for
security, claim, or preference or priority or other encumbrance upon or with
respect to any property of any kind (including, without limitation, any
conditional sale or other title retention agreement or lease in the nature
thereof, any sale with recourse against the seller or any Affiliate of the
seller, or any agreement to give any security interest).
"Marketable Securities" is defined to mean: (i) U.S. Government Obligations
which have a remaining weighted average life to maturity of not more than one
year from the date of Investment therein; (ii) any time deposit account, money
market deposit and certificate of deposit maturing not more than 180 days
after the date of acquisition issued by, or time deposit of, an Eligible
Institution; (iii) certificates of deposit, Eurodollar time deposits and
bankers' acceptances with maturity of 90 days or less and overnight bank
deposits of any financial institution that is organized under the laws of the
United States of America or any state hereof, and which bank or trust company
has capital, surplus and undivided profits aggregating in excess of $300.0
million (or, to the extent non-United States dollar-denominated, the United
States Dollar Equivalent of such amount) 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); (iv) commercial paper maturing not more than
180 days after the date of acquisition issued by a corporation (other than an
Affiliate of the Company) with a rating, at the time as of which any
investment therein is made, of "P-1" or higher according to Moody's Investors
Service, Inc., or "A-1" or higher according to Standard & Poor's Ratings
Services (or such similar equivalent rating by at least one "nationally
recognized statistical rating organization" (as defined in Rule 436 under the
Securities Act)); (v) auction rate preferred securities whose rates are reset
based on market levels for a par security not more than 90 days after the date
of acquisition with a rating, at the time as of which any investment therein
is made, of "A-3" or higher according to Moody's Investors Service, Inc., or
"A-" or higher according to Standard & Poor's Ratings Services (or such
similar equivalent rating by at least one "nationally recognized statistical
rating organization" (as defined in Rule 436 under the Securities Act)) and
issued by a corporation that is not an Affiliate of the Company; (vi) any
banker's acceptance or money market deposit accounts issued or offered by an
Eligible Institution; (vii) repurchase obligations with a term of not more
than seven days for U.S. Government Obligations entered into with an Eligible
Institution; and (viii) any fund investing exclusively in investments of the
types described in clauses (i) through (vii) above.
"Net Cash Proceeds" is defined to mean (a) 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
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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 the Company or
any Restricted Subsidiary of the Company) and proceeds from the conversion of
other property received when converted to cash or cash equivalents, net of (i)
brokerage commissions and other fees and expenses (including fees and expenses
of counsel and investment bankers) related to such Asset Sale, (ii) provisions
for all taxes payable as a result of such Asset Sale without regard to the
consolidated results of operations of the Company and its Restricted
Subsidiaries, taken as a whole (after taking into account any available
offsetting tax credits or deductions and any tax sharing arrangements), (iii)
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 (iv)
appropriate amounts to be provided by the Company or any Restricted Subsidiary
of the Company as a 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 (b) 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
the Company or any Restricted Subsidiary of the Company) and proceeds from the
conversion of other property received when converted to cash or cash
equivalents, net of attorneys' 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.
"Permitted Business" is defined to mean any business involving voice, data
and other telecommunications services.
"Permitted Investment" is defined to mean (i) an Investment in 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, the Company or a Restricted
Subsidiary; (ii) any Investment in Marketable Securities or Pledged
Securities; (iii) 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; (iv) loans or advances to officers and employees made
in the ordinary course of business that do not in the aggregate exceed $1.0
million at any time outstanding; (v) stock, obligations or securities received
in satisfaction of judgments; (vi) Investments in any Person received as
consideration for Asset Sales to the extent permitted under the "Limitation on
Asset Sales" covenant; (vii) Investments in any Person at any one time
outstanding (measured on the date each such Investment was made without giving
effect to subsequent changes in value) in an aggregate amount not to exceed
the greater of (A) $15.0 million or (B) 5.0% of the Company's total
consolidated assets; (viii) Investments in deposits with respect to leases or
utilities provided to third parties in the ordinary course of business; (ix)
Investments in Currency Agreements and Interest Rate Agreements on
commercially reasonable terms entered into by the Company or any of its
Restricted Subsidiaries in the ordinary course of business in connection with
the operation of the business of the Company or its Restricted Subsidiaries;
provided that such agreements do not increase the Indebtedness of the obligor
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; (x) repurchases or redemptions by the
Company of Capital Stock from officers and other employees of the Company or
any of its Subsidiaries or their authorized representatives upon the death,
disability or termination of employment of such individuals, in an aggregate
amount not exceeding $1.0 million in any calendar year and $3.0 million from
the date of the Indenture; and (xi) Investments in evidences of Indebtedness,
securities or other property received from another Person by the Company or
any of its Restricted Subsidiaries in connection with any bankruptcy
proceeding or by reason of a composition or readjustment of debt or a
reorganization of such Person or as a result of foreclosure, perfection or
enforcement of any Lien in exchange for evidences of Indebtedness, securities
or other property of such Person held by the Company or any of its
Subsidiaries, or for other liabilities or obligations of such Person to the
Company or any of its Subsidiaries that were created, in accordance with the
terms of the Indenture.
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"Permitted Liens" is defined to mean (i) 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; (ii) statutory Liens of
landlords and carriers, warehousemen, mechanics, suppliers, materialmen,
repairmen or other similar Liens arising in the ordinary course of business
and with respect to amounts not yet delinquent or 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; (iii) Liens
incurred or deposits made in the ordinary course of business in connection
with workers' compensation, unemployment insurance and other types of social
security; (iv) 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); (v) 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 the
Company or any of its Restricted Subsidiaries; (vi) Liens (including
extensions and renewals thereof) upon real or personal property purchased or
leased after the Closing Date; provided that (a) such Lien is created solely
for the purpose of securing Indebtedness Incurred in compliance with the
"Limitation on Indebtedness" covenant (1) to finance the cost (including the
cost of design, development, construction, acquisition, installation or
integration) of the item of property or assets subject thereto and such Lien
is created prior 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 or (2) to refinance any Indebtedness previously so
secured, (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; (vii) leases or subleases granted to others
that do not materially interfere with the ordinary course of business of the
Company and its Restricted Subsidiaries, taken as a whole; (viii) Liens
encumbering property or assets under construction arising from progress or
partial payments by a customer of the Company or its Restricted Subsidiaries
relating to such property or assets; (ix) any interest or title of a lessor in
the property subject to any Capitalized Lease Obligation or operating lease;
(x) Liens arising from filing Uniform Commercial Code financing statements
regarding leases; (xi) Liens on property of, or on shares of stock or
Indebtedness of, any corporation existing at the time such corporation
becomes, or becomes a part of, any Restricted Subsidiary; provided that such
Liens do not extend to or cover any property or assets of the Company or any
Restricted Subsidiary other than the property or assets acquired and were not
created in contemplation of such transaction; (xii) Liens in favor of the
Company or any Restricted Subsidiary; (xiii) Liens arising from the rendering
of a final judgment or order against the Company or any Restricted Subsidiary
of the Company that does not give rise to an Event of Default; (xiv) 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; (xv) 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; (xvi) Liens encumbering customary
initial deposits and margin deposits and other Liens that are either within
the general parameters customary in the industry or incurred in the ordinary
course of business, in each case, securing Indebtedness under Interest Rate
Agreements and Currency Agreements; (xvii) Liens arising out of conditional
sale, title retention, consignment or similar arrangements for the sale of
goods entered into by the Company or any of its Restricted Subsidiaries in the
ordinary course of business in accordance with the past practices of the
Company and its Restricted Subsidiaries prior to the Closing Date; (xviii)
Liens existing on the Closing Date or securing the Notes or any Guarantee of
the Notes; (xix) Liens granted after the Closing Date on any assets or Capital
Stock of the Company or its Restricted Subsidiaries created in favor of the
holders; (xx) Liens securing Indebtedness which is incurred to refinance
secured Indebtedness which is permitted to be Incurred under clause (viii) of
paragraph (b) of the "Limitation on Indebtedness" covenant; provided that such
Liens do not extend to or cover any property or assets of the Company or any
Restricted Subsidiary other than the property or assets securing the
Indebtedness being refinanced; and (xxi) Liens securing Indebtedness under
Credit Facilities incurred in compliance with clause (iv) of paragraph (b) of
the "Limitation on Indebtedness" covenant.
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"Pledge Account" is defined to mean an account established with the Trustee
pursuant to the terms of the Pledge Agreement for the deposit of the Pledged
Securities purchased by the Company with a portion of the net proceeds from
the Offering.
"Pledge Agreement" is defined to mean the Collateral Pledge and Security
Agreement, dated as of the date of the Indenture, from the Company to the
Trustee, governing the Pledge Account and the disbursement of funds therefrom.
"Pledged Securities" is defined to mean the securities purchased by the
Company with a portion of the net proceeds from the Offering, which shall
consist of U.S. Government Obligations, to be deposited in the Pledge Account.
"Preferred Stock" is defined to mean, with respect to any Person, any and
all shares, interests, participations, rights or other equivalents (however
designated, whether voting or non-voting) of such Person's preferred or
preference stock, whether now outstanding or issued after the date of the
Indenture, including, without limitation, all series and classes of such
preferred or preference stock.
"Pro Forma Consolidated Cash Flow" is defined to mean, for any period, the
Consolidated Cash Flow of the Company for such period calculated on a pro
forma basis to give effect to any Asset Disposition or Asset Acquisition not
in the ordinary course of business (including acquisitions of other Persons by
merger, consolidation or purchase of Capital Stock) during such period as if
such Asset Disposition or Asset Acquisition had taken place on the first day
of such period.
"Public Equity Offering" is defined to mean an underwritten primary public
offering of Common Stock of the Company pursuant to an effective registration
statement under the Securities Act.
"Redeemable Stock" is defined to mean any class or series of Capital Stock
of any Person that by its terms (or by the terms of any security into which it
is exchangeable) or otherwise is (i) required to be redeemed on or prior to
the date that is 123 days after the date of the Stated Maturity of the Notes,
(ii) redeemable at the option of the holder of such class or series of Capital
Stock at any time on or prior to the date that is 123 days after the date of
the Stated Maturity of the Notes or (iii) convertible into or exchangeable for
Capital Stock referred to in clause (i) or (ii) above or Indebtedness having a
scheduled maturity on or prior to the date that is 123 days after the date of
the Stated Maturity of the Notes; provided that any Capital Stock that would
not constitute Redeemable 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
on or prior to the date that is 123 days after the date of the Stated Maturity
of the Notes shall not constitute Redeemable 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 Notes upon a Change of
Control" covenants described above and such Capital Stock specifically
provides that such Person will not repurchase or redeem any such stock
pursuant to such provisions on or prior to the date that is 123 days after the
date of the Company's repurchase of such Notes as are required to be
repurchased pursuant to the "Limitation on Asset Sales" and "Repurchase of
Notes upon a Change of Control" covenants described above.
"Registration Rights Agreement" is defined to mean the Registration Rights
Agreement, dated as of the date of the Indenture, by and between the Initial
Purchasers and the Company, concerning the registration and exchange of the
Notes.
"Restricted Subsidiary" is defined to mean any Subsidiary of the Company
other than an Unrestricted Subsidiary.
"Sale-Leaseback Transaction" of any person is defined to mean an arrangement
with any lender or investor or to which such lender or investor is a party
providing for the leasing by such person of any property or asset of
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such person which has been or is being sold or transferred by such person
after the acquisition thereof or the completion of construction or
commencement of operation thereof to such lender or investor or to any person
to whom funds have been or are to be advanced by such lender or investor on
the security of such property or asset. The stated maturity of such
arrangement shall be the date of the last payment of rent or any other amount
due under such arrangement prior to the first date on which such arrangements
may be terminated by the lessee without payment of a penalty.
"Significant Subsidiary" is defined to mean a Restricted Subsidiary that is
a "significant subsidiary" as defined in Rule 1-02(w) of Regulation S-X under
the Securities Act and the Exchange Act.
"Stated Maturity" is defined to mean, (i) 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 (ii)
with respect to any scheduled installment of principal of or interest on any
debt security, the date specified in such debt security as the fixed date on
which such installment is due and payable.
"Subsidiary" is defined to mean, with respect to any Person, any
corporation, association or other business entity of which more than 50.0% of
the outstanding Voting Stock is owned, directly or indirectly, by such Person
and one or more other Subsidiaries of such Person.
"Telecommunications Assets" is defined to mean, with respect to any Person,
equipment used in the telecommunications business or ownership rights with
respect to IRUs, MAOUs or minimum investment units (or similar ownership
interests) in fiber optic cable and international or domestic
telecommunications switches or other transmission facilities (or Common Stock
of a Person that becomes a Restricted Subsidiary, the assets of which consist
primarily of any such Telecommunications Assets), in each case purchased or
acquired through a Capitalized Lease Obligation by the Company or a Restricted
Subsidiary after the Closing Date.
"Trade Payables" is defined to mean any accounts payable or any other
indebtedness or monetary obligation to trade creditors created, assumed or
Guaranteed by the Company or any of its Restricted Subsidiaries arising in the
ordinary course of business in connection with the acquisition of goods and
services.
"Transaction Date" is defined to mean, with respect to the Incurrence of any
Indebtedness by the Company or any of its 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.
"United States Dollar Equivalent" is defined to mean, with respect to any
monetary amount in a currency other than the United States dollar, at any time
for the determination thereof, the amount of United States dollars obtained by
converting such foreign currency involved in such computation into United
States dollars at the spot rate for the purchase of United States dollars with
the applicable foreign currency as quoted by Reuters at approximately 11:00
a.m. (New York City time) on the date not more than two business days prior to
such determination. For purposes of determining whether any Indebtedness can
be incurred (including Permitted Indebtedness), any Investment can be made and
any transaction described in the "Limitation on Transactions with Stockholders
and Affiliates" covenant can be undertaken (a "Tested Transaction"), the
United States Dollar Equivalent of such Indebtedness, Investment or
transaction described in the "Limitation on Transactions with Stockholders and
Affiliates" covenant will be determined on the date incurred, made or
undertaken and no subsequent change in the United States Dollar Equivalent
shall cause such Tested Transaction to have been incurred, made or undertaken
in violation of the Indenture.
"Unrestricted Subsidiary" is defined to mean (i) any Subsidiary of the
Company that at the time of determination shall be designated an Unrestricted
Subsidiary by the Board of Directors in the manner provided below and (ii) any
Subsidiary of an Unrestricted Subsidiary. The Board of Directors may designate
any Restricted Subsidiary of the Company (including any newly acquired or
newly formed Subsidiary of the Company) to be an Unrestricted Subsidiary
unless such Subsidiary owns any Capital Stock of, or owns or holds any Lien on
any property of, the Company or any Restricted Subsidiary; provided that (A)
the Subsidiary to be
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so designated has total assets of $1,000 or less or (B) if such Subsidiary has
assets greater than $1,000, that such designation would be permitted under the
"Limitation on Restricted Payments" covenant described above, and such
Subsidiary is not liable, directly or indirectly, with respect to any
Indebtedness other than Unrestricted Subsidiary Indebtedness. The Board of
Directors may designate any Unrestricted Subsidiary to be a Restricted
Subsidiary of the Company; provided that immediately after giving effect to
such designation (x) the Company could Incur $1.00 of additional Indebtedness
under the first paragraph of the "Limitation on Indebtedness" covenant
described above and (y) no Default or Event of Default shall have occurred and
be continuing. Any such designation by the Board of Directors shall be
evidenced to the Trustee by promptly filing with the Trustee a copy of the
Board Resolution giving effect to such designation and an Officers'
Certificate certifying that such designation complied with the foregoing
provisions.
"Unrestricted Subsidiary Indebtedness" is defined to mean any Indebtedness
of any Unrestricted Subsidiary (i) as to which neither the Company nor any
Restricted Subsidiary is directly or indirectly liable (by virtue of the
Company or any such Restricted Subsidiary being the primary obligor on,
guarantor of, or otherwise liable in any respect to, such Indebtedness) and
(ii) which, upon the occurrence of a default with respect thereto, does not
result in, or permit any holder of any Indebtedness of the Company or any
Restricted Subsidiary to declare, a default of such Indebtedness of the
Company or any Restricted Subsidiary or cause the payment thereof to be
accelerated or payable prior to its Stated Maturity.
"U.S. Government Obligations" is defined to mean securities that are (x)
direct obligations of the United States for the timely payment of which its
full faith and credit is pledged or (y) obligations of a Person controlled or
supervised by and acting as an agency or instrumentality of the United States
the timely payment of which is unconditionally guaranteed as a full faith and
credit obligation by the United States, which, in either case, are not
callable or redeemable at the option of the issuer thereof, and shall also
include a depository receipt issued by a bank (as defined in Section 3(a)(2)
of the Securities Act), as custodian with respect to any such U.S. Government
Obligation or a specific payment of principal of or interest on any such U.S.
Government Obligation held by such custodian for the account of the holder of
such depository receipt, provided that (except as required by law) such
custodian is not authorized to make any deduction from the amount payable to
the holder of such depository receipt from any amount received by the
custodian in respect of the U.S. Government Obligation or the specific payment
of principal of or interest on the U.S. Government Obligation evidenced by
such depository receipt.
"Voting Stock" is defined to mean with respect to any Person, Capital Stock
of any class or kind ordinarily having the power to vote for the election of
directors, managers or other voting members of the governing body of such
Person.
BOOK-ENTRY, DELIVERY AND FORM
Exchange Notes issued in exchange for the Old Notes currently represented by
one or more fully registered global notes ("Old Global Notes") will be
represented by one or more fully registered global notes (collectively, the
"Exchange Global Notes"). The Old Global Notes were deposited on the date of
the closing of the sale of the Old Notes, and the Exchange Global Notes will
be deposited on the date of the closing of the Exchange Offer with, or on
behalf of, The Depository Trust Company ("DTC") and registered in the name of
DTC or a nominee of DTC. "Global Notes" means the Old Global Notes or the
Exchange Global Notes, as the case may be.
Exchange Notes held by qualified institutional buyers (as defined in Rule
144A promulgated under the Securities Act)("QIBs") who elect to take physical
delivery of their certificates instead of holding their interest through the
Exchange Global Notes and which are thus ineligible to trade through DTC
(collectively referred to herein as the "Non-Global Purchasers") will be
issued, in registered form, without interest coupons ("Certificated Exchange
Notes"). Upon a permitted transfer to a QIB of such Certificated Exchange
Notes initially issued to a Non-Global Purchaser, such Certificated Exchange
Notes will, unless the transferee requests otherwise or the Exchange Global
Notes have previously been exchanged in whole for such Certificated
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Exchange Notes, be exchanged for an interest in the applicable Exchange Global
Notes. As described below under "--Certificated Exchange Notes," owners of
beneficial interests in an Exchange Global Note may receive physical delivery
of Certificated Exchange Notes only in the limited circumstances described
therein.
The Exchange Global Notes. The Company expects that pursuant to procedures
established by DTC (i) upon deposit of the Exchange Global Notes, DTC or its
custodian will credit, on its internal system, the corresponding principal
amount of Exchange Global Notes to the respective accounts of persons who have
accounts with such depositary and (ii) ownership of the Exchange Global Notes
will be shown on, and the transfer of ownership thereof will be effected only
through, records maintained by DTC or its nominee (with respect to interests
of participants) and the records of participants (with respect to interests of
persons other than participants). Such accounts initially will be designated
by or on behalf of the Initial Purchasers and ownership of beneficial
interests in the Exchange Global Notes will be limited to persons who have
accounts with DTC ("participants") or persons who hold interests through
participants. Qualified institutional buyers may hold their interests in the
Exchange Global Notes directly through the DTC if they are participants in
such system, or indirectly through organizations which are participants in
such system.
So long as DTC, or its nominee, is the registered owner or holder of the
Notes, DTC or such nominee will be considered the sole owner or holder of the
Exchange Global Notes represented by the applicable Exchange Global Notes for
all purposes under the Indenture. No beneficial owner of an interest in the
Exchange Global Notes will be able to transfer such interest except in
accordance with DTC's applicable procedures in addition to those provided for
under the Indenture with respect to the Notes.
Payments of the principal of, premium (if any) and interest on, the Exchange
Global Notes will be made to DTC or its nominee, as the case may be, as the
registered owner thereof. None of the Company, the Trustee or any paying agent
will have any responsibility or liability for any aspect of the records
relating to or payments made on account of beneficial ownership interests in
the Exchange Global Notes or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interest.
The Company expects that DTC or its nominee, upon receipt of any payment of
the principal of, premium (if any) and interest on, the Exchange Global Notes,
will credit participants' accounts with payments in amounts proportionate to
their respective beneficial interests in the principal amount of such Exchange
Global Note, as shown on the records of DTC or its nominee. The Company also
expects that payments by participants to owners of beneficial interests in any
such Exchange Global Notes held through such participants will be governed by
standing instructions and customary practice, as is now the case with
securities held for the accounts of customers registered in the names of
nominees for such customers. Such payments will be the responsibility of such
participants.
Transfers between participants in DTC will be effected in the ordinary way
in accordance with DTC rules and will be settled in clearinghouse funds. If a
holder requires physical delivery of a Certificated Note for any reason,
including to sell Notes to persons in states which require physical delivery
of such securities or to pledge such securities, such holder must transfer its
interest in the applicable Exchange Global Note in accordance with the normal
procedures of DTC and the procedures set forth in the Indenture.
DTC has advised the Company that DTC will take any action permitted to be
taken by a holder of Notes (including the presentation of Notes for exchange
as described below) only at the direction of one or more participants to whose
account the DTC interests in the applicable Exchange Global Note is credited
and only in respect of such portion of Notes, the aggregate principal amount
of Notes as to which such participant or participants has or have given such
direction. However, if there is an Event of Default under the Indenture, DTC
will exchange the applicable Exchange Global Note for Certificated Notes,
which it will distribute to its participants and which, if representing
interests in the applicable Exchange Global Note, will be legended as set
forth in the Indenture.
DTC has advised the Company as follows: DTC is a limited purpose trust
company organized under the laws of the State of New York, a member of the
Federal Reserve System, a "clearing corporation" within the
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meaning of the Uniform Commercial Code and a "Clearing Agency" registered
pursuant to the provisions of Section 17A of the Exchange Act. DTC was created
to hold securities for its participants and facilitate the clearance and
settlement of securities transactions between participants through electronic
book-entry changes in accounts of its participants, thereby eliminating the
need for physical movement of certificates. Participants include securities
brokers and dealers, banks, trust companies and clearing corporations and
certain other organizations. Indirect access to the DTC system is 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 ("indirect participants").
Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of interests in the Exchange Global Note among participants of DTC,
it is under no obligation to perform such procedures, and such procedures may
be discontinued at any time. Neither the Company nor the Trustee will have any
responsibility for the performance by DTC or its participants or indirect
participants of their respective obligations under the rules and procedures
governing their operations.
Certificated Exchange Notes. If (i) the Company notifies the Trustee in
writing that the DTC is no longer willing or able to act as a depository and
the Company does not appoint a qualified successor within 90 days or (ii) the
Company, at its option, notifies the Trustee in writing that it elects to
cause the issuance of Exchange Notes in definitive form under the Indenture,
then, upon surrender by the relevant registered owner of its Exchange Global
Note, Certificated Exchange Notes in such form will be issued to each person
that such registered owner and the DTC identify as the beneficial owner of the
related Notes. In addition, subject to certain conditions, any person having a
beneficial interest in the Exchange Global Note may, upon request to the
Trustee, exchange such beneficial interest for Exchange Notes in the form of
Certificated Exchange Notes. Upon any such issuance, the Trustee is required
to register such Certificated Exchange Notes in the name of, and cause the
same to be delivered to, such person or persons (or the nominee of any
thereof) in fully registered form.
Neither the Company nor Trustee shall be liable for any delay by the related
registered owner or the DTC in identifying the beneficial owners of the
related Exchange Notes and each such person may conclusively rely on, and
shall be protected in relying on, instructions from such registered owner or
of the DTC for all purposes (including with respect to the registration and
delivery, and the principal amount of the Exchange Notes to be issued).
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CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following discussion summarizes the principal U.S. federal income tax
consequences to beneficial owners arising from the exchange of Old Notes for
Exchange Notes. This summary is based on the Internal Revenue Code of 1986, as
amended (the "Code"), final, temporary, and proposed Treasury regulations
promulgated thereunder, administrative pronouncements and rulings, and
judicial decisions, changes to any of which subsequent to the date hereof may
affect the tax consequences described herein, possibly with retroactive
effect. In addition, the recently enacted Taxpayer Relief Act of 1997 could
affect an investment in Notes in that, among other things, it reduces the rate
of federal income tax imposed on capital gains of individual taxpayers for
capital assets held more than eighteen months (and reduces such rate even
further for capital assets acquired after the year 2000 and held more than
five years).
This summary discusses only Notes held as capital assets within the meaning
of Code section 1221. It does not discuss all of the tax consequences that may
be relevant to a Holder in light of the Holder's particular circumstances or
to Holders subject to special rules, such as certain financial institutions,
banks, insurance companies, tax-exempt organizations, U.S. Holders subject to
the alternative minimum tax, regulated investment companies, dealers in
securities or foreign currencies, persons holding Notes as part of a straddle
or hedging transaction, or U.S. Holders whose functional currency (as defined
in Code section 985) is not the U.S. dollar. Persons considering purchasing
Notes should consult their own tax advisors concerning the application of U.S.
federal tax laws to their particular situations as well as any tax
consequences arising under the laws of any state, local or foreign taxing
jurisdiction.
As used in this summary, the term "U.S. Holder" means the beneficial owner
of a Note that is, for U.S. federal income tax purposes, (i) a citizen or
resident of the U.S. (including certain former citizens and former long-term
residents); (ii) a corporation, partnership or other entity created or
organized in or under the laws of the U.S. or of any political subdivision
thereof; (iii) an estate the income of which is subject to U.S. federal income
taxation regardless of its source; or (iv) a trust with respect to the
administration of which a court within the U.S. is able to exercise primary
supervision and one or more U.S. persons have the authority to control all
substantial decisions of the trust. As used in this summary, the term "Non-
U.S. Holder" means a beneficial owner of a Note that is not a U.S. Holder.
EXCHANGE OF NOTES
The exchange of the Old Notes for the Exchange Notes pursuant to the
Exchange Offer will not constitute a material modification of the terms of the
Old Notes or the Exchange Notes and, thus, such exchange will not constitute
an exchange for U.S. federal income tax purposes. Accordingly, such exchange
will have no U.S. federal income tax consequences to the holders of the Old
Notes or the Exchange Notes, regardless of whether such holders participate in
the Exchange Offer. Consequently, each holder will continue to be required to
include interest on the Exchange Notes, or the Old Notes, if not exchanged, in
its gross income in accordance with its method of accounting for U.S. federal
income tax purposes and will have the same tax basis and holding period in the
Exchange Notes as in the Old Notes. The Company intends to treat the Exchange
Offer for U.S. federal income tax purposes in accordance with the position
described in this paragraph.
THE FEDERAL INCOME TAX SUMMARY SET FORTH ABOVE IS INCLUDED FOR GENERAL
INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING UPON A HOLDER'S
PARTICULAR SITUATION. PROSPECTIVE PURCHASERS OF THE NOTES ARE URGED TO CONSULT
THEIR OWN TAX ADVISORS AS TO THE PRECISE FEDERAL, STATE, LOCAL, FOREIGN AND
OTHER TAX CONSEQUENCES OF ACQUIRING, OWNING AND DISPOSING OF THE NOTES.
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PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Notes for its own account pursuant
to the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange Notes. This Prospectus, as it may
be amended or supplemented from time to time, may be used by a broker-dealer
in connection with resales of Exchange Notes received in exchange for Old
Notes, where such Old Notes were acquired as a result of market-making
activities or other trading activities. The Company has agreed that for a
period of 180 days after the Expiration Date, it will make this Prospectus, as
amended or supplemented, available to any broker-dealer for use in connection
with any such resale.
The Company will not receive any proceeds from any sale of Old Notes by
broker-dealers. Exchange Notes received by broker-dealers for their own
account pursuant to the Exchange Offer may be sold from time to time in one or
more transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the Exchange Notes, or a combination of such
methods of resale, at market prices prevailing at the time of resale, at
prices related to such prevailing market prices or negotiated prices. Any such
resale may be made directly to purchasers or to or through brokers or dealers
who may receive compensation in the form of commission or concessions from any
such broker-dealer and/or the purchasers of any such Exchange Notes. Any
broker-dealer that resells Exchange Notes that were received by it for its own
account pursuant to the Exchange Offer and any broker or dealer that
participates in a distribution of such Exchange Notes may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit on any
such resale of Exchange Notes and any commissions or concessions received by
any such person may be deemed to be underwriting compensations under the
Securities Act. The Letter of Transmittal states that by acknowledging that it
will deliver and by delivering a prospectus, a broker-dealer will not be
deemed to admit that it is an "underwriter" within the meaning of the
Securities Act.
For a period of 180 days after the Expiration Date the Company will promptly
send additional copies of this Prospectus and any amendment or supplement to
this Prospectus to any broker-dealer that requests such documents in the
Letter of Transmittal. The Company has agreed to pay all expenses incident to
the Exchange Offer other than commissions or concessions of any brokers or
dealers and will indemnify the holders of the Old Notes (including any broker-
dealers) against certain liabilities, including liabilities under the
Securities Act.
LEGAL MATTERS
The validity of the Exchange Notes offered hereby will be passed upon for
the Company by Swidler & Berlin, Chartered, Washington, D.C.
EXPERTS
The consolidated financial statements of FaciliCom International, Inc. as of
September 30, 1997 and 1996 and for the years ended September 30, 1997 and
1996, and for the period from May 5, 1995 (date of incorporation) to September
30, 1995, included in this Prospectus, have been audited by Deloitte & Touche
llp, independent auditors, as stated in their report appearing herein and have
been so included in reliance upon the report of such firm given upon their
authority as experts in accounting and auditing.
The financial statements of Tele8, for the period January 1, 1995 to June
30, 1995, included in this Prospectus have been audited by Deloitte & Touche,
independent chartered accountants, as stated in their report appearing herein
and have been so included in reliance upon the report of such firm given upon
their authority as experts in accounting and auditing.
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FACILICOM INTERNATIONAL, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
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Independent Auditors' Reports...................................... F-2 to F-3
Consolidated Balance Sheets as of December 31, 1997 (Unaudited),
September 30, 1997 and 1996....................................... F-4
Consolidated Statements of Operations for the three months ended
December 31, 1997 (Unaudited) and 1996 (Unaudited), the years
ended September 30, 1997 and 1996, the period from May 5, 1995
(inception) to September 30, 1995 and the period from January 1,
1995 to June 30, 1995 (Predecessor)............................... F-5
Consolidated Statements of Capital Accounts for the three months
ended December 31, 1997 (Unaudited), the years ended September 30,
1997 and 1996, the period from May 5, 1995 (inception) to
September 30, 1995 and the period from January 1, 1995 to June 30,
1995 (Predecessor)................................................ F-6
Consolidated Statements of Cash Flows for the three months ended
December 31, 1997 (Unaudited) and 1996 (Unaudited), the years
ended September 30, 1997 and 1996, the period from May 5, 1995
(inception) to September 30, 1995 and the period from January 1,
1995 to June 30, 1995 (Predecessor)............................... F-7
Notes to Consolidated Financial Statements......................... F-8 to F-20
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
FaciliCom International, Inc.:
We have audited the accompanying consolidated balance sheets of FaciliCom
International, Inc. and subsidiaries (formerly FaciliCom International, LLC)
(the "Company") for the years ended September 30, 1997 and 1996, and the
related consolidated statements of operations, capital accounts, and cash
flows for the years ended September 30, 1997 and 1996 and for the period from
May 5, 1995 (date of incorporation) to September 30, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of FaciliCom International, Inc.
and subsidiaries as of September 30, 1997 and 1996, and the results of their
operations and their cash flows for the years ended September 30, 1997 and
1996 and for the period from May 5, 1995 (date of incorporation) to September
30, 1995 in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Pittsburgh, Pennsylvania
March 19, 1998 (April 27, 1998 as to Note 13)
F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of Nordiska Tele8 AB:
We have audited the accompanying statements of operations, capital accounts
and cash flows of Nordiska Tele8 AB for the period from January 1, 1995 to
June 30, 1995, all expressed in United States Dollars. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statement based on
our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the results of operations and cash flows of Nordiska Tele8 AB for
the period from January 1, 1995 to June 30, 1995 in conformity with accounting
principles generally accepted in the United States.
DELOITTE & TOUCHE
Malmo, Sweden
March 19, 1998
F-3
<PAGE>
FACILICOM INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SEPTEMBER 30,
DECEMBER 31, ----------------
1997 1997 1996
------------ ------- -------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash........................................... $ 7,353 $ 1,016 $ 2,198
Accounts receivable--net of allowance for
doubtful accounts of $429 at December 31, 1997
(Unaudited) and $161 at September 30, 1997,
respectively.................................. 25,460 19,485 5,225
Prepaid expenses and other current assets...... 2,438 1,737 927
------- ------- -------
Total current assets.......................... 35,251 22,238 8,350
------- ------- -------
PROPERTY AND EQUIPMENT:
Transmission and communications equipment...... 21,441 16,593 9,030
Transmission and communications equipment--
leased........................................ 8,221 5,419 248
Construction in process........................ -- -- 1,046
Furniture, fixtures and other.................. 1,670 1,266 943
------- ------- -------
31,332 23,278 11,267
Less accumulated depreciation and amortiza-
tion.......................................... (3,778) (3,034) (1,123)
------- ------- -------
Net property and equipment.................... 27,554 20,244 10,144
INTANGIBLE ASSETS............................... 2,127 1,535 2,015
ADVANCE TO AFFILIATE............................ 1,068 -- 499
------- ------- -------
TOTAL ASSETS.................................... $66,000 $44,017 $21,008
======= ======= =======
LIABILITIES AND CAPITAL ACCOUNTS
CURRENT LIABILITIES:
Accounts payable............................... $28,458 $24,205 8,212
Accounts payable-related party................. 784 389 --
Other current obligations...................... 9,732 6,255 4,716
Capital lease obligations due within one year.. 787 573 40
Long-term debt due within one year............. 1,613 1,043 561
------- ------- -------
Total current liabilities..................... 41,374 32,465 13,529
------- ------- -------
CAPITAL LEASE OBLIGATIONS....................... 2,028 1,723 120
LONG-TERM DEBT.................................. 16,751 13,000 7,045
LOANS FROM OWNERS............................... -- 6,250 2,029
DEFERRED TAX LIABILITY.......................... 393 -- --
COMMITMENTS AND CONTINGENCIES................... -- -- --
CAPITAL ACCOUNTS:
Common stock, $0.01 par value--300,000 shares
authorized; 225,741 issued and outstanding at
December 31, 1997 (Unaudited)................. 2 -- --
Additional paid-in capital..................... 36,534 -- --
Class A initial capital........................ -- 180 180
Class B initial capital........................ -- 60 60
Excess capital contributions--Class A.......... -- 16,296 10,176
Accumulated deficit............................ (31,990) (26,641) (11,886)
Foreign currency translation adjustments....... 908 684 (245)
------- ------- -------
Total capital accounts........................ 5,454 (9,421) (1,715)
------- ------- -------
TOTAL LIABILITIES AND CAPITAL ACCOUNTS.......... $66,000 $44,017 $21,008
======= ======= =======
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
FACILICOM INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS PERIOD
ENDED FROM MAY 5, PERIOD FROM
DECEMBER 31, YEAR ENDED SEPTEMBER 30, 1995 TO JANUARY 1, 1995 TO
------------------ -------------------------- SEPTEMBER 30, JUNE 30, 1995
1997 1996 1997 1996 1995 (PREDECESSOR)
-------- -------- ------------ ------------ ------------- ------------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
REVENUES................ $ 35,808 $ 11,254 $ 70,187 $ 11,891 $ 547 $ 367
COST OF REVENUES........ (32,809) (10,524) (65,718) (12,742) (1,022) (938)
-------- -------- ------------ ------------ ------- -------
GROSS MARGIN (DEFICIT).. 2,999 730 4,469 (851) (475) (571)
SELLING, GENERAL AND
ADMINISTRATIVE......... (5,747) (2,922) (13,072) (7,575) (943) (537)
RELATED PARTY EXPENSES.. (215) (91) (439) (7) -- --
DEPRECIATION AND
AMORTIZATION........... (1,001) (515) (2,318) (1,143) (142) (197)
-------- -------- ------------ ------------ ------- -------
OPERATING LOSS.......... (3,964) (2,798) (11,360) (9,576) (1,560) (1,305)
INTEREST EXPENSE-RELATED
PARTY.................. (180) (43) (462) (26) (17) (11)
INTEREST EXPENSE........ (355) (132) (874) (286) (63) (33)
EXCHANGE (LOSS) GAIN.... (457) (413) (1,335) 226 (85) 8
-------- -------- ------------ ------------ ------- -------
LOSS BEFORE INCOME
TAXES.................. (4,956) (3,386) (14,031) (9,662) (1,725) (1,341)
INCOME TAXES............ (393) -- -- -- -- --
-------- -------- ------------ ------------ ------- -------
NET LOSS................ $ (5,349) $ (3,386) $ (14,031) $ (9,662) $(1,725) $(1,341)
======== ======== ============ ============ ======= =======
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
FACILICOM INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CAPITAL ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK
-------------
EXCESS FOREIGN
ADDITIONAL CLASS A CLASS B CAPITAL CURRENCY TOTAL
PAID-IN INITIAL INITIAL CONTRIBUTIONS-- TRANSLATION ACCUMULATED CAPITAL
SHARES AMOUNT CAPITAL CAPITAL CAPITAL CLASS A ADJUSTMENTS DEFICIT ACCOUNTS
------ ------ ---------- ------- ------- --------------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1995
(Predecessor) ......... 10 $123 $ 285 $ -- $ -- $ -- $(114) $ (288) $ 6
Converted loans from
owners................ -- -- -- -- -- 1,497 -- -- 1,497
Net loss............... -- -- -- -- -- -- -- (1,341) (1,341)
--- ---- ------- ----- ---- -------- ----- -------- --------
BALANCE, JUNE 30, 1995
(Predecessor).......... 10 $123 $ 285 $ -- $ -- $ 1,497 $(114) $ (1,629) $ 162
=== ==== ======= ===== ==== ======== ===== ======== ========
BALANCE, MAY 5, 1995
(Date of Incorporation)
....................... -- $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ --
Net loss............... -- -- -- -- -- -- -- (1,725) (1,725)
Contributions.......... -- -- -- 180 60 2,594 -- -- 2,834
--- ---- ------- ----- ---- -------- ----- -------- --------
BALANCE, SEPTEMBER 30,
1995................... -- -- -- 180 60 2,594 -- (1,725) 1,109
Net loss............... -- -- -- -- -- -- -- (9,662) (9,662)
Contributions.......... -- -- -- -- -- 7,083 -- -- 7,083
Guaranteed return...... -- -- -- -- -- -- -- (499) (499)
Contribution to excess
capital--
guaranteed return..... -- -- -- -- -- 499 -- -- 499
Foreign currency
translation
adjustments .......... -- -- -- -- -- -- (245) -- (245)
--- ---- ------- ----- ---- -------- ----- -------- --------
BALANCE, SEPTEMBER 30,
1996................... -- -- -- 180 60 10,176 (245) (11,886) (1,715)
Net loss............... -- -- -- -- -- -- -- (14,031) (14,031)
Converted loans from
owners................ -- -- -- -- -- 5,396 -- -- 5,396
Guaranteed return...... -- -- -- -- -- -- -- (724) (724)
Contribution to excess
capital--
guaranteed return..... -- -- -- -- -- 724 -- -- 724
Foreign currency
translation
adjustments........... -- -- -- -- -- -- 929 -- 929
--- ---- ------- ----- ---- -------- ----- -------- --------
BALANCE, SEPTEMBER 30,
1997................... -- -- -- 180 60 16,296 684 (26,641) (9,421)
Net loss (Unaudited)... -- -- -- -- -- -- -- (5,349) (5,349)
Contributions
(Unaudited)........... -- -- -- -- -- 13,750 -- -- 13,750
Converted loans from
owners (Unaudited).... -- -- -- -- -- 6,250 -- -- 6,250
Reorganization
(Unaudited) .......... 226 2 36,534 (180) (60) (36,296) -- -- --
Foreign currency
translation
adjustments
(Unaudited)........... -- -- -- -- -- -- 224 -- 224
--- ---- ------- ----- ---- -------- ----- -------- --------
BALANCE, DECEMBER 31,
1997 (Unaudited)....... 226 $ 2 $36,534 $ -- $ -- $ -- $ 908 $(31,990) $ 5,454
=== ==== ======= ===== ==== ======== ===== ======== ========
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
FACILICOM INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED YEAR ENDED PERIOD FROM
DECEMBER 31, SEPTEMBER 30, PERIOD FROM JANUARY 1, 1995 TO
---------------- ----------------- MAY 5, 1995 TO JUNE 30, 1995
1997 1996 1997 1996 SEPTEMBER 30, 1995 (PREDECESSOR)
------- ------- -------- ------- ------------------ ------------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net loss............... $(5,349) $(3,386) $(14,031) $(9,662) $(1,725) $(1,341)
Adjustments to
reconcile net loss to
net cash (used in)
provided by operating
activities:
Depreciation and amor-
tization............. 1,001 515 2,318 1,143 142 197
Deferred income tax... 393 -- -- -- -- --
Loss on disposal of
property and
equipment............ -- -- 130 -- -- --
Changes in operating
assets and liabili-
ties:
Accounts receivable.. (5,975) (2,872) (14,260) (4,356) (525) (388)
Prepaid expenses and
other current
assets.............. (963) 305 (810) (770) (157) (52)
Accounts payable and
other current
liabilities......... 7,730 5,370 17,903 8,731 641 1,896
Accounts payable--re-
lated party......... 395 -- 389 -- -- 251
Advance to affili-
ate................. (1,068) -- -- (499) -- --
------- ------- -------- ------- -------- -------
Net cash (used in)
provided by operating
activities............ (3,836) (68) (8,361) (5,413) (1,624) 563
------- ------- -------- ------- -------- -------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Purchase of investments
in subsidiaries....... (588) -- -- -- (840) --
Purchases of property
and equipment......... (2,987) (752) (1,897) (2,004) (156) (512)
Intangible assets.... -- 193 233 930 (59) (33)
------- ------- -------- ------- -------- -------
Net cash used in in-
vesting activities.... (3,575) (559) (1,664) (1,074) (1,055) (545)
------- ------- -------- ------- -------- -------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Advances from owners... -- 600 9,726 2,029 -- --
Initial capital contri-
butions............... -- -- -- -- 240 --
Excess capital contri-
butions............... 13,750 -- -- 7,083 2,594 --
Payments of long-term
and capital leases.... (226) (191) (1,812) (540) (46) --
------- ------- -------- ------- -------- -------
Net cash provided by
financing activities.. 13,524 409 7,914 8,572 2,788 --
------- ------- -------- ------- -------- -------
EFFECT OF EXCHANGE RATE
CHANGES ON CASH........ 224 376 929 4 -- --
------- ------- -------- ------- -------- -------
INCREASE (DECREASE) IN
CASH................... 6,337 158 (1,182) 2,089 109 18
CASH, BEGINNING OF PERI-
OD..................... 1,016 2,198 2,198 109 -- 9
------- ------- -------- ------- -------- -------
CASH, END OF PERIOD..... $ 7,353 $ 2,356 $ 1,016 $ 2,198 $ 109 $ 27
======= ======= ======== ======= ======== =======
SUPPLEMENTAL CASH FLOW
INFORMATION:
Interest paid.......... $ 279 $ 130 $ 747 $ 201 $ 36 $ 44
======= ======= ======== ======= ======== =======
</TABLE>
- --------
NONCASH TRANSACTIONS:
(a) For the three months ended December 31, 1997, the majority owner converted
$6,250 of loans into capital and a $162 receivable was forgiven as part of
the purchase of minority interest which reduced prepaid expenses and other
current assets and increased goodwill.
(b) FCI received $480 in Tele8 convertible debentures during the year ended
September 30, 1997 to satisfy an advance to affiliate, which reduced
advance to affiliate and advances from owners.
(c) During the year ended September 30, 1997, the majority owner converted
$5,396 of loans and accrued interest into capital.
(d) FCI received property and equipment under capital leases and financing
agreements, which increased property and equipment and long-term
obligations $5,066 and $2,790 in the three months ended December 31, 1997
and 1996, respectively, and $10,385, $6,400 and $949 in the periods ended
September 30, 1997, 1996 and 1995, respectively. Also, the Predecessor
had increases in property and equipment and long-term obligations of
$701.
See notes to consolidated financial statements.
F-7
<PAGE>
FACILICOM INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1.GENERAL
Organization--FaciliCom International, LLC ("FCI, LLC") is a Delaware
limited liability company that was formed on May 5, 1995 to engage in
various international telecommunications businesses. On December 22, 1997,
the owners of FCI, LLC entered into an Investment and Shareholders
Agreement ("Agreement"). Under the Agreement, the owners of FCI, LLC
transferred all of their respective units in FCI, LLC and FCI (GP), LLC, a
Delaware limited liability company, to FaciliCom International, Inc.
("FCI"), a Delaware corporation, and additionally Armstrong (as defined)
contributed $20,000,000 (in cash and assignment of indebtedness) to FCI,
all in exchange for 225,741 shares of FCI's common stock. FCI was
incorporated on November 20, 1997, and has 300,000 authorized shares of
common stock. Since the reorganization was a combination of entities under
common control, it was accounted for by combining the historical accounts
of FCI, LLC, FCI (GP), LLC and FCI in a manner similar to a pooling of
interests. FCI is authorized by the Federal Communications Commission (the
"FCC") to provide global facilities-based services as well as switched
international services through resale of the services and facilities of
other international carriers. In addition, FCI has world-wide authorization
for private line resale of noninterconnected private line services and
authorization to resell interconnected private lines for switched services
to Canada, the United Kingdom, Sweden, and New Zealand. FCI, LLC was and
FCI is a majority-owned subsidiary of Armstrong International
Telecommunications, Inc. ("Armstrong"), which is a wholly owned subsidiary
of Armstrong Holdings Inc. ("AHI").
On July 21, 1995, FCI acquired 66.5% of the outstanding capital stock of
both Nordiska Tele8 AB ("Tele8") and FGC, Inc. ("FGC"), entities related
through common ownership. Subsequently, FCI acquired up to 99% of Tele8 and
sold all of its interest in FGC. The additional interest in Tele8 was the
result of three separate transations (see Notes 8 and 13). On March 14,
1997, $1,600,000 of Tele8 convertible debentures were converted into 7,400
shares of Tele8 common stock, on May 15, 1997, FCI paid $3,600,000 for
14,400 shares of Tele8 common stock and on October 23, 1997, FCI paid
$750,000 for substantially all of the minority interest outstanding and
recorded $750,000 of goodwill. Also, on October 23, 1997, FCI sold all of
its interest in FGC for $100 and recorded a loss of approximately $79,000
on the transaction. Tele8 is a corporation organized under the laws of
Sweden to provide national and international telecommunications services.
FGC, a Delaware corporation, provides certain marketing services for Tele8
in the United States. These acquisitions were accounted for as purchase
transactions with the purchase price being allocated to the assets and
liabilities acquired based on their fair values as of the date of
acquisition. The excess of the purchase price over the fair value of assets
acquired was recorded as goodwill and is being amortized over five years.
The operations of Tele8 are included in FCI's statement of operations
beginning July 1, 1995.
The following summarizes the allocation of the purchase price to the major
categories of assets acquired and liabilities assumed (in thousands):
<TABLE>
<S> <C>
Current assets..................................................... $ 343
Property and equipment............................................. 1,760
Excess of cost over net assets of businesses acquired.............. 1,715
Other intangibles.................................................. 32
------
3,850
Less liabilities assumed........................................... 3,010
------
Cash paid.......................................................... $ 840
======
</TABLE>
2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Basis of Presentation--The accompanying consolidated financial
statements include the accounts of FCI and its majority owned and wholly
owned subsidiaries (together, the "Company"). All intercompany
transactions and balances have been eliminated in consolidation. Because
losses applicable to the minority interest exceed the minority interest
in the equity capital and the minority stockholder is not obligated to
provide additional funding with respect to the losses incurred, such
losses are recorded by the Company.
F-8
<PAGE>
FACILICOM INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Predecessor financial statements include the accounts for Tele8
prior to its acquisition by FCI, from the period January 1, 1995
(beginning of its fiscal year) to June 30, 1995. FGC operations were
insignificant and are not included therein.
b. Property and Equipment--Property and equipment is stated at cost.
Depreciation is provided for financial reporting purposes using the
straight-line method. Depreciation expense includes the amortization of
capital leases. The estimated useful lives of property and equipment are
as follows:
<TABLE>
<S> <C>
Transmission and communications equipment.................... 5 to 25 years
Transmission and communications equipment--leased............ 5 to 25 years
Furniture, fixtures and other................................ 5 to 7 years
</TABLE>
The Company capitalizes the costs of software and software upgrades
purchased for use in its transmission and communications equipment. The
Company expenses the costs of software purchased for internal use.
Maintenance and repairs are expensed as incurred. Replacements and
betterments are capitalized.
Depreciation expense for the periods ended September 30, 1997, 1996 and
1995 was $2,052,532, $863,078 and $92,251, respectively.
The Company periodically evaluates its long-lived assets to confirm
that the carrying values have not been impaired using the provisions of
Statement of Financial Accounting Standards ("SFAS") No. 121.
c. Intangible Assets--Intangible assets, consisting primarily of goodwill,
are amortized using the straight-line method over the following useful
lives:
<TABLE>
<S> <C>
Organization costs................................................. 5 years
Licenses........................................................... 5 years
Goodwill........................................................... 5 years
</TABLE>
Accumulated amortization for intangible assets was $601,356
(Unaudited), $583,158 and $317,690 at December 31, 1997, September 30,
1997 and 1996, respectively.
The Company periodically evaluates its intangible assets to confirm
that the carrying values have not been impaired using the provisions of
SFAS No. 121.
d. Income Taxes--FCI, LLC is a limited liability company and is not subject
to income tax, while Facilicom International, Inc., incorporated on
November 20, 1997 as a Delaware corporation is subject to income taxes
(see Notes 1 and 13).
Tele8 and FGC are corporations and FCI's wholly owned United Kingdom
("FCI-UK") subsidiary is a private limited company, and, as such, are
subject to income taxes in the countries in which they operate. The
Company accounts for income taxes under the liability method in
accordance with the provisions set forth in Statement of Financial
Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes,"
whereby deferred income taxes reflect the net tax effect of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax
purposes. In assessing realization of deferred tax assets, the Company
uses judgment in considering the relative impact of negative and
positive evidence. The weight given to the potential effect of negative
and positive evidence is commensurate with the extent to which it can
be objectively verified. Based on the weight of evidence, both negative
and positive, including the lack of historical earnings, if it is more
likely than not that some portion or all of a deferred tax asset will
not be realized, a valuation allowance is established.
e. Initial and Excess Capital Contributions--Excess capital contributions
are the amounts of capital an owner has contributed in excess of the
owner's initial capital commitment. The owners are credited with a
guaranteed return through September 30, 1997 for the use of their
capital, and profits and losses are allocated, in accordance with the
provisions in the FCI LLC Limited Liability Company Agreement ("LLC
Agreement").
F-9
<PAGE>
FACILICOM INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The guaranteed return is calculated as simple interest at a rate per
annum equal to the lowest rate of interest available to Armstrong or any
of its affiliates from time-to-time under any of their respective
existing credit facilities. Upon liquidation of FCI LLC, allocations of
annual net profits are allocated first to the Class A and Class B owners
to the extent required to adjust capital accounts, then to the extent of
cumulative net losses previously allocated in accordance with certain
capital contribution priorities set forth in the LLC Agreement and
thereafter 75% to Class A and 25% to Class B owners. Allocations of
annual net losses are allocated to the extent of cumulative net profits
previously allocated and then to the extent of owner's capital
contributions and thereafter to the Class A owner. Net losses allocated
to the Class B owner may not cause such owner's account to result in a
deficit. The Company may make distributions after first paying any
unpaid guaranteed return and then in accordance with the owner's
respective capital contributions and thereafter 75% to the Class A owner
and 25% to the Class B owner. Upon dissolution, the LLC Agreement
provides for liquidation of FCI LLC's assets and any distribution to
owners will be in accordance with the balance of their respective
capital accounts. Following distribution of assets, owners having a
capital account with a deficit balance shall be required to restore the
account. The LLC Agreement provides that FCI LLC shall terminate on
December 31, 2025. In consideration of all capital contributions made
through September 30, 1997, the Class A and Class B owners owned
15,390,000 and 3,610,000 membership interests in FCI LLC, respectively,
representing 81% and 19%, respectively, of such interests.
f. Foreign Currency Translation--For non-U.S. subsidiaries, the functional
currency is the local currency. Assets and liabilities of those
operations are translated into U.S. dollars using year-end exchange
rates; income and expenses are translated using the average exchange
rates for the reporting period. Translation adjustments are reported as
a separate component of capital accounts. Exchange losses and gains
resulting from foreign currency transactions are included in the results
of operations based upon the provisions of SFAS No. 52, "Foreign
Currency Translation."
g. Use of Estimates--The preparation of financial statements in conformity
with generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported in the
financial statements and accompanying notes. Actual results could differ
from those estimates.
h. Revenue Recognition--The Company records revenues from the sale of
telecommunications services at the time of customer usage based upon
minutes of traffic processed at contractual fees. The Company has
entered into, and continues to enter into, operating agreements with
telecommunications carriers in several foreign countries under which
international long distance traffic is both delivered and received.
Under these agreements, the foreign carriers are contractually obligated
to adhere to the policy of the FCC, whereby traffic from the foreign
country is routed to U.S. based international carriers, such as the
Company, in the same proportion as traffic carried into the country.
Mutually exchanged traffic between the Company and foreign carriers is
settled through a formal settlement policy at an agreed upon rate which
allows for the offsetting of receivables and payables with the same
carrier (settlement on a net basis). Although the Company can reasonably
estimate the revenue it will receive under the FCC's proportional share
policy, there is no guarantee that the Company will receive return
traffic and the Company is unable to determine what impact changes in
future settlement rates will have on net payments made and revenue
received. Accordingly, the Company does not record this revenue until
the service is provided and the minutes of traffic are processed. The
Company recognizes revenues from prepaid calling cards when earned.
i. Cost of Revenue--Cost of revenue includes network costs which consist of
access, transport and termination costs. Such costs are recognized when
incurred in connection with the provision of telecommunication services,
including costs incurred under operating agreements.
F-10
<PAGE>
FACILICOM INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
j. Interim Financial Information--The interim financial data as of December
31, 1997 and for the three-month periods ended December 31, 1997 and
1996, is unaudited. The information reflects all adjustments, consisting
only of normal recurring adjustments that, in the opinion of management,
are necessary to present fairly the financial position and results of
operations of the Company for the periods indicated. Results of
operations for the interim periods are not necessarily indicative of the
results of operations for the full year.
k. Stock Based Compensation--SFAS No. 123, "Accounting for Stock-Based
Compensation," defines a fair value method of accounting for stock
options and similar equity instruments. Pursuant to the standard,
companies are encouraged, but not required, to adopt the fair value
method of accounting for employee stock-based transactions. Companies
are also permitted to continue to account for such transactions under
Accounting Principles Board Opinion ("APBO") No. 25, "Accounting for
Stock Issued to Employees," but would be required to disclose in a note
to the financial statements pro forma income and earnings per share as
if the Company had applied the fair value method of accounting. The
Company has elected not to adopt the fair value method of accounting for
employee stock-based transactions and will continue to account for such
transactions under the provisions of of APBONo. 25.
l. Financial Instruments--The Company has financial instruments which
include cash, long-term debt obligations and loans from owners. The
carrying values of these instruments in the balance sheets approximated
their fair market value.
The fair values of the instruments were based upon quoted market prices
of the same or similar instruments or on the rate available to the
Company for instruments of similar maturities.
m. Undersea Fiber Optic Cable Arrangements--The Company obtains capacity on
certain undersea fiber optic cables under three types of arrangements.
The Indefeasible Right of Use ("IRU") basis provides the Company the
right to use an undersea fiber optic cable, with most of the rights and
duties of ownership, but without the right to control or manage the
facility and without any right to salvage or duty to dispose of the
cable at the end of its useful life. Because of this lack of control the
Company accounts for such leases as leased transmission and
communications equipment and as capital leases. The Minimum Assignable
Ownership Units ("MAOU") basis provides the Company an ownership
interest in the undersea fiber optic cable with the right to control and
manage the facility. Because of this ownership feature, the Company
records these undersea fiber optic cables as owned transmission and
communications equipment and as long-term debt. The Carrier Lease
Agreement basis involves a shorter term agreement which provides the
Company the right to use capacity on a cable but without any rights and
duties of ownership. The Company accounts for such leases as operating
leases.
n. Reclassifications--Certain amounts in the September 30, 1997 and 1996
consolidated financial statements have been reclassified to conform with
the presentation of the December 31, 1997 (Unaudited) consolidated
financial statements.
3.OPERATING DEFICIT AND MANAGEMENT'S PLANS
The Company had a net loss of approximately $14 million for the year ended
September 30, 1997 and approximately $5 million (unaudited) for the three
months ended December 31, 1997. The owners of the Company committed to
provide, make available, or ensure the availability of the necessary cash
or working capital sufficient to sustain the operations of the Company
through September 30, 1998. Management's plans include continued growth in
new markets and existing markets and to improve sales volume. On January
28, 1998, the Company issued $300 million aggregate principal amount of 10
1/2% Senior Notes due 2008 (the "Notes") (see Note 13). Accordingly, the
Company does not expect that it will require any additional working capital
advances from its owners.
F-11
<PAGE>
FACILICOM INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
4.LONG-TERM DEBT OBLIGATIONS
Long-Term Debt
On March 27, 1997, FCI entered into an Equipment Loan and Security
Agreement with NTFC Capital Corporation ("NTFC") to finance up to
$5,000,000 for the purchase of transmissions and communications equipment.
NTFC has advanced amounts exceeding $5,000,000 although the original
agreement has not been revised. Interest is payable quarterly and is
calculated based upon the London Interbank Offering Rate ("LIBOR") plus 4%.
Quarterly principal payments commence on June 30, 1999. The loan is
collateralized by the related equipment purchased under such agreement. The
loan requires maintenance of certain financial and nonfinancial covenants.
FCI received a waiver of certain covenant violations for the year ended
September 30, 1997 and maintenance of those covenants was also waived
through and including the year ended September 30, 1998. The covenants
violated were related to the delinquent payment of current liabilities, the
debt service coverage ratio, the debt to net worth ratio, the prohibition
of business changes, the limitation of investments and the limitation on
transactions with affiliates. The Company was not in compliance with
certain covenants at December 31, 1997. The violations were waived as
discussed above. Also, the Company used a portion of the proceeds from the
offering of Notes to pay off the indebtedness under the Equipment Loan and
Security Agreement (see Note 13). The outstanding balance at December 31,
1997 and September 30, 1997 was $10,264,430 (Unaudited) and $7,116,482,
respectively.
During 1995, FCI entered into an equipment financing agreement with
Ericsson I.F.S. to purchase certain equipment. The original agreement was
amended and restated on December 30, 1996, to increase the borrowing limit
to $7,000,000 and certain terms were further revised on June 12, 1997 and
November 21, 1997. Interest is calculated based upon LIBOR plus 4% and is
payable quarterly beginning April 1, 1997. The LIBOR rate at September 30,
1997 and 1996, respectively, was 5.8% and 5.4%. Quarterly principal
payments commence on June 30, 1998. The loan is collateralized by the
related equipment purchased under the financing agreement. The loan
requires maintenance of certain financial and nonfinancial covenants. FCI
received a waiver of certain covenant violations of the original and
amended and restated loan agreements. The covenants were then modified. The
covenants violated were related to the requirement of mandatory prepayments
of the loan, revisions to the Limited Liability Company Agreement,
limitations on distribution to owners and patents, licenses and franchises,
earnings before interest, taxes, depreciation and amortization ("EBITDA")
coverage ratio, minimum tangible net worth, current ratio, debt to
annualized EBITDA ratio, and limitation on capital expenditures. The
Company was in compliance with all modified covenants at December 31, 1997.
Also, the Company used a portion of the proceeds from the offering of Notes
to pay off the indebtedness under the equipment financing agreement. The
outstanding balance at December 31, 1997, September 30, 1997 and 1996 was
$6,599,367 (Unaudited), $5,093,782 and $4,327,188, respectively.
The total amounts of Property and Equipment collateralized at December 31,
1997, September 30, 1997 and 1996 approximate the outstanding loan
balances. As part of the debt financing through an offering of debentures
consummated on January 28, 1998, the NTFC and Ericsson I.F.S. loans were
paid off (see Note 13).
On November 30, 1995, Tele8 entered into a five year financing agreement to
purchase, on an MAOU basis, undersea fiber optic cable capacity from
Teleglobe Cantat-3 Inc. and Telecom A/S. Interest is calculated based upon
LIBOR plus 4.5%. Quarterly interest and principal payments began December
31, 1995. The loan is collateralized by all rights, titles and interests in
the undersea fiber optic cable capacity. The outstanding balance at
December 31, 1997, September 30, 1997 and 1996 was $472,285 (Unaudited),
$520,135 and $709,275, respectively.
On March 15, 1996, Tele8 entered into another five year financing agreement
to purchase, on an MAOU basis, undersea fiber optic cable capacity from
Teleglobe Cantat-3 Inc. and Telecom A/S. Interest is
F-12
<PAGE>
FACILICOM INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
calculated based upon LIBOR plus 4.5%. Quarterly interest and principal
payments began March 31, 1996. The loan is secured by all rights, titles
and interests in the undersea fiber optic cable capacity. The outstanding
balance at December 31, 1997, September 30, 1997 and 1996 was $562,800
(Unaudited), $613,965 and $818,625, respectively.
Tele8 has other debt instruments that bear interest at various rates. At
December 31, 1997, September 30, 1997 and 1996 $545,000 (Unaudited),
$545,000 and $1,185,000, respectively, was payable to Ericsson I.F.S. for
financed equipment and is due in annual installments through 2002. In
addition to the amounts payable to Ericsson I.F.S., $149,000 (Unaudited),
$154,000 and $566,550 was payable to other creditors at December 31, 1997,
September 30, 1997 and 1996, respectively.
Capital Leases
The Company leases certain undersea fiber optic cables under agreements
permitting the use of the cables over periods up to 25 years with payment
requirements over periods not exceeding five years. Payments are made
quarterly and interest is calculated at LIBOR plus 4% to 4.5%. Payments
specified in the leases are principal only, with variable interest
calculated separately. Due to the nature of these terms, the variable
interest amounts are not included in the future minimum payments below.
Future minimum payments on long-term debt and capital lease obligations at
September 30, 1997 are as follows (in thousands):
<TABLE>
<CAPTION>
LONG-TERM CAPITAL
DEBT LEASES
--------- -------
<S> <C> <C>
1998....................................................... $ 1,043 $ 573
1999....................................................... 2,442 573
2000....................................................... 3,284 568
2001....................................................... 2,938 486
2002....................................................... 2,938 96
Thereafter................................................. 1,398 --
------- ------
$14,043 $2,296
======= ======
</TABLE>
Predecessor
Tele8 leases property and equipment under capital leases. Interest on the
capital leases is paid quarterly at the rate of LIBOR plus 3.5% to 6%.
Tele8 had outstanding interest-bearing working capital advances from
Armstrong and its owners that accrues interest with rates ranging from 0%
to 11%.
5.INCOME TAXES
Deferred tax assets of approximately $2,830,000 and $300,000 at September
30, 1997, respectively, are principally related to the cumulative net
operating loss ("NOL") carryforwards of Tele8 and FCI-UK totaling
approximately $10,100,000 and $1,000,000, respectively. At September 30,
1996, a deferred tax asset of approximately $1,120,000 is principally
related to cumulative net operating loss carryforwards of Tele8 totaling
approximately $4,000,000. The NOLs do not expire under Swedish and United
Kingdom tax laws. A valuation allowance has been established for the amount
of deferred tax assets at both September 30, 1997 and 1996.
Also, on December 22, 1997, the Company adopted a tax sharing agreement
with AHI, whereby the Company is obligated to file a consolidated federal
income tax return with AHI and subsidiaries. Under the Agreement, FCI is
obligated to pay, with certain exceptions, its share of the consolidated
tax liability to AHI and FCI will not be paid by AHI for tax benefits
realized in the consolidated tax return. At December 31, 1997, FCI had
approximately $1,018,000 (Unaudited) of temporary differences between the
carrying
F-13
<PAGE>
FACILICOM INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
amounts of assets and liabilities for financial reporting purposes and
amounts used for income tax purposes that amounted to approximately
$393,000 (Unaudited) and was recorded as a deferred tax liability and
deferred income tax expense for the change in tax status for the three
months ended December 31, 1997.
The components of loss before income taxes for the periods ended September
30, 1997, 1996 and 1995 are as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- ------
<S> <C> <C> <C>
Domestic........................................... 6,978 $ 3,009 $ 368
Foreign............................................ 7,053 6,653 1,357
------- ------- ------
Total............................................ $14,031 $ 9,662 $1,725
======= ======= ======
The components of the income tax provision for the periods ended September
30, 1997, 1996 and 1995 are as follows (in thousands):
<CAPTION>
1997 1996 1995
------- ------- ------
<S> <C> <C> <C>
Deferred tax asset (principally NOL)............. $ 2,010 $ 1,120 $ --
Valuation allowance.............................. (2,010) (1,120) --
------- ------- ------
$ -- $ -- $ --
======= ======= ======
</TABLE>
There are no pro forma income tax amounts presented giving effect to the
change in tax status for the statements of operations presented as the
Company would have been a stand alone taxpaying entity and a valuation
allowance would have been established for any net deferred tax benefit
related to net operating losses.
Predecessor
Tele8 has deferred tax assets of approximately $955,000 at June 30, 1995
which is principally related to the cumulative net operating loss
carryforwards totaling approximately $3,400,000 at June 30, 1995. A
valuation allowance has been established for the entire deferred tax asset
and the allowance increased by $375,500 during the period from January 1,
1995 to June 30, 1995. Due to the change in ownership any net operating
losses generated in 1995 and prior years are not available for future use.
The difference between the tax provision calculated at the statutory
Swedish income tax rate and the effective tax provision for the period from
January 1, 1995 to June 30, 1995 is as follows (in thousands):
<TABLE>
<S> <C>
Tax benefit at statutory rate......................................... $ 375
Increase in deferred tax asset valuation.............................. (375)
-----
Provision for income taxes............................................ $ --
=====
</TABLE>
6.OPERATING LEASES
The Company leases office facilities and certain fiber optic cables and
switching facilities under noncancelable operating leases. Rental expense
for the periods ended September 30, 1997, 1996, and 1995 was $889,380,
$355,010, and $63,041, respectively.
F-14
<PAGE>
FACILICOM INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Future minimum lease payments under noncancelable operating leases as of
September 30, 1997 are as follows (in thousands):
<TABLE>
<S> <C>
1998.................................................................. $1,521
1999.................................................................. 1,324
2000.................................................................. 479
2001.................................................................. 190
2002.................................................................. 98
------
$3,612
======
</TABLE>
Predecessor
Tele8 leases office facilities and equipment under noncancelable operating
leases. Rental expense for the period from January 1, 1995 to June 30, 1995
was $102,602.
7.BORROWINGS FROM OWNERS
At September 30, 1996, the Company had outstanding interest-bearing working
capital advances from Armstrong totaling $1,549,000. On November 1, 1996,
FCI entered into a Convertible Line of Credit Agreement with Armstrong. The
outstanding advances were converted into borrowings under the line of
credit agreement. Under such agreement, FCI had a $15,000,000 credit
facility of which $5,000,000 was available in cash and $10,000,000 was
available for letter of credit needs. Armstrong had the right, at any time
on or before October 31, 1999, to convert the entire principal amount of
the cash loan into a maximum of 3.1% of additional ownership and convert
the letter of credit balance outstanding into a maximum additional 4.44%
ownership. In 1997, Armstrong converted the outstanding balance of
$5,396,000 under the cash portion of the agreement into an ownership
interest.
At September 30, 1997, FCI has $10,000,000 for letter of credit needs of
which it has outstanding letters of credit of $6,136,000 under the
Convertible Line of Credit Agreement.
In 1997, FCI entered into a Bridge Loan Agreement with Armstrong in which
FCI can borrow up to $10,000,000. Interest is calculated based upon prime
plus 1%. The prime rate was 8.5% at September 30, 1997. The loan is due on
October 1, 1998. The outstanding balance at September 30, 1997 was
$6,250,000. During the three months ended December 31, 1997, Armstrong
converted the outstanding balance of $6,250,000 (Unaudited) into an
ownership interest (see Note 1).
Additionally, as of September 30, 1996, Tele8 had issued convertible
debentures in the amount of $480,000 to a minority stockholder of both
Tele8 and FGC (the "Minority Stockholder"). Such convertible debentures
accrued interest at LIBOR plus 4%. Interest was payable annually on
September 30, with the full principal amount due on September 30, 2003 (see
Note 8).
FCI's total interest expense under the above borrowings was $462,247 and
$25,527 for the years ended September 30, 1997 and 1996, respectively. At
September 30, 1997, there was $90,950 related to interest accrued.
8.OTHER RELATED PARTY TRANSACTIONS
As of September 30, 1996, FCI had an advance to the Minority Stockholder of
$499,000.
As of September 30, 1996, FCI and the Minority Stockholder held $1,120,000
and $480,000, respectively, of Tele8 debentures totaling $1,600,000 which
earned interest at LIBOR plus 4%. The holder of the
F-15
<PAGE>
FACILICOM INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
debentures had the right to convert the outstanding principal balance into
Tele8 common stock at a predetermined price ranging from $200 to $250 per
share.
On December 23, 1996, the Minority Stockholder assigned its right, title
and interest in the Tele8 convertible debentures to FCI to satisfy the
outstanding advance due to FCI from the Minority Stockholder. On March 14,
1997, FCI converted all of its Tele8 convertible debentures into 7,400
shares of Tele8 common stock. On May 15, 1997, Tele8 issued 14,400
additional shares of common stock to FCI for consideration of $3,600,000.
Such transactions increased FCI's ownership in Tele8 to 89.6%.
In March 1996, Tele8 Kontakt, a subsidiary of FCI at that time, was awarded
a license agreement from the Swedish government for certain rights relating
to communications systems and technology. During October 1996, FCI
distributed its rights under such license agreement to its owners.
FCI has contracted with Armstrong, since its inception, for the performance
of certain services by Armstrong for FCI, including but not limited to
financial accounting, professional and billing services. In July 1997, two
agreements with terms of five years each were entered into for such
services. Expenses related to such contracted services of approximately
$439,000 and $7,400 are included in the statements of operations for the
year ended September 30, 1997 and 1996, respectively. At September 30,
1997, there was approximately $298,000 for unpaid amounts related to such
contracted services.
The terms of the agreements include professional services billed at hourly
rates, check processing at an amount per check and data center services
based on usage and disk storage space. The Company believes that the terms
of the agreements are competitive with similar services offered in the
industry.
9.BENEFIT PLANS
Tele8
Tele8 contributes to the Swedish state pension fund, social insurance,
medical insurance and unemployment charters for its employees. Tele8's
contribution of $781,000, $563,003 and $88,168 for the periods ended
September 30, 1997, 1996 and 1995, respectively, represents approximately
40% of the employees' salaries for respective periods and was expensed as
incurred. For the period from January 1, 1995 to June 30, 1995 Tele8's
contribution was approximately $92,000.
401(k)
Employees of FCI may participate in a salary reduction (401(k)) plan
administered by Armstrong. All contributions represent employee salary
reductions.
Performance Unit Plan
Certain employees and directors are eligible to participate in a
Performance Unit Plan established by the Company, under which a maximum of
1,254,000 units may be granted. A unit is a right to receive a cash payment
equal to the excess of the fair market value of a unit on its maturity date
over the initial value of a unit. Fair market value of a unit as determined
by the management committee of the Company. At September 30, 1997 and 1996,
484,500 and 152,000 units have been granted, respectively. Participants
vest in their units over a period not to exceed two years and are entitled
to receive cash compensation equivalent to the value of the units at the
time a participant retires provided the participant has 10 years of
continuous service or, if earlier, upon the occurrence of certain events,
including a change in control of the Company. The Company accrues to
expense over the participant's service vesting period (10 years) amounts
based on the value of the unit at year end. Amounts charged to expense for
this plan for the year ended September 30, 1997 was $288,000. No amounts
were expensed in prior years (see Note 13).
10.CONCENTRATION OF RISK
Financial instruments that potentially subject the Company to concentration
of credit risk are accounts receivable. Four of the Company's customers
accounted for approximately 24.0%, 31.0% and 50.0% of
F-16
<PAGE>
FACILICOM INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
gross accounts receivable as of December 31, 1997, September 30, 1997 and
1996, respectively. The Company performs on-going credit evaluations of its
customers but does not currently require collateral to support customer
receivables. However, many of the Company's customers, including these
four, are suppliers to whom the Company has accounts payable that mitigate
this risk.
In addition, the Company is dependent upon certain suppliers for the
provision of telecommunication services to its customers. The Company has
not experienced, and does not expect, any disruption of such services.
Approximately 24% and 41% of the Company's revenues for the years ended
September 30, 1997 and 1996, respectively, were derived from two customers
each with percentages in excess of 10%.
11.COMMITMENTS
Equipment
At December 31, 1997 and September 30, 1997, the Company had outstanding
commitments to purchase certain switching equipment for approximately $8.6
million. The Company continues to acquire additional equipment and to
obtain financing for such commitments during fiscal year 1998.
12.CONTINGENCIES AND LITIGATION
The Company is involved in various claims and possible actions arising in
the normal course of its business. Although the ultimate outcome of these
claims cannot be ascertained at this time, it is the opinion of the
Company's management, based on its knowledge of the facts and advice of
counsel, that the resolution of such claims and actions will not have a
material adverse effect on the Company's financial condition or results of
operations.
In August 1997, the Company entered into a settlement agreement relating to
litigation arising from a certain 1996 Tele8 international telephone
services agreement and related billing, collection and factoring agreements
with third parties. For the year ended September 30, 1996, selling, general
and administrative expenses includes approximately $708,000 of losses
relating to the settlement of which $500,000 represents a reserve on
advances, paid at the time of the settlement agreement, on behalf of the
telephone service company. Under the settlement agreement all of the above
amounts were paid to fully satisfy any amounts which may be owing from the
Company and the telephone services company to a company under a factoring
agreement. At the date of settlement, the management of the Company
believed the amounts advanced to the telephone services company were
uncollectible. The settlement agreement also provides for the factoring
company to assign to the Company any and all receivable claims the
factoring company may have against the billing and collection agent
("Agent"). The Company has filed a complaint against the Agent for breach
of contract and related claims pursuant to an agreement between the Company
and the Agent. The Agent has agreed to place in escrow the sum of
$1,431,324. At March 31, 1998 the amount in the escrow account was
$1,297,910. The Agent is authorized to deduct bad debts on a periodic basis
from such amount. On May 1, 1998, the balance of the escrow account will be
available for distribution among various entities. The Company will receive
the first $500,000 and will share any amounts thereafter with the other
third parties. The Company has not received any amounts from the Agent.
13.SIGNIFICANT EVENTS AFTER SEPTEMBER 30, 1997
As discussed in Note 1, on October 23, 1997, FCI entered into a Stock
Purchase Agreement, effective October 1, 1997, with the Minority
Stockholder whereby FCI purchased all of the Minority Stockholders'
F-17
<PAGE>
FACILICOM INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
interest in Tele8 for $750,000 and sold all of its interest in FGC to the
Minority Stockholder for $100 and recorded a loss of approximately $79,000
on the transaction. As of October 23, 1997, FCI owns 99% of Tele8. FCI
recorded $750,000 of goodwill related to the purchase of the Minority
Stockholders interest.
As discussed in Note 1, FCI was incorporated on November 20, 1997. FCI is a
corporation subject to income taxes and due to the exchange the results of
operations of FCI will be subject to income taxes (see Note 5).
On December 22, 1997, the Board of Directors adopted the 1997 Phantom Stock
Rights Plan (the "Phantom Stock Plan"). The Phantom Stock Plan provides for
the granting of phantom stock rights ("Phantom Shares") to certain
directors, officers and key employees of the Company and its subsidiaries.
The total number of Phantom Shares which may be granted pursuant to the
Phantom Stock Plan is 6,175, subject to adjustments for stock splits and
stock dividends.
All of the units granted under the Company's Performance Unit Plan (see
Note 9) were exchanged for equivalent phantom rights with equivalent terms
under the new phantom rights plan. At December 31, 1997, 4,845 Phantom
Shares have been granted of which 3,182 had vested. All of the provisions
of the Phantom Stock Plan including vesting, forfeiture and cash settlement
mirror the provisions of the Company's Performance Unit Plan.
On December 22, 1997, the Board of Directors adopted two 1997 Stock Option
Plans ("Stock Option Plan No. 1"and "Stock Option Plan No. 2"). Both plans
provide for the grant of options to purchase shares of the Company's common
stock to certain directors, officers and key employees of the Company and
its subsidiaries. The purpose of Stock Option Plan No. 1 is to provide to
the Company the discretionary ability to grant options in replacement and
substitution of Phantom Shares which have been granted pursuant to the
Phantom Stock Plan. The aggregate number of shares of Common Stock as to
which options may be granted pursuant to Stock Option Plan No. 1 is 6,175,
subject to adjustments for stock splits and stock dividends, and no options
may be granted under the plan after December 22, 2007.
The principal terms of Stock Option Plan No. 2 are substantially identical
with Stock Option Plan No. 1 with the following exceptions: (i) the
aggregate number of shares of common stock as to which options may be
granted pursuant to Stock Option Plan No. 2 is 5,135, subject to
adjustments for stock splits and stock dividends; (ii) options under Stock
Option Plan No. 2 are intended to be granted for reasons other than
replacement and substitution of Phantom Shares that have been granted
pursuant to the Phantom Stock Plan; and (iii) the exercise price for
options granted under Stock Option Plan No. 2 is determined by the
administrator but, except as may be approved by the Board of Directors,
such price may not be less than 100% of the fair market value per share of
the common stock on the date of grant.
No options have been authorized or granted under the stock option plans.
Subject to certain limited exceptions no option is exercisable during the
first six months of its term with expiration ten years thereafter.
On January 28, 1998, FCI issued $300 million aggregate principal amount of
Notes pursuant to an Indenture (the "Offering"). The Notes are unsecured
obligations of FCI and interest on the Notes is payable semiannually in
arrears on January 15 and July 15 of each year, commencing on July 15,
1998.
The Notes are redeemable at the option of FCI, in whole or in part at any
time on or after January 15, 2003, at specified redemption prices plus
accrued and unpaid interest. In addition, at any time prior to January 15,
2001, FCI, may redeem from time to time up to 35% of the originally issued
aggregate principal amount of the Notes at the specified redemption prices
with the net cash proceeds (as defined in the Indenture) of one or more
public equity offerings. In the event of a change in control of ownership
of FCI, Inc., each holder of the Notes has the right to require FCI, to
purchase all or any of such holder's Notes at a purchase price in cash
equal to 101% of the aggregate principal amount.
F-18
<PAGE>
FACILICOM INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FCI used approximately $86.5 million of the proceeds from the Offering to
purchase investments consisting of U.S. Government Obligations, which are
pledged as security and restricted for the first six scheduled interest
payments on the Notes. In addition, approximately $16.9 million of existing
indebtedness was paid off with the proceeds from the Offering (see Note 4).
The Notes require maintenance of certain financial and nonfinancial
covenants, including limitations on additional indebtedness, restricted
payments including dividends, transactions with affiliates, liens and asset
sales.
FCI is required, under the terms of the Indenture, to register the Notes
under the Securities Act of 1933, as amended, within prescribed time
periods.
On March 31, 1998, the Board of Directors adopted the FaciliCom
International, Inc. 1998 Stock Option Plan (the "1998 Stock Option Plan")
and terminated the Stock Option Plan No. 1 and Stock Option Plan No. 2. By
resolution of the Board of Directors on March 31, 1998, the Company's
Certificate of Incorporation was amended to create 25,000 shares of a non-
voting class of common stock. At March 31, 1998, the Company has 300,000
authorized shares, of which 275,000 are a voting class of common stock.
The 1998 Stock Option Plan provides for the grant of options to purchase
shares of the Company's non-voting common stock to certain directors,
officers, key employees and advisors of the Company. The aggregate number
of options that may be granted under the 1998 Stock Option Plan is 22,574
and no option may be granted after March 31, 2008.
Also on March 31, 1998, all of the phantom shares previously granted to
employees and directors of the Company under the Company's phantom stock
plan were converted to options under the 1998 Stock Option Plan, and the
Company granted additional options to purchase 6,498 shares of non-voting
common stock to employees, directors and advisors under the 1998 Stock
Option Plan. The option grants will result in a charge to operations for
the three months ended March 31, 1998. While the amount of the actual
charge will be determined only after the Company has obtained a valuation
of the Company, management believes that such charge will be material to
results of operations for the three months ended March 31, 1998.
On April 27, 1998, the Company entered into a Stock Purchase Agreement to
purchase 100% of the issued and outstanding capital stock of Oy Teleykkanen
AB ("Tele 1"), a corporation formed under the laws of Finland, for $4.0
million in cash. Tele 1 is a Finnish provider of local and long distance
international telecommunication services and has a carrier agreement to
exchange customer traffic with Telecom Finland, the dominant carrier in
Finland.
F-19
<PAGE>
FACILICOM INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
14.VALUATION AND QUALIFYING ACCOUNTS
Activity in the Company's allowance accounts for the periods ended
September 30, 1997, 1996 and 1995 were as follows (in thousands):
<TABLE>
<CAPTION>
DOUBTFUL ACCOUNTS
--------------------------------------------------------------
BALANCE AT CHARGED TO BALANCE AT
BEGINNING OF PERIOD COSTS AND EXPENSE DEDUCTIONS END OF PERIOD
------------------- ----------------- ---------- -------------
<S> <C> <C> <C> <C>
1995......... $-- $ -- $ -- $--
1996......... $-- $ -- $ -- $--
1997......... $-- $1,263 $(1,102) $161
</TABLE>
<TABLE>
<CAPTION>
DEFERRED TAX ASSET VALUATION
--------------------------------------------------------------
BALANCE AT CHARGED TO BALANCE AT
BEGINNING OF PERIOD COSTS AND EXPENSE DEDUCTIONS END OF PERIOD
------------------- ----------------- ---------- -------------
<S> <C> <C> <C> <C>
1995......... $ -- $ -- $-- $ --
1996......... $ -- $1,120 $-- $1,120
1997......... $1,120 $2,010 $-- $3,130
</TABLE>
See Note 5 for amounts relating to Tele8 (Predecessor).
15.GEOGRAPHIC DATA
The Company operates as a provider of international long-distance
telecommunications services. The Company is a multinational company
operating in many countries including the United States, the United
Kingdom, Sweden and Denmark. Sales between geographic areas represent the
providing of services through carrying and ultimately termination of
customer traffic originated in the other geographic area and are accounted
for based on established sales prices. In computing operating loss for
foreign operations, no allocations of certain general corporate expenses
have been made. Summary information with respect to the Company's
geographic operations is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEARS ENDED PERIOD FROM PERIOD FROM
DECEMBER 31, SEPTEMBER 30, MAY 5, 1995 TO JANUARY 1, 1995 TO
-------------------- ----------------- SEPTEMBER 30, JUNE 30, 1995
1997 1996 1997 1996 1995 (PREDECESSOR)
--------- --------- -------- ------- -------------- ------------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
NET REVENUE
North America.............................. $28,923 $ 9,209 $ 56,315 $ 8,363 $ -- $ --
Europe..................................... 15,163 3,631 24,187 7,347 547 367
Eliminations............................... (8,278) (1,586) (10,315) (3,819) -- --
--------- --------- -------- ------- ------- -------
Total.................................... $35,808 $11,254 $ 70,187 $11,891 $ 547 $ 367
========= ========= ======== ======= ======= =======
OPERATING LOSS
North America.............................. $ (2,768) $ (969) $ (6,337) $(2,936) $ (359) $ --
Europe..................................... (1,196) (1,829) (5,023) (6,640) (1,201) (1,305)
--------- --------- -------- ------- ------- -------
Total.................................... $ (3,964) $ (2,798) $(11,360) $(9,576) $(1,560) $(1,305)
-------------------------------------------------- ========= ========= ======== ======= ======= =======
ASSETS ========= ========= ======== ======= ======= =======
North America.............................. $35,303 $13,991 $25,035 $ 9,431 $ 387 $ --
Europe..................................... 36,922 13,421 21,824 13,042 5,353 4,422
Eliminations............................... (6,225) (1,326) (2,842) (1,465) (76) --
--------- --------- -------- ------- ------- -------
Total.................................... $66,000 $26,086 $ 44,017 $21,008 $ 5,664 $ 4,422
</TABLE>
F-20
<PAGE>
ANNEX A
GLOSSARY
accounting or settlement rate--The per minute rate negotiated between
carriers in different countries for termination of international long distance
traffic in, and return traffic to, the carriers' respective countries.
CUG (Closed User Group)--A group of specified users, such as employees of a
company, permitted by applicable regulations to access a private voice or data
network, which access would otherwise be denied to them as individuals.
facilities-based carrier--A company that owns or leases its international
network facilities including undersea fiber optic cables and switching
facilities rather than reselling time provided by another facilities-based
carrier.
FCC--Federal Communications Commission.
IRU (Indefeasible Right of Use)--The rights to use a telecommunications
system, usually an undersea fiber optic cable, with most of the rights and
duties of ownership, but without the right to control or manage the facility
and, depending upon the particular agreement, without any right to salvage or
duty to dispose of the cable at the end of its useful life.
ISR (International Simple Resale)--The use of international leased lines for
the provision of switched voice services to the public, by-passing the current
system of accounting rates.
MAOU (Minimum Assignable Ownership Units)--Capacity on a telecommunications
system, usually an undersea fiber optic cable, acquired on an ownership basis.
operating agreement--An agreement that provides for the exchange of
international long distance traffic between correspondent international long
distance providers that own facilities in different countries. These
agreements provide for the termination of traffic in, and return traffic from,
the international long distance providers' respective countries at a
negotiated "accounting rate." Under a traditional operating agreement, the
international long distance provider that originates more traffic compensates
the corresponding long distance provider in the other country by paying an
amount determined by multiplying the net traffic imbalance by the latter's
share of the accounting rate.
Points of Presence (PoPs)--Switches owned or leased by an interexchange
carrier that is located near a local exchange carrier's switch and that
enables the interexchange carrier to access to the local exchange carrier's
customers and/or services.
PSTN (Public Switched Telephone Network)--A telephone network which is
accessible by the public through private lines, wireless systems and pay
phones.
PTT (Postal, Telephone and Telegraph Company)--The dominant carrier or
carriers in each country, often, but not always, government-owned or
protected.
private line--A private, dedicated telecommunications line connecting
different end user locations.
RBOC (Regional Bell Operating Company)--The seven telephone companies
established by the 1982 agreement between AT&T and the Department of Justice.
resale--Resale by a provider of telecommunications services of services sold
to it by other providers or carriers on a wholesale basis.
A-1
<PAGE>
switch--A sophisticated computer that accepts instructions from a caller in
the form of a telephone number. Like an address on an envelope, the numbers
tell the switch where to route the call. The switch opens or closes circuits
or selects the paths or circuits to be used for transmission of information.
Switching is a process of interconnecting circuits to form a transmission path
between users. Switches allow telecommunications service providers to connect
calls directly to their destination, while providing advanced features and
recording connection information for future billing.
undersea fiber optic cable--Fiber optic cable is the medium of choice for
the telecommunications industry. Fiber is immune to electrical interference
and environment factors that affect copper wiring and satellite transmission.
Fiber optic technology involves sending laser light pulses across glass
strands in order to transmit digital information. A strand of fiber optic
cable is as thick as a human hair yet has to have more bandwidth capacity that
a copper wire the size of a telephone pole. For international service, the
fiber optic cable is placed at the bottom of the oceans in order to connect
the various continents.
A-2
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRE-
SENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE OFFER MADE
IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PRO-
SPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER
TO BUY ANY SECURITY OTHER THAN THE NOTES OFFERED HEREBY NOR DOES IT CONSTITUTE
AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY OF THE NOTES TO
ANY PERSON IN ANY JURISDICTION IN WHICH IT WOULD BE UNLAWFUL TO MAKE SUCH AN
OFFER OR SOLICITATION TO SUCH PERSON. NEITHER THE DELIVERY OF THIS PROSPECTUS
NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICA-
TION THAT THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PRO-
SPECTUS OR INCORPORATED BY REFERENCE HEREIN OR IN THE AFFAIRS OF THE COMPANY
SINCE THE DATE HEREOF.
-------------------
TABLE OF CONTENTS
<TABLE>
<S> <C>
Available Information..................................................... 4
Disclosure Regarding Forward-Looking Statements........................... 4
Prospectus Summary........................................................ 5
Risk Factors.............................................................. 17
The Exchange Offer........................................................ 28
Capitalization............................................................ 37
Selected Consolidated Financial and Other Data............................ 38
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 40
Business.................................................................. 49
Management................................................................ 67
Principal Stockholders.................................................... 76
Certain Relationships and Related Transactions............................ 77
Description of Capital Stock.............................................. 79
Summary of Other Indebtedness............................................. 80
Description of Notes...................................................... 82
Certain United States Federal Income Tax Considerations................... 111
Plan of Distribution...................................................... 112
Legal Matters............................................................. 112
Experts................................................................... 112
Index to Financial Statements............................................. F-1
Glossary of Terms......................................................... A-1
</TABLE>
-----------------
UNTIL . , 1998 ( . DAYS AFTER THE DATE OF THIS PROSPECTUS) ALL DEALERS EF-
FECTING TRANSACTIONS IN THE EXCHANGE NOTES, WHETHER OR NOT PARTICIPATING IN
THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDI-
TION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN SELLING EX-
CHANGE NOTES RECEIVED IN EXCHANGE FOR OLD NOTES HELD FOR THEIR OWN ACCOUNT.
SEE "PLAN OF DISTRIBUTION."
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
$300,000,000
[LOGO OF FACILICOM INTERNATIONAL, INC. APPEARS HERE]
FACILICOM
INTERNATIONAL, INC.
OFFER TO EXCHANGE
10 1/2% SERIES B
SENIOR NOTES
DUE 2008
FOR ANY AND ALL
10 1/2% SENIOR NOTES
DUE 2008
--------
PROSPECTUS
. , 1998
--------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company's By-Laws provide, to the maximum extent provided by applicable
law, no director shall be personally liable to the Company or its stockholders
for monetary damages for any breach of fiduciary duty by such director as a
director. The foregoing sentence shall not eliminate or limit the liability of
a director, (i) for breach of the director's duty of loyalty of the Company or
its stockholders, (ii) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, (iii) pursuant
to Section 174 of the Delaware General Corporation Law or (iv) for any
transaction from which the director derived an improper personal benefit. No
amendment to or repeal of the relevant Article of the By-Laws of the Company
shall apply to or have any effect on the liability or alleged liability of any
director or officer of the Company for or with respect to any acts or
omissions of such director or officer occurring prior to such amendment.
Directors and officers of the Company shall be indemnified as of right to
the fullest extent now or hereafter permitted by law in connection with any
actual or threatened civil, criminal, administrative or investigative action,
suit or proceeding (whether brought by or in the name of the Company or
otherwise) arising out of their service to the Company or to another
organization at the request of the Company. Persons who are not directors or
officers of the Company may be similarly indemnified in respect of such
service to the extent authorized at any time by the Board of Directors of the
Company. The Company may purchase and maintain insurance to protect itself and
any such director, officer or other person against any liability asserted
against him and incurred by him in respect of such service whether or not the
Company would have the power to indemnify him against such liability by law or
under the provisions of the Company's By-Laws. The provisions of the Company's
By-Laws shall be applicable to actions, suits or proceedings commenced after
the adoption hereof, whether arising from acts or omissions occurring before
or after the adoption hereof, and to directors, officers and other persons who
have ceased to render such service, and shall inure to the benefit of the
heirs, executors and administrators of the directors, officers and other
persons referred to in this Article.
II-1
<PAGE>
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
*1.1 Purchase Agreement between the Company, Lehman Brothers Inc. and BT
Alex. Brown Incorporated dated January 23, 1998
2.1 Investment and Shareholders Agreement among Armstrong International
Telecommunications, Inc., FCI Management Group and FaciliCom
International, Inc. dated December 22, 1997 (together with all
exhibits thereto)
*3.1 Certificate of Incorporation of FaciliCom International, Inc.
*3.2 Certificate of Amendment of Certificate of Incorporation of
FaciliCom International, Inc.
*3.3 By-laws of FaciliCom International, Inc.
*4.1 Indenture between the Company and State Street Bank and Trust
Company dated January 28, 1998
4.2 Reference is made to Exhibits 3.1 and 3.2
*4.3 Form of Common Stock Certificate of FaciliCom International, Inc.
5.1 Opinion of Swidler & Berlin, Chartered regarding legality
*10.1 Registration Rights Agreement between the Company, Lehman Brothers
Inc. and BT Alex. Brown Incorporated dated January 28, 1998
*10.2 FaciliCom International, Inc., 1997 Stock Option Plan No. 1
*10.3 FaciliCom International, Inc., 1997 Stock Option Plan No. 2
*10.4 FaciliCom International, Inc., 1997 Phantom Stock Rights Plan
*10.5 International Telecommunications Services Agreement between Fonetel
Global Communications AB and Telecom Finland International dated
December 15, 1994
+*10.6 Service Agreements between Fonetel Global Communications AB and
Nordnet OY dated January 26, 1995
*10.7 Services Agreements between Fonetel Global Communications AB and
Belgacom SA dated February 15, 1995
*10.8 Services Agreement between Telenor Carrier Services A/S and Nordiska
Tele8 AB dated November 14, 1995
*10.9 Operating Agreement between Nordiska Tele8 AB and Portugal Telecom
dated February 1, 1996
+*10.10 Operating Agreement between Deutsche Telekom AG and Tele8 Sweden
dated May 28, 1996
*10.11 Operating Agreement between Nordiska Tele8 AB and Eesti Telefon
dated August 12, 1996
*10.12 Memorandum of Understanding between Telekon Sloveniga and Nordiska
Tele8 AB dated October 30, 1996
+*10.13 Services Agreement between Telecom Italia SpA and Nordiska Tele8 AB
dated January 16, 1997
*10.14 Agreement to Operate International Telecommunications between CANTV
and FaciliCom International and Between FaciliCom International,
L.L.C. and Compania Anonima Nacional de Telefonos de Venezuela dated
June 2, 1997
*10.15 International Telecommunications Service Agreement between MATAV
Rt -- Hungary and Nordiska Tele8 AB -- Sweden
+*10.16 Agreement on Joint Traffic between TeleDanmark A/S and Nordiska
Tele8 AB dated December 18, 1997
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.17 Interconnect Agreement between Telia AB and Nordiska Tele8 AB
10.18 Services Agreement between Armstrong Holdings, Inc. and FaciliCom
International, L.L.C. dated July 1, 1997
10.19 FaciliCom International, Inc. 1998 Stock Option Plan
10.20 Billing and MIS Services Agreement between Armstrong Holdings, Inc.
and FaciliCom International, L.L.C. dated July 1, 1997
**10.21 Stock Purchase Agreement dated April 27, 1998 between FaciliCom
International, L.L.C. and Oy Teleykkonen AB
12.1 Schedule of Earnings to Fixed Charges
21.1 Subsidiaries of Registrant
23.1 Consent of Deloitte & Touche llp
23.2 Consent of Deloitte & Touche
23.3 Consent of Swidler & Berlin, Chartered (to be included in Exhibit
5.1 to the Registration Statement)
*24.1 Power of Attorney (on signature page)
25.1 Statement of eligibility of trustee
*27.1 Financial Data Schedule
*99.1 Form of Letter of Transmittal
*99.2 Form of Notice of Guaranteed Delivery
*99.3 Form of Letter to Brokers, Dealers, Commercial Banks, Trust
Companies and Other Nominees
*99.4 Form of Letter to Clients
*99.5 Guides for Certification of Taxpayer Identification Number on Form
W-9
</TABLE>
- --------
* Previously filed.
** To be filed by amendment.
+ Confidential treatment is being requested for portions of this document.
The redacted material has been filed separately with the Commission.
(B) CONSOLIDATED FINANCIAL STATEMENT SCHEDULES:
All Schedules have been omitted because they are not applicable, not
required, or the required information is included in the Financial Statements
or the Notes thereto.
ITEM 22. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in the 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 Commission pursuant to rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20 percent change
in the maximum aggregate offering price set forth in the "Calculation
of Registration Fee" table in the effective registration statement.
(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.
II-3
<PAGE>
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b)(1) The undersigned Registrant hereby undertakes as follows: that prior
to any public reoffering of the securities registered hereunder through use of
a prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c),
the issuer undertakes that such reoffering prospectus will contain the
information called for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other items of the applicable form.
(2) The Registrant undertakes that every prospectus: (i) that is filed
pursuant paragraph (1) immediately preceding, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Act and is used in connection with
an offering of securities subject to Rule 415, will be filed as a part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
(c) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) 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.
(d) The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it becomes effective.
(e) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the 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 Act
and will be governed by the final adjudication of such issue.
II-4
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE DISTRICT OF COLUMBIA, ON MAY 1,
1998.
Facilicom International, Inc.
/s/ Walter J. Burmeister
By: _________________________________
WALTER J. BURMEISTER
PRESIDENT AND CHIEF
EXECUTIVE OFFICER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES INDICATED
ON MAY 1, 1998.
SIGNATURE TITLE
--------- -----
/s/ Walter J. Burmeister Chief Executive Officer,
- ------------------------------------- President and Director
WALTER J. BURMEISTER (Principal Executive
Officer)
/s/ Christopher S. King Vice President--Finance
- ------------------------------------- and Administration,
CHRISTOPHER S. KING Chief Financial Officer
(Principal Financial
Officer and Principal
Accounting Officer)
Treasurer, Vice
* President and Director
- -------------------------------------
KIRBY J. CAMPBELL
Secretary, Vice
* President and Director
- -------------------------------------
DRU A. SEDWICK
II-5
<PAGE>
SIGNATURE TITLE
--------- -----
Director
*
- ------------------------------------
BRYAN CIPOLETTI
Director
- ------------------------------------
ROBERT REED
Director
- ------------------------------------
JAY SEDWICK
Director
*
- ------------------------------------
WILLIAM STEWART
- --------
* By signing his name hereto, Christopher S. King signs this document on
behalf of each of the persons so indicated above pursuant to powers of
attorney duly executed by such persons and filed with the Securities and
Exchange Commission.
II-6
<PAGE>
EXHIBIT INDEX
(A) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
-------------- -----------
<C> <S>
*1.1 Purchase Agreement between the Company, Lehman Brothers Inc.
and BT Alex. Brown Incorporated dated January 23, 1998
2.1 Investment and Shareholders Agreement among Armstrong
International Telecommunications, Inc., FCI Management Group
and FaciliCom International, Inc. dated December 22, 1997
(together with all exhibits thereto)
*3.1 Certificate of Incorporation of FaciliCom International, Inc.
*3.2 Certificate of Amendment of Certificate of Incorporation of
FaciliCom International, Inc.
*3.3 By-laws of FaciliCom International, Inc.
*4.1 Indenture between the Company and State Street Bank and Trust
Company dated January 28, 1998
4.2 Reference is made to Exhibits 3.1 and 3.2
*4.3 Form of Common Stock Certificate of FaciliCom International,
Inc.
5.1 Opinion of Swidler & Berlin, Chartered regarding legality
*10.1 Registration Rights Agreement between the Company, Lehman
Brothers Inc. and BT Alex. Brown Incorporated dated January 28,
1998
*10.2 FaciliCom International, Inc., 1997 Stock Option Plan No. 1
*10.3 FaciliCom International, Inc., 1997 Stock Option Plan No. 2
*10.4 FaciliCom International, Inc., 1997 Phantom Stock Rights Plan
*10.5 International Telecommunications Services Agreement between
Fonetel Global Communications AB and Telecom Finland
International dated December 15, 1994
+*10.6 Service Agreements between Fonetel Global Communications AB and
Nordnet OY dated January 26, 1995
*10.7 Services Agreements between Fonetel Global Communications AB
and Belgacom SA dated February 15, 1995
*10.8 Services Agreement between Telenor Carrier Services A/S and
Nordiska Tele8 AB dated November 14, 1995
*10.9 Operating Agreement between Nordiska Tele8 AB and Portugal
Telecom dated February 1, 1996
+*10.10 Operating Agreement between Deutsche Telekom AG and Tele8
Sweden dated May 28, 1996
*10.11 Operating Agreement between Nordiska Tele8 AB and Eesti Telefon
dated August 12, 1996
+*10.12 Memorandum of Understanding between Telekon Sloveniga and
Nordiska Tele8 AB dated October 30, 1996
*10.13 Services Agreement between Telecom Italia SpA and Nordiska
Tele8 AB dated January 16, 1997
*10.14 Agreement to Operate International Telecommunications between
CANTV and FaciliCom International and Between FaciliCom
International, L.L.C. and Compania Anonima Nacional de
Telefonos de Venezuela dated June 2, 1997
*10.15 International Telecommunications Service Agreement between
MATAV Rt -- Hungary and Nordiska Tele8 AB -- Sweden
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
-------------- -----------
<C> <S>
+*10.16 Agreement on Joint Traffic between TeleDanmark Als and Nordiska
Tele8 dated December 18, 1997
10.17 Interconnect Agreement between Telia AB and Nordiska Tele8 AB
10.18 Services Agreement between Armstrong Holdings, Inc. and
FaciliCom International, L.L.C. dated July 1, 1997
10.19 FaciliCom International, Inc. 1998 Stock Option Plan
10.20 Billing and MIS Services Agreement between Armstrong Holdings,
Inc. and FaciliCom International, L.L.C. dated July 1, 1997
**10.21 Stock Purchase Agreement dated April 27, 1998 between FaciliCom
International, L.L.C. and Oy Teleykkonen AB
12.1 Schedule of Earnings to Fixed Charges
21.1 Subsidiaries of Registrant
23.1 Consent of Deloitte & Touche llp
23.2 Consent of Deloitte & Touche
23.3 Consent of Swidler & Berlin, Chartered (to be included in
Exhibit 5.1 to the Registration Statement)
*24.1 Power of Attorney (on signature page)
25.1 Statement of eligibility of trustee
*27.1 Financial Data Schedule
*99.1 Form of Letter of Transmittal
*99.2 Form of Notice of Guaranteed Delivery
*99.3 Form of Letter to Brokers, Dealers, Commercial Banks, Trust
Companies and Other Nominees
*99.4 Form of Letter to Clients
*99.5 Guides for Certification of Taxpayer Identification Number on
Form W-9
</TABLE>
- --------
* Previously filed.
** To be filed by amendment.
+ Confidential treatment is being requested for portions of this document. The
redacted material has been filed separately with the Commission.
(B) Consolidated Financial Statement Schedules;
All Schedules have been omitted because they are not applicable, not
required, or the required information is included in the Financial
Statements or the Notes thereto.
<PAGE>
Exhibit 2.1
INVESTMENT AND SHAREHOLDERS AGREEMENT
-------------------------------------
This INVESTMENT AND SHAREHOLDERS AGREEMENT (this "Agreement") is made
as of December 22, 1997, by and among ARMSTRONG INTERNATIONAL
TELECOMMUNICATIONS, INC., a Delaware corporation ("Armstrong"), FCI MANAGEMENT
GROUP, a Pennsylvania general partnership ("FMG", and together with Armstrong,
the "Shareholders"), and FACILICOM INTERNATIONAL, INC., a Delaware corporation
(the "Corporation"),.
RECITALS
--------
WHEREAS, Armstrong owns 15,390,000 Units as the Class A Member of
FACILICOM INTERNATIONAL, L.L.C., a Delaware limited liability company
("Facilicom"), and FMG owns 3,610,000 Units as the Class B Member of Facilicom,
such Units comprising all of the ownership interests of FaciliCom, all as set
forth and defined in FaciliCom's First Amended and Restated Limited Liability
Company Agreement dated as of September 30, 1997 a copy of which is attached
hereto as Exhibit A;
WHEREAS, Armstrong owns 81 Units of FCI (GP), LLC, a Delaware limited
liability company ("FCI(GP)"), and FMG owns 19 units of FCI(GP), all as set
forth and defined in FCI(GP)'s Limited Liability Company Agreement dated as of
September 30, 1997 a copy of which is attached hereto as Exhibit B;
WHEREAS, the Corporation was incorporated on November 20, 1997, under
the name of FaciliCom International Finance, Inc., and its name was changed to
the name set forth herein and the number of the its authorized shares of common
stock was increased to 300,000 by the filing of an amendment to its Certificate
of Incorporation on December 11, 1997;
WHEREAS, the Shareholders desire to (a) transfer all of their
respective Units in each of Facilicom and FCI(GP) to the Corporation pursuant to
an Assignment in the form attached hereto as Exhibit C and (b) in the case of
Armstrong, contribute $20,000,000 to the Corporation, all in exchange for shares
of the Corporation's common stock; and
WHEREAS, the Corporation and the Shareholders desire to (a) establish
the composition of the Corporation's Board of Directors, (b) assure continuity
in the ownership and management of the Corporation and (c) establish certain
other rights and procedures as hereinafter specified;
NOW, THEREFORE, in consideration of the mutual promises made herein
and intending to be legally bound, the parties hereto hereby agree as follows:
<PAGE>
1. Recitals. The Recitals set forth above are hereby incorporated
--------
herein.
2. Subscription for Common Stock. As soon as practicable after
-----------------------------
the execution hereof, the Corporation and the Shareholders shall execute,
deliver and perform the Assignment, and Armstrong shall contribute to the
corporation an aggregate amount of $20,000,000 (in the forms of cash and the
assignment of indebtedness owing to Armstrong by FaciliCom), and in exchange
therefor, the Corporation shall issue and deliver to Armstrong and FMG
certificates which represent fully paid and non-assessable shares of its common
stock as follows:
Armstrong 189,641.35 shares
FMG 36,100.00 shares
3. Adoption of By-Laws and Stock Compensation Plans; Tax Sharing
-------------------------------------------------------------
Agreement.
- ----------
3.1 Adoption of By-Laws. Promptly after the execution hereof,
--------------------
the Board of Directors of Corporation shall adopt by-laws of the
Corporation substantially in the form of Exhibit D attached hereto (the
"By-Laws"), and the consent of the Shareholders (to the extent such
consent is required by law) to the By-Laws shall be deemed to have been
granted hereby.
3.2 Adoption of Stock Option Plans. Promptly after the
-------------------------------
execution the Board of Directors of Corporation shall adopt (a) a stock
option plan substantially in the form of Exhibit E attached hereto (the
"1997 Stock Option Plan No. 1"), (b) a stock option plan substantially
in the form of Exhibit F attached hereto (the "1997 Stock Option Plan
No. 2") and (c) a phantom stock rights plan substantially in the form
of Exhibit G attached hereto (the "1997 Phantom Stock Rights Plan"),
and the consent of the Shareholders (to the extent such consent is
required by law) to each of the foregoing shall be deemed to have been
granted hereby.
3.3 Tax Sharing Agreement. Promptly after the execution
----------------------
hereof, the Corporation and Armstrong Holdings, Inc. ("Armstrong
Holdings"), the sole shareholder of Armstrong, shall enter into Tax
Sharing Agreement substantially in the form attached hereto as Exhibit
H.
-2-
<PAGE>
4. Composition of Board of Directors and Significant Actions.
----------------------------------------------------------
4.1 Composition of Board of Directors. Except as
----------------------------------
provided in Section 4.3 hereof, the Board of Directors of the
Corporation shall be comprised of seven (7) (or such greater number as
the Board of Directors may determine as provided in the By-Laws)
directors, five (5) of whom shall be designated by Armstrong and two
(2) of whom shall be designated by FMG. The Shareholders agree that, in
all elections of Directors, they shall cast their votes for election of
those individuals as shall have been designated pursuant to this
Section 4. The members of the initial Board of Directors shall be as
follows:
Armstrong's Designees: Jay L. Sedwick
William C. Stewart
Kirby J. Campbell
Dru A. Sedwick, and
Bryan Cipoletti, and
FMG's Designees: Robert Reed, and
Walter Burmeister
4.2 Vacancies. In the event that any member of the Board of
----------
Directors designated pursuant to this Section 4 resigns or otherwise
ceases to be a member of the Board of Directors for any reason, the
parties hereto shall cause a special meeting of Shareholders to be held
for the purpose of filling the vacancy thereby created in accordance
with the rights of designation as provided in Section 4.1 hereof.
4.3 Loss of Designation Rights; Non-Designated Directors.
-----------------------------------------------------
(a) Armstrong's right under Section 4.1 to designate
directors shall terminate upon (i) the transfer to any person who is
not an Affiliate of Armstrong of more than fifty percent (50%) of the
shares of the Common Stock of the Corporation to be issued to Armstrong
in accordance with this Agreement or (ii) the occurrence of any event
that causes less than fifty percent (50%) of the outstanding capital
stock of Armstrong to be owned by Armstrong Holdings or any of its
Affiliates.
(b) FMG's right under Section 4.1 to designate directors
shall terminate upon (i) the transfer by FMG of more than fifty percent
(50%) of its shares of the Common Stock of the Corporation to be issued
to FMG in
-3-
<PAGE>
accordance with this Agreement or (ii) the occurrence of any event that
causes less than fifty percent (50%) of the equity interests in FMG to
be owned by its partners (as of the date hereof) or their respective
Affiliates. For purposes hereof, "Affiliate" shall mean, with respect
to any individual or entity, any other individual or entity directly or
indirectly controlling, controlled by or under common control with such
individual or entity, and such term shall include any individual who is
an officer, director or employee of any such entity or any Affiliate of
such entity. As used in the immediately preceding sentence, the term
"control" means, with respect to an entity, the right to exercise,
directly or indirectly, more than fifty percent (50%) of the voting
rights attributable to such entity.
(c) Elections of directors as to whom no rights of
designation exist pursuant to this Section 4 shall be effected in
accordance with the By-Laws.
4.4 Significant Actions. Notwithstanding the provisions of the
--------------------
By-Laws or the authority which may appear to have been granted to or
vested in the officers of the Corporation, the Corporation shall not
have to power, and no officer of the corporation shall cause the
Corporation, to act in respect of the following matters without the
consent of the Board of Directors:
(a) the issuance, sale or other disposition by the
Corporation of any debt or equity securities or similar interests in
the Corporation except pursuant to the 1997 Stock Option Plan No. 1,
the 1997 Stock Option Plan No. 2 and the 1997 Phantom Stock Plan;
(b) the sale, lease or transfer of a material portion of
the assets of the Corporation or the sale, transfer or assignment of
any material governmental permit or license relating to the business of
the Corporation;
(c) the adoption of operating, capital or other budgets;
(d) the modification to any then-current, approved budget,
or the approval of any expenditure in excess of amounts previously
included in a then-current, approved budget;
(e) causing the Corporation to (i) guarantee or otherwise
become liable for the indebtedness of any other person, (ii) extend
credit (other than in the ordinary course of business) to any person,
(iii) incur any indebtedness (other than trade payables incurred in the
ordinary course of
-4-
<PAGE>
business and as contemplated in any then-current, approved budget) or
(iv) pledge, encumber or create any lien upon or in any of the assets
of the Corporation;
(f) the employment of management personnel or the
discharge or material modification of the terms of employment or duties
of any such personal;
(g) the authorization or payment of any compensation to
any employee of the Corporation or any other person engaged by the
Corporation if the expected annual compensation payable to such
employee or other person would exceed $100,000;
(h) the authorization, approval or execution of any
contract or other agreement on behalf of the Corporation under which
the Corporation would be obligated for amounts in excess of $500,000;
(i) the authorization or payment of any bonus to any
employee of the Corporation or any other person engaged by the
Corporation;
(j) any change to the Corporation's then-existing employee
benefit plans; or
(k) the approval of any transaction with a Person which is
an Affiliate of any Shareholder on terms less advantageous to the
Corporation than those which would be available from an unrelated
party. For purposes hereof, the term "Affiliate" means, with respect to
any Shareholder, any individual or entity directly or indirectly
controlling, controlled by or under common control with such
Shareholder, and such term shall include any individual who is an
officer, director or employee of such Shareholder or any Affiliate of
such entity. As used in the immediately preceding sentence, the term
"control" means, with respect to an entity, the right to exercise,
directly or indirectly, a majority of the voting rights attributable to
such entity, and the term "majority" means more than fifty percent
(50%).
5. Transfer Restrictions.
----------------------
5.1 Restriction; Joinder. The parties hereto agree that no
---------------------
share or shares of stock of the Corporation (nor any rights or
interests appertaining thereto) may be issued by the Corporation or
sold, exchanged, pledged,
-5-
<PAGE>
encumbered, given, bequeathed or otherwise disposed of by a
Shareholder, either voluntarily or by operation of law (including in
connection with a divorce), unless and until the transferee thereof
shall have entered into a written Joinder substantially in the form of
Exhibit I attached hereto whereby the transferee agrees to join in and
---------
be bound by the provisions of this Agreement (other than Section 2
hereof) and thereby become a "Shareholder" hereunder.
5.2 Legend. The following legend shall be placed on each share
------
certificate of the Corporation:
ANY SALE, TRANSFER, ENCUMBRANCE OR OTHER DISPOSITION
(WHETHER VOLUNTARY OR INVOLUNTARY, BY GIFT, BEQUEST,
DIVORCE OR OTHERWISE) OF THE SHARES OR OTHER INTEREST
REPRESENTED BY THIS CERTIFICATE IS RESTRICTED BY THE
TERMS SET FORTH IN THAT CERTAIN INVESTMENT AND
SHAREHOLDERS AGREEMENT DATED AS OF DECEMBER 22, 1997.
6. Miscellaneous
-------------
6.1 Waiver. The waiver by any party of a breach or a default
-------
of any provision of this Agreement by the other party shall not be
construed as a waiver of any succeeding breach of the same or any other
provision, nor shall any delay or omission on the part of either party
to exercise or avail itself of any right, power, or privilege that it
has or may have hereunder operate as a waiver of any right, power, or
privilege by such party.
6.2 Assignment. No party may assign any of its rights or
-----------
delegate any of its duties under this Agreement except as set forth
herein. Any attempted assignment in violation of this provision shall
be void.
6.3 Integration. This Agreement contains the full
------------
understanding of the parties with respect to the subject matter hereof
and supersedes all prior understandings and writings relating thereto.
No waiver, alteration, or modification of any of the provisions hereof
shall be binding unless made in writing and signed by the parties
hereto.
6.4 Further Acts. The parties shall execute any further
-------------
instruments and shall perform any and all acts which are or may become
-6-
<PAGE>
reasonably necessary or appropriate to effect and carry out the
purposes of this Agreement.
6.5 Governing Law and Jurisdiction. This Agreement shall be
-------------------------------
governed by and construed in accordance with the laws of the State of
Delaware, other than rules governing conflict of laws.
6.6 Parties. This Agreement shall be binding upon and shall
--------
inure to the benefit of the parties hereto and their respective heirs,
personal representatives, successors and permitted assigns.
6.7 Headings. The headings contained in this Agreement are for
---------
convenience of reference only and shall not be considered in construing
this Agreement.
6.8 Counterpart Execution. This Agreement may be executed in
----------------------
any number of counterparts with the same effect as if all parties
hereto had signed the same document. All counterparts shall be
construed together and shall constitute one agreement.
6.9 Gender and Number. As used in this Agreement, the singular
-----------------
shall include the plural, the plural shall include the singular and the
use of any gender shall include the other gender or be neutral.
-7-
<PAGE>
IN WITNESS WHEREOF, the parties hereunto have caused this
Agreement to be executed personally or by their duly authorized officers on the
day and year first above written.
ATTEST: ARMSTRONG INTERNATIONAL
TELECOMMUNICATIONS, INC.
[SIGNATURE APPEARS HERE] By /s/ [SIGNATURE APPEARS HERE]
- ----------------------------- --------------------------------
Title: Chief Executive Officer
----------------------------
FCI MANAGEMENT GROUP
ATTEST: By: EPIC INTERESTS, INC.
[SIGNATURE APPEARS HERE] By: /s/ [SIGNATURE APPEARS HERE]
- ----------------------------- -----------------------------
Title: President
--------------------------
General Partner
ATTEST: By: BFV ASSOCIATES, INC.
[SIGNATURE APPEARS HERE] By: /s/ [SIGNATURE APPEARS HERE]
- ----------------------------- ----------------------------
Title: President
-------------------------
General Partner
ATTEST: FACILICOM INTERNATIONAL, INC.
[SIGNATURE APPEARS HERE] By /s/ [SIGNATURE APPEARS HERE]
- ----------------------------- ----------------------------------
Title: Vice President & Treasurer
------------------------------
-8-
<PAGE>
Exhibit A
FACILICOM INTERNATIONAL, L.L.C.
FIRST AMENDED AND RESTATED
LIMITED LIABILITY COMPANY AGREEMENT
Dated as of September 30, 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION PAGE
<C> <S> <C>
1. Certain Definitions................................................. 1
2. Organization........................................................ 4
2.1 Formation................................................. 4
2.2 Name...................................................... 4
3. Principal Place of Business; Registered Office and Agent............ 5
4. Purposes and Powers of the Company.................................. 5
4.1 General Purposes and Powers ............................... 5
4.2 Additional Powers ......................................... 5
5. Term................................................................ 5
6. Capital Contributions and Related Matters........................... 5
6.1 Capital Contributions..................................... 5
6.2 Additional Capital Contributions.......................... 6
6.3 Repayment of Capital Contributions........................ 6
6.4 No Priorities Among Members............................... 6
7. Capital Accounts; Allocations....................................... 6
7.1 Capital Accounts.......................................... 6
7.2 Allocations of Net Profits................................ 7
7.3 Allocations of Net Losses................................. 7
7.4 Special Allocations....................................... 8
7.5 Tax Allocations........................................... 9
8. Distributions....................................................... 9
9. Books of Account; Reports........................................... 10
9.1 Books of Account.......................................... 10
9.2 Reports................................................... 10
10. Management of the Company........................................... 11
10.1 Management by Members.................................... 11
10.2 Management Committee..................................... 11
10.3 Title Designations....................................... 11
10.4 Liability and Indemnification............................ 12
10.5 Banking.................................................. 12
10.6 Tax Matters Member....................................... 12
</TABLE>
-ii-
<PAGE>
<TABLE>
<S> <C> <C>
11. Other Activities of the Members..................................... 13
12. Expenses and Fees................................................... 13
12.1 Initial Expenses......................................... 13
12.2 Operating Expenses....................................... 13
12.3 Compensation............................................. 13
13. Transfers of Interests; Admission................................... 13
13.1 Transfer Restrictions.................................... 13
13.2 Admissions............................................... 15
13.3 Distributions and Allocations in Respect to Transferred
Interests............................................. 16
14. Dissolution of Company.............................................. 16
15. Winding Up of the Company........................................... 17
15.1 Termination of Company Business.......................... 17
15.2 Liquidation of Assets.................................... 17
15.3 Distribution of Assets................................... 18
16. Amendment of Agreement.............................................. 19
17. Action by and Meetings of the Members............................... 19
17.1 Action by the Members.................................... 19
17.2 Meetings of Members...................................... 20
18. Members' Covenants; Breach.......................................... 20
18.1 Covenant Not to Dissolve................................. 20
18.2 Consequences of Violation of Covenant.................... 20
18.3 Breach Payments.......................................... 21
18.4 No Bonding............................................... 21
19. Disputes............................................................ 22
20. Miscellaneous....................................................... 22
20.1 Notices.................................................. 22
20.2 Section Headings......................................... 23
20.3 Severability............................................. 23
20.4 Governing Law............................................ 23
20.5 Counterpart Execution.................................... 23
20.6 Parties in Interest...................................... 24
20.7 Gender and Number........................................ 24
20.8 Section References........................................ 24
20.9 Entire Agreement......................................... 24
</TABLE>
-iii-
<PAGE>
FACILICOM INTERNATIONAL, L.L.C.
FIRST AMENDED AND RESTATED
LIMITED LIABILITY COMPANY AGREEMENT
THIS LIMITED LIABILITY COMPANY AGREEMENT, dated as of September 30, 1997,
is entered into by and among ARMSTRONG INTERNATIONAL TELECOMMUNICATIONS, INC., a
Delaware corporation ("Armstrong"), as the Class A Member, FCI MANAGEMENT GROUP,
a Pennsylvania general partnership ("FMG"), as the Class B Member.
W I T N E S S E T H T H A T :
WHEREAS, the Company was formed pursuant to that certain Limited Liability
Company Agreement (the "Original Agreement") dated as of July 17, 1995;
WHEREAS, pursuant to the Original Agreement, Armstrong has made substantial
Excess Capital Contributions;
WHEREAS, a substantial amount of Guaranteed Return has accrued to Armstrong
in respect of such Excess Capital Contributions;
WHEREAS, Armstrong has loaned $5,000,000 (the "Convertible Loan") to the
Company, and has made available to the Company other amounts of credit (the
"Letter of Credit Loans"), each pursuant to the terms of that certain
Convertible Line of Credit Agreement dated as of November 1, 1996;
WHEREAS, a substantial amount of interest has accrued and remains unpaid to
Armstrong in respect of such Convertible Loan and the Letter of Credit Loans;
WHEREAS, the parties have determined that it would be in the best interest
of the Company if Armstrong made an additional Capital Contribution comprised of
such Excess Capital Contributions, accrued Guaranteed Return, Convertible Loan
and accrued interest;
WHEREAS, the parties have determined that it will be in the best interests
of the Company if selected key employees and other persons were granted options
to acquire Units and to thereby become Class C Members of the Company pursuant
to the terms of any plan to carry out such purpose as may be adopted by a
Majority-in-Interest of the Voting Members, and any such Class C Member shall
have only such rights as are set forth in this Agreement;
<PAGE>
WHEREAS, the parties desire to restate the Original Agreement to reflect
(i) the making by Armstrong of such additional Capital Contribution and the
related adjustment of the Members' relative interests in the Company and (ii)
the rights of any Class C Member as may be admitted to the Company;
WHEREAS, the parties desire to remain associated in a Limited Liability
Company under the Act for the purposes and on the terms herein set forth;
NOW, THEREFORE, in consideration of the mutual promises made herein, the
parties hereto, intending to be legally bound, do hereby agree as follows:
1. CERTAIN DEFINITIONS.
-------------------
When used herein and except as the context may otherwise require, the
following terms shall have the meanings set forth below:
A. "ACT" means the Delaware Limited Liability Company Act
(Chapter 18, Title 6 of the Delaware Code Annotated), as amended from time to
time.
B. "ADJUSTED CAPITAL ACCOUNT DEFICIT" means, with respect to
any Member, the deficit balance, if any, in such Member's Capital Account after
giving effect to the following adjustments:
(I) Credit to such Capital Account the sum of (A) any amount
which such Member is obligated to restore pursuant to any provision of this
Agreement, (B) an amount equal to such Member's share of Company Minimum
Gain and of Member Nonrecourse Debt Minimum Gain as determined under Treas.
Regs. 1.704-2(g) and 1.704-2(i)(5), respectively, and (C) any amount which
such Member is deemed to be obligated to restore pursuant to Treas. Reg.
1.704-1(b)(2)(ii)(c); and
(II) Debit to such Capital Account the items described in
subclauses (4), (5) and (6) of Treas. Reg. 1.704-1(b)(2)(ii)(d).
The foregoing definition of Adjusted Capital Account Deficit is
intended to comply with the provisions of Treas. Reg. 1.704-1(b)(2)(ii)(d) and
shall be interpreted consistently therewith.
C. "AFFILIATE" means, with respect to any Person, any Person
directly or indirectly controlling, controlled by or under common control with
such Person. As used in the immediately preceding sentence, the term "control"
means, with respect to a Person, the right to exercise, directly or indirectly,
a majority of the voting rights attributable to such Person, and the term
"majority" means more than fifty percent (50%).
-2-
<PAGE>
D. "AGREEMENT" means this First Amended and Restated Limited
Liability Company Agreement as the same may be amended and supplemented from
time to time.
E. "CAPITAL ACCOUNT" means the capital account of each Member
established and maintained in accordance with Section 7.1.
F. "CAPITAL COMMITMENT", in respect of any Member, means that
which is agreed to be contributed to the capital of the Company by such Member
without regard to such Member's Capital Contribution.
G. "CAPITAL CONTRIBUTION" means, with respect to any Member,
the amount of cash and/or the fair market value of the property or services
actually contributed to or performed on behalf of the Company by such Member.
H. "CERTIFICATE" means the certificate of formation of the
Company filed on May 5, 1995, and all amendments thereto, executed and filed
pursuant to the Act and the terms of this Agreement.
I. "CODE" means the Internal Revenue Code of 1986, as amended.
All references herein to specific Sections of the Code shall be deemed to refer
also to the corresponding provisions of succeeding law.
J. "COMPANY" means the Limited Liability Company formed
pursuant to the Original Agreement and continued pursuant to this Agreement.
K. "COMPANY MINIMUM GAIN" has the same meaning as the phrase
"partnership minimum gain" as set forth in Treas. Regs. 1.704-2(d).
L. "EXCESS CAPITAL CONTRIBUTION" shall have the meaning
ascribed thereto in the Original Agreement.
M. "FISCAL YEAR" means the Company's fiscal year which shall
commence on October 1 and end on September 30 (unless otherwise required by the
Code) of each year, except that such term shall also include any period for
which the Company is required to allocate Net Profits, Net Losses and other
items of income, gain, loss or deduction pursuant to Section 7.
N. "GUARANTEED RETURN" shall have the meaning ascribed thereto
in the Original Agreement.
O. "LIQUIDATION TRUSTEE" means the trustee selected by the
Members pursuant to Section 15.2.
-3-
<PAGE>
P. "MAJORITY-IN-INTEREST OF THE MEMBERS" means Members holding
Units representing greater than fifty percent (50%) of the total number of Units
held by all Members.
Q. "MAJORITY-IN-INTEREST OF THE VOTING MEMBERS" means those
Class A and Class B Members holding Units representing greater than fifty
percent (50%) of the total number of Units held by all Class A and Class B
Members.
R. "MANAGEMENT COMMITTEE" means the Management Committee formed
pursuant to Section 10.2.
S. "MEMBERS" means the Class A Member, the Class B Member, and
the Class C Members, and each of them individually, and any other Person who
becomes a Member in accordance with this Agreement.
T. "MEMBER NONRECOURSE DEBT MINIMUM GAIN" has the same meaning
as the phrase "partner nonrecourse debt minimum gain" as set forth in Treas.
Reg. 1.704-2(i).
U. "MEMBER NONRECOURSE DEDUCTION" has the same meaning as the
phrase "partner nonrecourse deduction" as set forth in Treas. Reg. 1.704-2(i).
V. "MEMBER NONRECOURSE LOAN" means a loan made to, or credit
arrangement for the benefit of, the Company by a Member or by a person related
to a Member (as defined in Treas. Reg. 1.752-4(b)) which by its terms (or by
operation of law) exculpates the Members from personal liability on the debt,
but under which such Member or related person bears the ultimate economic risk
of loss within the meaning of Treas. Reg. 1.752-2.
W. "NET LOSSES" for any Fiscal Year means the excess, if any,
of the items of loss and deduction over the items of income and gain of the
Company as recorded on its financial accounting books and records for such
Fiscal Year.
X. "NET PROFITS" for any Fiscal Year means the excess, if any,
of the items of income and gain over the items of loss and deduction of the
Company as recorded on its financial accounting books and records for such
Fiscal Year.
Y. "NONRECOURSE DEDUCTIONS" has the meaning set forth in Treas.
Reg. 1.704-2(b).
Z. "ORGANIZATIONAL EXPENSES" means the fees, costs and expenses
of, and incidental to, the organization of the Company. Such expenses shall
include any and all amounts categorized as "organizational expenditures" under
the Code.
AA. "PERSON" means any individual, partnership, corporation,
trust or other entity.
-4-
<PAGE>
BB. "PRE-OPERATING EXPENSES" means the investigative fees, costs
and expenses incidental to the creation of the Company and the fees, costs and
expenses incurred in connection with the commencement of operations of the
Company. Such expenses shall include any and all amounts categorized as "start-
up expenditures" under the Code.
CC. "PROPERTY" means all of the property, real, personal or
mixed, tangible or intangible, owned by the Company or in or to which the
Company has any interest of any nature or description.
DD. "TAX MATTERS MEMBER" means the Member of the Company so
designated pursuant to Section 10.6.
EE. "TREAS. REG." and "REGULATIONS" mean the Income Tax
Regulations promulgated under the Code, as such regulations may be amended from
time to time (including corresponding provisions of succeeding regulations).
ff. "UNIT", or any fraction thereof, means an ownership interest
in the Company representing the Capital Account of a Member and including such
Member's share of Net Profits and Net Losses, such Member's right to receive
distributions hereunder and any and all other rights and interests to which such
Member may be entitled as provided in this Agreement.
2. ORGANIZATION.
------------
2.1 FORMATION. The Members hereby ratify and confirm the filing
---------
of the Certificate with the Office of the Secretary of State of Delaware on May
5, 1995 and agree to continue the Company as a limited liability company
pursuant to the provisions of the Act and upon the terms and conditions set
forth in this Agreement.
2.2 NAME. The name of the Company is "FACILICOM INTERNATIONAL,
----
L.L.C.".
3. PRINCIPAL PLACE OF BUSINESS; REGISTERED OFFICE AND AGENT.
--------------------------------------------------------
(a) The principal place of business of the Company will be
located at 1401 New York Avenue, NW, 8th Floor, Washington, D.C. 20005, or
at such other place as the Members may determine from time to time.
(b) The address of the Company's registered office in Delaware is
1013 Centre Road, Wilmington, Delaware, 19805, and its initial registered
agent for service of process is Corporation Service Company. The Members
may designate a different address of its registered office and a
-5-
<PAGE>
different registered agent by amending the Certificate in accordance with
the Act.
4. PURPOSES AND POWERS OF THE COMPANY.
----------------------------------
4.1 GENERAL PURPOSES AND POWERS. The Company is organized for
---------------------------
the purposes of acquiring, owning, designing, developing, constructing,
improving, financing, managing, operating, selling, exchanging or otherwise
disposing of long-distance and international telephone, data transmission and
other related services, and the Company shall have the power to do all things as
the Members from time to time may deem necessary or advisable in connection
therewith or as otherwise contemplated by this Agreement.
4.2 ADDITIONAL POWERS. The Company shall have and may exercise
-----------------
all of the powers which may be possessed and exercised by limited liability
companies under the Act.
5. TERM. Except as otherwise set forth in this Agreement, the Company
----
shall terminate on December 31, 2025.
6. CAPITAL CONTRIBUTIONS AND RELATED MATTERS.
-----------------------------------------
6.1 CAPITAL CONTRIBUTIONS.
---------------------
(a) As its Capital Commitment, Armstrong shall contribute, and
the parties hereby confirm that Armstrong has previously contributed, to
the capital of the Company the following:
(i) $180,000 in cash upon the execution of the Original
Agreement; and
(ii) as of the date hereof, (A) $10,000,000 in cash
comprising Excess Capital Contributions, (B) $900,106 comprising accrued
and unpaid Guaranteed Return, (C) $5,000,000 in cash comprising the
proceeds of the Convertible Loan and (D) $396,016 comprising accrued and
unpaid interest on the Convertible Loan;
and in respect of such Capital Contributions, Armstrong shall be deemed to
have been issued 15,390,000 Units as of the date hereof.
(b) As its Capital Commitment, FMG shall contribute (and the
parties hereby confirm that such contribution was made upon the execution
of the Original Agreement) $60,000 in cash to the capital of the Company in
respect of which FMG shall be deemed to have been previously issued
3,610,000 Units.
-6-
<PAGE>
(c) The Capital Commitment, Capital Contribution and entitlement
to Units of any person admitted to the Company as a Class C Member after
the date hereof shall be as determined pursuant to the plan referred to in
Section 13.2.
(d) Organizational Expenses and Pre-Operating Expenses incurred
and paid by any Member on behalf of the Company shall not be deemed to be
Capital Contributions. Upon the execution hereof, each Member shall be
reimbursed for any such Organizational Expenses and Pre-Operating Expenses.
6.2 ADDITIONAL CAPITAL CONTRIBUTIONS. Except as expressly
--------------------------------
provided in this Agreement and except as the Members may otherwise unanimously
agree, no Member shall be required or permitted to make any additional
contributions to the capital of the Company.
6.3 REPAYMENT OF CAPITAL CONTRIBUTIONS. Except as expressly
----------------------------------
provided in this Agreement, no specific time has been agreed upon for the
repayment of Capital Contributions, and no Member (or its successor in interest)
shall have the right to withdraw any capital contributed to the Company.
6.4 NO PRIORITIES AMONG MEMBERS. Except as expressly provided in
---------------------------
this Agreement, no Member shall have the right to receive property other than
cash in return for its Capital Contribution, nor shall any Member have priority
over any other Member either as to the return of its Capital Account or as to
profits, losses or distributions.
7. CAPITAL ACCOUNTS; ALLOCATIONS.
-----------------------------
7.1 CAPITAL ACCOUNTS.
----------------
(a) There shall be established and maintained for each Member on
the books of the Company a Capital Account initially reflecting an amount
equal to its Capital Contribution. The Capital Accounts shall be adjusted
from time to time to reflect the Members' additional Capital Contributions,
allocable shares of Net Profits or Net Losses or any item thereof,
distributions pursuant to Section 8 and as otherwise required by the
provisions of this Agreement and the Code and Regulations including, but
not limited to, the rules of Treas. Reg. 1.704-1(b)(2)(iv).
(b) As of the effective date hereof, the Capital Accounts of the
Members shall be adjusted in accordance with Section 7 of the Original
Agreement to reflect unrealized appreciation in the value of the Company's
net assets in an amount such that the total value of such net assets as of
the date of this Agreement is agreed by the parties to be $95,000,000.
(c) If allocations for tax purposes are required to be made
pursuant to Sections 7.5(b) or (c), then the adjustments to the Capital
Accounts of the Members in respect of the property described therein shall
be made in accordance with Treas. Reg.
-7-
<PAGE>
1.704-1(b)(2)(iv)(g) for allocation to them of items of income, gain, loss
and deduction (including items of depreciation, depletion, amortization or
other cost recovery) as computed for book purposes, and no further
adjustments shall be made to the Capital Accounts to reflect the Members'
shares of the corresponding tax items. In computing such adjustments to the
Capital Accounts, the Company shall utilize the method of computing such
items as is utilized for federal income tax purposes except that the
property's value for book purposes will be used rather than its adjusted
tax basis.
7.2 ALLOCATIONS OF NET PROFITS. Net Profits for any Fiscal Year,
--------------------------
and upon liquidation of the Company's assets pursuant to Section 15, shall be
allocated, subject to Section 7.3(e), as follows:
(a) first, to the Class A Member to the extent of the cumulative
Net Losses previously allocated to the Class A Member pursuant to Section
7.3(d) (less cumulative Net Profits previously allocated to the Class A
Member pursuant to this Section 7.2(a))
(b) second, to all of the Members to the extent of, and in
proportion to, the cumulative Net Losses previously allocated to such
Members pursuant to Section 7.3(c) (less cumulative Net Profits previously
allocated to such Members pursuant to this Section 7.2(b));
(c) third, to all of the Class A Member to the extent of the
cumulative Net Losses previously allocated to such Member pursuant to
Section 7.3(b) (less cumulative Net Profits previously allocated to such
Member pursuant to this Section 7.2(c)); and
(d) thereafter, to all of the Members in proportion to the number
of their respective Units.
7.3 ALLOCATIONS OF NET LOSSES. Net Losses for any Fiscal Year,
-------------------------
and upon liquidation of the Company's assets pursuant to Section 15, shall be
allocated as follows:
(a) first, to all of the Members to the extent of, and in
proportion to, the cumulative Net Profits previously allocated to such
Members pursuant to Section 7.2(d) (less cumulative Net Losses previously
allocated to such Members pursuant to this Section 7.3(a);
(b) second, to the Class A Member to the extent of the sum of (i)
its Capital Contributions as described in clause (ii) of Section 6.1(a),
plus (ii) the cumulative Net Profits allocated to the Class A Member
pursuant to Section 7.2(c), less (iii) cumulative Net Losses previously
allocated to the Class A Member pursuant to this Section 7.3(b);
-8-
<PAGE>
(c) third, to all of the Members to the extent of, and in
proportion to the sums of, their respective Capital Contributions
(excluding, in the case of the Class A Member, its Capital Contributions as
described in clause (ii) of Section 6.1(a)), plus (ii) the cumulative Net
Profits allocated to such Members pursuant to Section 7.2(b), less (iii)
cumulative Net Losses previously allocated to such Members pursuant to this
Section 7.3(c)); and
(d) thereafter, to the Class A Member.
(e) Net Losses allocated to the Class B Member and each Class C
Member pursuant to the foregoing subsections of this Section 7.3 shall not
exceed the maximum amount that can be so allocated without causing such
Member to have an Adjusted Capital Account Deficit at the end of any Fiscal
Year. All Net Losses in excess of the limitation ("Excess Losses") set
forth in the preceding sentence shall be re-allocated to the Class A
Member. In the event of any such re-allocation of Excess Losses, subsequent
allocations of Net Profits (or any item thereof) in an amount sufficient to
offset the allocation of such Excess Losses shall be made to the Class A
Member prior to any other allocations being made pursuant to Section 7.2.
7.4 SPECIAL ALLOCATIONS. Notwithstanding any other provision of
-------------------
this Agreement, the following special allocations shall be made for each Fiscal
Year prior to the making of any other allocations under this Agreement and, in
the following order and priority:
(a) Minimum Gain Chargeback.
-----------------------
(i) If there is a net decrease in Company Minimum Gain
during any Fiscal Year so that an allocation is required by Treas. Reg. (S)
1.704-2(f)(1), items of income and gain shall be allocated to the Members
in the manner and to the extent required by such Regulation. This provision
is intended to be a minimum gain chargeback within the meaning of Treas.
Reg. (S) 1.704-2(f)(1) and shall be interpreted and applied consistently
therewith.
(ii) If there is a net decrease in Member Nonrecourse
Debt Minimum Gain during any Fiscal Year so that an allocation is required
by Treas. Reg. (S)1.704-2(i)(4) (minimum gain chargeback attributable to a
partner nonrecourse debt), items of income and gain shall be allocated in
the manner and to the extent required by such Regulation.
(b) Qualified Income Offset. In the event any Member receives
-----------------------
any adjustment, allocation or distribution described in subclause (4), (5)
or in (6) of Treas. Reg. (S) 1.704-1(b)(2)(ii)(d), items of Company income
and gain shall be specially allocated to such Member in an amount and
manner sufficient to eliminate, to the extent required by the Regulations,
the deficit balance in such Member's Capital Account as quickly as
possible, provided that an allocation pursuant to this Section 7.4(b) shall
be
-9-
<PAGE>
made only if and to the extent that such Member would have such deficit
balance after all other allocations provided for in Section 7.2 have been
tentatively made as if this Section 7.4(b) were not in this Agreement.
(c) Member Nonrecourse Deduction. Any Member Nonrecourse
----------------------------
Deduction shall be allocated to the Member who bears the economic risk of
loss with respect to the Member Nonrecourse Loan giving rise to such
deduction within the meaning of Treas. Reg. (S) 1.752-2.
(d) Section 754 Adjustments. To the extent an adjustment to the
-----------------------
adjusted tax basis of any Company asset pursuant to Section 734(b) of the
Code or Section 743(b) of the Code is required pursuant to Treas. Reg.
1.704-1(b)(2)(iv)(m)(2) or with respect to a distribution to a Member in
-
liquidation of such Member's interest in the Company, pursuant to Treas.
Reg. 1.704-1(b)(2)(iv)(m)(4) to be taken into account in determining
-
Capital Accounts, the amount of such adjustment shall be treated as an item
of gain (if the adjustment increases the basis of the asset) or loss (if
the adjustment decreases such basis), and such gain or loss shall be
allocated to the Members in accordance with their interests in the Company,
in the event Treas. Reg. 1.704-1(b)(2)(iv)(m)(2) applies, or to the Member
-
to whom such distribution is made, in the event Treas. Reg. 1.704-
1(b)(2)(iv)(m)(4) applies.
-
7.5 TAX ALLOCATIONS.
---------------
(a) General. For federal, state and local income tax purposes,
-------
all items of taxable income, gain, loss, and deduction for each Fiscal Year
shall, except as provided in Sections 7.5(b) and (c), be allocated among
the Members in accordance with the manner in which the corresponding items
were allocated under Sections 7.2, 7.3 and 7.4.
(b) Contributed property. If property is contributed to the
--------------------
Company by a Member and if there is a difference between the basis of such
property to the Company for federal income tax purposes and the fair market
value at the time of its contribution, then items of income, deduction,
gain and loss with respect to such property as computed for federal income
tax purposes (but not for book purposes) shall be shared among the Members
so as to take account of such difference as required by Section 704(c) of
the Code.
(c) Revalued property. If property (other than property
-----------------
described in Section 7.5(b)) of the Company is reflected in the Capital
Accounts of the Members and on the books of the Company at a book value
that differs from the adjusted basis of such property for federal income
tax purposes by reason of a revaluation of such property (including the
revaluation made pursuant to Section 7.1(b)), then items of income,
deduction, gain and loss with respect to such property for federal income
tax purposes (but not for book purposes) shall be shared among the Members
in a manner that takes account of the difference between the adjusted basis
of such property for federal income tax purposes and its book value in the
same manner as differences between adjusted basis
-10-
<PAGE>
and fair market value are taken into account in determining the Members'
shares of tax items under Section 704(c) of the Code.
8. DISTRIBUTIONS.
-------------
(a) The Company may make distributions to the Members from time
to time. All distributions hereunder, whether in cash or other property
(or a combination thereof) shall be made to the Members in the following
order of priority:
(i) first, to the Class A Member in an aggregate amount
equal to its Capital Contributions as described in clause (ii) of Section
6.1(a);
(ii) second, to the Members in proportion, and in an
aggregate amount equal, to their respective Capital Contributions
(excluding, in the case of the Class A Member, its Capital Contributions as
described in clause (ii) of Section 6.1(a)); and
(iii) thereafter, to the Members in accordance with
their respective positive Capital Account balances.
(b) Distributions shall not be authorized or made hereunder if
and to the extent that such distributions would render the Company
insolvent or impair its ability to discharge its obligations, whether or
not accrued, absolute, fixed or contingent, would interfere with its
ability to carry out the purposes of the Company or otherwise would be in
violation of the Act.
9. BOOKS OF ACCOUNT; REPORTS.
-------------------------
9.1 BOOKS OF ACCOUNT. The Company's books and records shall be
----------------
maintained at the principal office of the Company or at any other location
designated by the Members, and all Members shall have access thereto at all
reasonable times. The books and records shall be kept on the basis of
accounting used for federal income tax purposes, reflect all Company
transactions and shall be otherwise appropriate and adequate for the conduct of
the Company's business.
9.2 REPORTS.
-------
(a) Within seventy-five (75) days after the end of each Fiscal
Year, the Company shall prepare and submit to each Member an annual report
of the Company for such Fiscal Year. The annual report shall include the
balance sheet of the Company as of the last day of such Fiscal Year and
statements of profit or loss and cash flows of the Company for such Fiscal
Year. The report shall be accompanied by a supplementary schedule showing
the entries to the Members' (separately and in the aggregate) Capital
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<PAGE>
Accounts in respect of such Fiscal Year, together with the appropriate
Internal Revenue Service forms showing entries required to be made on each
such Member's federal income tax return with respect to the Company's Net
Profits or Net Losses.
(b) In connection with the liquidation and dissolution of the
Company, the Members or the Liquidation Trustee (as the case may be) shall
prepare and submit to the Members a termination report containing the
financial statements of the Company as of and for the period ended upon the
substantial completion of liquidation.
10. MANAGEMENT OF THE COMPANY.
-------------------------
10.1 MANAGEMENT BY MEMBERS. The management, operation and control
---------------------
of the Company and its business and affairs shall rest exclusively with the
Members.
10.2 MANAGEMENT COMMITTEE.
--------------------
(a) The management of the Company by and on behalf of the Members
shall be effectuated by a Management Committee comprised of seven
individuals, five (5) of whom shall be designated at any time and from time
to time by the Class A Member, and two (2) of whom shall be designated at
any time and from time to time by the Class B Member. The Class C Members
shall have no right to designate any member of the Management Committee.
Each individual serving on the Management Committee (i) shall serve at the
pleasure of, (ii) may be removed at any time and for any reason by, (iii)
shall be the agent of and (iv) shall cast any votes as may be taken
hereunder on behalf of, the Member who shall have designated such
individual in accordance with this Section. All actions taken and all
determinations and decisions made by (x) a majority in number of the
members of the Management Committee shall be deemed for all purposes to be
the actions taken by the Members and (y) all of the members of the
Management Committee shall be deemed for all purposes to be the actions
taken by all of the Members. Any action, determination or decision
(including matters as to which the Management Committee is given authority
to act by the terms of this Agreement) as to which a majority in number of
the members of the Management Committee cannot agree shall be taken or made
by a Majority-in-Interest of the Voting Members.
(b) In furtherance of (and subject to) subsection (a) of this
Section 10.2, the following individuals are hereby designated as the
members of the Management Committee
by the Class A Member: Jay L. Sedwick;
Kirby J. Campbell;
Dru A. Sedwick;
William C. Stewart, and
Bryan Cipoletti; and
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<PAGE>
by the Class B Member: Robert L. Reed; and
Walter Burmeister
(c) The Management Committee may adopt and amend such by-laws,
rules, regulations, policies and procedures as it may determine to be in
the best interest of the Company (but not inconsistent with this Agreement)
for the conduct of the business of the Management Committee and the
business and affairs of the Company.
(d) Notwithstanding the foregoing provisions of this Section
10.2, the Management Committee shall not have to power to act in respect of
the following matters without the consent of a Majority-in-Interest of the
Voting Members:
(i) the issuance, sale or other disposition by the
Company of any debt or equity securities or similar interests in the
Company except pursuant to any plan as may be adopted by a Majority-in-
Interest of the Voting Members in respect of the issuance of Units to Class
C Members as contemplated by Section 13.2;
(ii) the sale, lease or transfer of a material portion of
the assets of the Company or the sale, transfer or assignment of any
material governmental permit or license relating to the business of the
Company;
(iii) the adoption of operating, capital or other budgets;
(iv) the modification to any then-current, approved budget,
or the approval of any expenditure in excess of amounts previously included
in a then-current, approved budget;
(v) causing the Company to (A) guarantee or otherwise become
liable for the indebtedness of any other person, (B) extend credit (other
than in the ordinary course of business) to any person, (C) incur any
indebtedness (other than trade payables incurred in the ordinary course of
business and as contemplated in any then-current, approved budget) or (D)
pledge, encumber or create any lien upon or in any of the assets of the
Company;
(vi) the employment of management personnel or the discharge
or material modification of the terms of employment or duties of any such
personal;
(vii) the authorization or payment of any compensation to
any employee of the Company or any other person engaged by the Company if
the expected annual compensation payable to such employee or other person
would exceed $100,000;
(viii) the authorization, approval or execution of any
contract or other agreement on behalf of the Company under which the
Company would be obligated for amounts in excess of $250,000;
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<PAGE>
(ix) the authorization or payment of any bonus to any
employee of the Company or any other person engaged by the Company;
(x) any change to the Company's then-existing employee
benefit plans; or
(xi) the approval of any transaction with a person or entity
which is an Affiliate of any Member on terms less advantageous to the
Company than those which would be available from an unrelated party.
10.3 TITLE DESIGNATIONS. The Management Committee shall have the
------------------
power to create such employee or officer-type designations (such as president,
vice-president and the like) as it shall determine to be in the best interests
of the Company, to designate the powers, authorities and responsibilities as
shall be deemed to have been granted to and undertaken by those individuals to
whom such designations are assigned and to determine those individual(s) to whom
such designations (and the accompanying powers, authorities and
responsibilities) shall be assigned. Except as may be limited by contract, each
individual to whom is assigned any such designation shall serve at the pleasure
of the Management Committee, and any such designation (and the accompanying
powers, authorities and responsibilities) may be modified or terminated at any
time in the sole discretion of the Management Committee.
10.4 LIABILITY AND INDEMNIFICATION.
-----------------------------
(a) No Member, and no member of the Management Committee, shall
be liable to the Company or to any other Member for any debts owed by the
Company to any such Member, or for any actions taken or omissions made in
good faith and reasonably believed by such Member (or member of the
Management Committee) to be in the best interests of the Company, or for
errors of judgment, except to the extent such acts or omissions constitute
gross negligence, recklessness or willful misconduct.
(b) To the fullest extent permitted by law, the Company shall
indemnify each Member, each member of the Management Committee and the
Company's and each Member's (and member of the Management Committee's)
partners, employees, agents and Affiliates (where acting for or as agent of
the Company or the Member (or the member of the Management Committee) in
its capacity as such) (any of the foregoing Persons being hereinafter an
"Indemnified Person") and save and hold them and each of them harmless from
and in respect of (i) all fees, costs and expenses, including attorneys'
fees, incurred in connection with, or resulting from, any claim, action or
demand against any such Indemnified Person or the Company which arise out
of, or in any way relate to, the Company, its properties, business or
affairs, and (ii) all such claims, actions and demands and any losses,
liabilities or damages resulting therefrom, including amounts paid by such
Indemnified Person with the prior written consent of the Company in
settlement or compromise of any such claim, action or demand; provided,
however, that this indemnity shall not extend to any such Indemnified
Person to the extent that its
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<PAGE>
acts and omissions shall have been adjudged to constitute a breach of this
Agreement or gross negligence, recklessness or willful misconduct.
10.5 BANKING. All funds of the Company shall be deposited in such
-------
bank account or accounts of federally insured bank(s) as shall be determined by
the Members. Such funds shall not be commingled with any of the funds of any
Member. All withdrawals therefrom shall be made upon written authorization
signed by any Person authorized to do so by the Members.
10.6 TAX MATTERS MEMBER. The Class A Member shall be the "tax
------------------
matters partner" (as defined in Section 6231(a)(7) of the Code) to act on behalf
of the Company in connection with Company income tax matters.
11. OTHER ACTIVITIES OF THE MEMBERS. Y Nothing in this Agreement shall
-------------------------------
preclude any Member or its Affiliates from engaging in other transactions and
possessing interests and making investments in and loans to other business
ventures of any nature or description (whether or not competitive with the
business of the Company), independently or with others, whether existing as of
the date hereof or hereafter coming into existence, and neither the Company nor
any other Member shall have any rights in or to any such other transactions,
investments or ventures or the income or profits derived therefrom.
12. EXPENSES AND FEES.
-----------------
12.1 INITIAL EXPENSES. Pre-Operating Expenses and Organizational
----------------
Expenses will be amortized as permitted by the Code.
12.2 OPERATING EXPENSES. The Company shall be obligated to pay or
------------------
reimburse the expenses of operating and maintaining the Company and its
Properties, which expenses shall include, without limitation, legal, accounting
and auditing fees and expenses of the Company and the costs of the acquisition,
maintenance, repair and disposition of the Company's Properties and taxes and
assessments with respect thereto.
12.3 COMPENSATION. No Member, as such, shall receive any salary,
------------
fee or draw for services rendered to or on behalf of the Company.
13. ADMISSIONS.
----------
13.1 ADMISSIONS OF ASSIGNEES.
-----------------------
(a) All transfers by a Member of its Units, or any interest
therein, shall entitle the transferee only to receive the allocations and
distributions to which the transferring Member would otherwise be entitled,
and such transferee shall become a
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<PAGE>
Member, and shall have the right to participate in the management of the
business and affairs of the Company, only upon compliance with the
requirements of Sections 13.1(b) and (c) and only with the advance written
consent of the Management Committee, which consent shall be given in its
sole and absolute discretion.
(b) No Person to whom a transferring Member has transferred its
Units, or any interest therein, shall become a Member of the Company or
have the right to participate in the management of the business and affairs
of the Company unless (i) provision therefor is made by the instrument of
assignment, (ii) such Person executes and acknowledges such instruments as
the Management Committee (acting (if applicable) without the participation
of the Member making such transfer) reasonably deems necessary or advisable
to permit such Person to become a Member, (iii) in the opinion of counsel
for the Company, (A) neither the assignment of such Units, or any interest
therein, nor the becoming of a Member by such Person will adversely affect
the Company's classification as a partnership for federal income tax
purposes and (B) neither the offering nor the proposed transfer of such
Units, or interest therein, will violate, or cause the original issue
thereof to be in violation of, the securities laws, rules or regulations of
the United States, any state thereof or any other jurisdiction, (iv) all
other steps are taken which, in the opinion of the Management Committee,
are reasonably necessary to permit such Person to become a Member and (v)
such Person pays for all expenses incurred by the Company in connection
with such Person's becoming a Member.
(c) Any Person becoming a Member pursuant to this Section 13 will
succeed to all rights and be subject to all the obligations of the
assigning Member with respect to the Units, or interest therein, assigned
to such Person.
(d) The Management Committee may suspend all transfers and
assignments of Units (or interests therein) for a period of up to 12 months
whenever the Management Committee reasonably determines, or is advised by
counsel, that in light of previous transfers, any subsequent transfer of
Units (or interests therein) may reasonably be expected to result in a
termination of the Company for purposes of Section 708(b) of the Code.
13.2 OPTIONS TO ACQUIRE CLASS C UNITS; ADMISSION OF CLASS C MEMBERS.
--------------------------------------------------------------
It is anticipated that a Majority-in-Interest of the Voting Members will adopt a
plan pursuant to which the Management Committee may grant to key employees, and
a Majority-in-Interest of the Voting Members may grant to members of the
Management Committee, options to acquire up to 1,254,000 Units (less, on the
date of any such grant, the number of "Units" as may then be outstanding under
(and as such term is defined in) the Company's Amended and Restated Performance
Unit Plan adopted as of September 30, 1997). Any such employee or member so
acquiring any of such Units upon the exercise of any such option shall be deemed
to have been admitted to the Company as, and in respect of such Units such
employee or member shall be, a Class C Member and shall have such rights,
privileges and benefits as are set forth in this Agreement in respect of Class C
Members.
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<PAGE>
13.3 DISTRIBUTIONS AND ALLOCATIONS IN RESPECT OF TRANSFERRED OR NEW
--------------------------------------------------------------
UNITS. If any Units, or any interest therein, are sold, assigned, transferred
- -----
or issued, or any Person otherwise becomes a Member during any Fiscal Year in
compliance with the provisions of this Section 13, Net Profits, Net Losses, each
item thereof, and all other items attributable to such Units, or interest
therein, for such Fiscal Year shall be allocated among the Members by taking
into account their varying interests during such Fiscal Year in accordance with
Section 706(d) of the Code. Unless otherwise required by the Regulations, such
sale, assignment, transfer, issuance or admission shall be deemed to have
occurred at the end of the calendar month during which such event shall have
actually occurred, and such allocations shall be determined and made pursuant to
a pro forma closing of the books of the Company as of the end of such month.
---------
With respect to a transferred Unit, or any interest therein, all distributions
on or before the deemed date of such transfer shall be made to the transferor
and all distributions thereafter shall be made to the transferee. Neither the
Company nor any Member shall incur any liability for making allocations and
distributions in accordance with the provisions of this Section 13.3.
14. DISSOLUTION OF COMPANY.
----------------------
(a) The Company shall dissolve upon the occurrence of any of the
following events:
(i) the expiration of the term of the Company as
provided in Section 5 unless such term is extended by the unanimous
agreement of the Members;
(ii) the written agreement of all of the Members;
(iii) subject to Section 14(b), the death, retirement,
resignation, expulsion, bankruptcy or dissolution of a Member or the
occurrence of any other event which terminates the continued membership of
a Member in the Company;
(iv) the sale of all or substantially all the assets of
the Company;
(v) the entry of an order of judicial dissolution under
the Act; or
(vi) the entry of a final judgment, order or decree of a
court with competent jurisdiction adjudicating the Company to be bankrupt,
and the expiration of the period, if any, allowed by applicable law in
which appeal therefrom.
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<PAGE>
(b) An event described in clause (iii) of Section 14(a) shall not
cause the Company to dissolve if the business of the Company is continued
with the consent of all of the remaining Members within ninety (90) days
after the date of such event. All Members hereby consent to the
continuation of the business of the Company in the event that any event
described in clause (iii) of Section 14.1(a) occurs with respect to a Class
C Member.
15. WINDING UP OF THE COMPANY.
-------------------------
15.1 TERMINATION OF COMPANY BUSINESS. Upon dissolution of the
-------------------------------
Company as provided in Section 14, the Company shall cease to conduct its
activities, and its business and affairs shall be wound up as promptly as
practicable in conformity with the procedures herein set forth and the
requirements of the Act.
15.2 LIQUIDATION OF ASSETS. Upon dissolution of the Company, the
---------------------
Members or a Liquidation Trustee selected by a Majority-in-Interest of the
Members shall arrange for liquidation of the Company's assets and cause such
liquidation to be carried out as promptly as is consistent with realization of
maximum value. The Members or the Liquidation Trustee, as the case may be,
shall have full power and authority to:
(a) sell, at such prices and upon such terms as they or it in
their or its sole discretion may deem appropriate, any or all of the
Company's assets, provided that such sales shall be made for cash to the
fullest extent practicable;
(b) incur such fees, costs and expenses for the account of the
Company as may be reasonable and necessary or advisable to accomplish such
liquidation;
(c) defer and withhold from liquidation Company assets if, in
their or its best judgment, such action is in the best interests of
Company's creditors and the Members; and
(d) take any and all other actions as may be permitted under the
Act.
Pending the liquidation provided for herein, the Members or the
Liquidation Trustee, as the case may be, shall have the power and authority to
operate, manage and otherwise deal with Company Property and to pay or provide
for payment and discharge of the Company's debts, obligations and liabilities,
whether or not accrued, absolute, fixed or contingent.
15.3 DISTRIBUTION OF ASSETS.
----------------------
(a) Gain or loss realized upon the sale or exchange of Company
assets pursuant to Section 15.2 shall be allocated to the Members' Capital
Accounts in accordance with the provisions of Section 7.
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<PAGE>
(b) Prior to any distribution relating to liquidation of the
Company, the Members or the Liquidation Trustee, as the case may be, shall
also adjust each Member's Capital Account to reflect the manner in which
the unrealized income, gain, loss and deduction inherent in the Company's
Property (that has not been reflected in the Members' Capital Accounts
previously) would be allocated among the Members if there were a taxable
disposition of such Property for the fair market value of such Property
(taking Section 7701(g) of the Code into account) on the date of
distribution.
(c) Distributions relating to liquidation may be made in cash or
other property (or a combination thereof).
(d) Distribution of the Company assets upon liquidation shall be
made in the following order:
(i) To the payment and discharge of all debts,
liabilities and obligations of the Company to Company creditors (including
Members and former Members) in the order of priority as provided by law;
(ii) To the establishment of any reserves for any
contingent or unforeseen liabilities or obligations of the Company;
provided, however, that if such reserves are established, the Capital
Accounts of the Members shall be adjusted pursuant to Section 15.3(b) and
upon the determination that it is no longer necessary to maintain any
particular portion of such reserves, such portion shall be immediately
distributed in accordance with Section 15.3(d)(iii).
(iii) To the Members in accordance with the net credit
balances of their respective Capital Accounts, as determined after taking
into account all Capital Account adjustments for the Company's taxable year
during which such liquidation occurs (other than those made pursuant to
this clause (iii) and subsection (e)), by the end of such taxable year (or,
if later, within 90 days after the date of the Company's liquidation).
(e) If any Member has a deficit balance in its Capital Account
following the distribution of Company assets upon dissolution, as
determined after taking into account all Capital Account adjustments for
the taxable year during which such dissolution occurs (other than those
made pursuant to this subsection (e)), such Member shall be required to
restore the amount of such deficit to the Company as soon as practicable
but in no event later than the end of such taxable year (or, if later,
within 90 days after the date of the Company's liquidation), which amount
shall be paid to the Company's creditors or distributed to the Members in
accordance with their respective positive Capital Account balances in
accordance with clause (d)(ii) of this Section 15.3; provided, however,
that no Company creditor may rely upon this sentence in order to create an
obligation of any Member to pay a Company debt which such Member is not
otherwise personally obligated to pay.
-19-
<PAGE>
(f) Upon the completion of the winding up of the affairs of the
Company and the distribution of its assets as provided for herein and in
the Act, the Members shall cause the Certificate to be canceled in
accordance with the Act.
16. AMENDMENT OF AGREEMENT. This Agreement may be amended in whole or
----------------------
in part only with the written consent of all of the Class A and Class B Members;
provided, however, that no such amendment shall directly reduce the Capital
Account (except as a result of a revaluation of the Company's assets) of any
Class C Member or its rights to allocations and distributions (other than as may
occur by the issuance of additional Units of any class) without the consent of
such Class A Member.
17. ACTION BY AND MEETINGS OF THE MEMBERS.
-------------------------------------
17.1 ACTION BY THE MEMBERS. Any vote, consent, approval,
---------------------
determination, election or agreement in regard to any action required of or
permitted by a Member (including on behalf of a Member by the members of the
Management Committee which are designated by such Member) by any provision of
this Agreement or by law shall be effective if taken, given or made by a
Majority-in-Interest of the Voting Members and may be expressed as follows:
(a) by the written consent of the Member at or prior to the time
of the action for which the consent is intended;
(b) by the Member's failure to respond to a written request for
consent sent by another Member to such Member, which failure to respond
continues for at least 30 days after the date upon which such request was
received by such Member (which date shall be determined with reference to
the date set forth in the return receipt with respect to the mailing of
such request by the Member seeking such consent); or
(c) by the affirmative vote of the Member as to the action for
which the vote is taken at any meeting which may be called and held to
consider such action pursuant to Section 17.2.
17.2 MEETINGS OF MEMBERS.
--------------------
(a) Any matter requiring the vote, consent, approval,
determination, election or agreement of the Members pursuant to any Section
of this Agreement or by law may be considered at a meeting held not fewer
than fifteen (15) days nor greater than sixty (60) days after written
notice thereof shall have been given by any Member.
(b) Such meeting may be held at the principal office of the
Company or may be held by means of conference telephone or similar methods
of communication during which all persons participating may be heard
simultaneously.
-20-
<PAGE>
18. MEMBERS' COVENANTS; BREACH.
--------------------------
18.1 COVENANT NOT TO DISSOLVE. Notwithstanding any provision of the
------------------------
Act or Section 14, each Member hereby covenants and agrees that the Members have
entered into this Agreement based on their mutual expectation that all Members
will continue as Members and carry out the duties and obligations undertaken by
them hereunder and that, except as otherwise permitted by Section 13, no Member
shall cease to be a Member, be entitled to demand or receive any distributions,
a return of such Member's Capital Contributions or profits (or a bond or other
security for the return of such Capital Contributions or profits), or exercise
any power under the Act to dissolve the Company, without the unanimous consent
of the Members.
18.2 CONSEQUENCES OF VIOLATION OF COVENANT. Notwithstanding
-------------------------------------
anything to the contrary in the Act, if a Member (a "Breaching Member") attempts
to cease being a Member or dissolve the Company in breach of Section 18.1, the
Company shall (subject to the requirements of Section 14(b)) continue and such
Breaching Member shall be subject to this Section 18.2. In such event, the
following shall occur:
(a) the Breaching Member shall immediately cease to be a Member
and shall have no further power to participate in the business or affairs
of the Company or to otherwise act for or bind the Company;
(b) the other Members shall continue to have the right to possess
the Company's assets and goodwill and to conduct its business and affairs;
(c) the Breaching Member shall be liable in damages, without
requirement of a prior accounting, to the Company for all costs and
liabilities that the Company or the other Members may incur as a result of
such breach;
(d) the Company shall have no obligation to pay to the Breaching
Member any distributions or its Capital Contribution or profits, but may,
by notice to the Breaching Member within 30 days of such breach, elect to
make Breach Payments (as defined in Section 18.3) to the Breaching Member
in complete satisfaction of the Breaching Member's interest in the Company;
(e) if the Company does not elect to make Breach Payments
pursuant to Section 18.2(d), the Company shall treat the Breaching Member
as if it were an assignee of the Units of the Breaching Member and shall
make allocations and distributions to the Breaching Member only of those
amounts otherwise allocable and distributable with respect to such Units
hereunder;
(f) the Company may apply any distributions otherwise payable
with respect to such Breaching Member's Units (including Breach Payments)
to satisfy any claims it may have against the Breaching Member;
-21-
<PAGE>
(g) the Breaching Member shall have no right to inspect the
Company's books or records or obtain other information concerning the
Company's operations;
(h) the Breaching Member shall continue to be liable to the
Company for any unfulfilled Capital Commitment hereunder with respect to
its Units; and
(i) notwithstanding anything to the contrary hereinabove
provided, unless the Company has elected to make Breach Payments to the
Breaching Member in satisfaction of his Units, the Company may offer and
sell (on any terms that are not manifestly unreasonable) the Units of the
Breaching Member to the other Members or other Persons on the Breaching
Member's behalf, provided that any Person acquiring such Units becomes a
Member with respect to such Units in accordance with Section 13.
18.3 BREACH PAYMENTS. For purposes hereof, Breach Payments shall be
---------------
made in four installments, each equal to one-fourth of the Breach Amount,
payable on the next four consecutive anniversaries following the breach by the
Breaching Member, plus interest accrued from the date of such breach through the
date each such installment on the unpaid balance of such Breach Amount at the
lowest rate permitted under Section 1274 of the Code so as to avoid the
imputation of interest income. The Breach Amount shall be an amount equal to
the lesser of (i) the balance in such Breaching Member's Capital Account on the
date of such breach or (ii) the fair market value of such Breaching Member's
Units in the Company determined by appraisal, the cost of which shall be borne
entirely by the Breaching Member. The Company may, at its sole election, prepay
all or any portion of the Breach Payments and interest accrued thereon at any
time without penalty.
18.4 NO BONDING. Notwithstanding anything to the contrary as may
----------
be provided by law, if, under Section 18.2(e), the Company treats a Breaching
Member as an assignee of Units in the Company, the Company shall not be
obligated to secure the value of the Breaching Member's Units by bond or
otherwise; provided, however, that if a court of competent jurisdiction
determines that, in order to continue the business of the Company such value
must be so secured, the Company may provide such security. If the Company
provides such security, the Breaching Member shall not have any right to
participate in Company profits or distributions during the remaining term of the
Company, or to receive any interest on the value of such Units.
19. DISPUTES. (S) In the event of any dispute with respect to any
--------
matter arising out of this Agreement, as the same may be amended or
supplemented, such dispute shall be submitted to arbitration upon request of any
one or more of the disputants, who shall notify each of the other disputants in
writing of such request. Each of the disputants shall promptly designate one
person to serve as an arbitrator and the arbitrators so designated shall within
30 days select another person as Chairman of the Board of Arbitration by
agreement or, if they are unable to agree, then through the services and
facilities of the Pittsburgh, Pennsylvania regional office of the American
Arbitration Association and in accordance with the rules thereof. The parties
hereto agree that in any such arbitration proceeding (i) discovery in accordance
with the Federal Rules of Civil
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<PAGE>
Procedure shall be available to each of the disputants and (ii) the Federal
Rules of Evidence shall govern the admissibility of all evidence. The decision
and award of a majority of the Board of Arbitration shall be final and binding
upon the disputants, and judgment may be entered thereon in accordance with
applicable law in any court having jurisdiction thereof. The agreement herein to
arbitrate shall be specifically enforceable under applicable law in any court
having jurisdiction thereof. The cost of any arbitration shall be borne by the
non-prevailing party or in such other manner as the Board of Arbitration may
determine.
20. MISCELLANEOUS.
-------------
20.1 NOTICES. Any notice, payment, demand, request or other
-------
communication required or permitted to be given by any provision of this
Agreement or by law shall be in writing and shall be delivered in person, by
overnight air courier, by certified mail, by facsimile transmission or by
telegram. Any such communication shall be deemed to have been effectively
delivered or given, whether or not the same is actually received (except in the
case of payments) (i) if mailed, upon the earlier of actual receipt or five days
after deposit in the United States mail by certified mail, postage prepaid, to
the proper address, (ii) when delivered in person or by overnight air courier,
(iii) when receipt of a facsimile transmission is confirmed by telephone or (iv)
when a telegram is received.
Notices shall be addressed as follows or to such other address or
addresses as may be specified by written notice to the Members:
If to the
Company: FACILICOM INTERNATIONAL, L.L.C.
1735 I Street, Suite 913
Washington, DC 20006
Attention: Walter Burmeister
Fax No.: 202-496-1109
If to Armstrong: ARMSTRONG INTERNATIONAL
TELECOMMUNICATIONS, INC.
One Armstrong Place
Butler, Pennsylvania, 16001
Attention: Kirby J. Campbell
Fax No.: 412-283-2602
With a copy to: Henry C. Cohen, Esq.
Cohen & Grigsby, P.C.
2900 CNG Tower
625 Liberty Avenue
Pittsburgh, PA 15222
Fax No.: (412) 391-3382
-23-
<PAGE>
If to FMG: FCI MANAGEMENT GROUP
c/o Epic Capital Corp.
Two Gateway Center, 16th Floor
Pittsburgh, PA 15222
Attention: Robert L Reed
Fax No.: 412-471-5637
and c/o BFV Associates, Inc.
6845 Wilson Lane
Bethesda, MD 20817
Attention: Walter Burmeister
Fax No.: 301-320-6498
20.2 SECTION HEADINGS. Section and other headings contained in this
----------------
Agreement are for reference purposes only and are in no way intended to
describe, interpret, define or limit the scope, extent or intent of this
Agreement or any provision hereof.
20.3 SEVERABILITY. The provisions of this Agreement shall be
------------
deemed severable, and the invalidity or unenforceability of any provision shall
not affect the validity or enforceability of the remainder of this Agreement or
any valid clause of any invalid portion.
20.4 GOVERNING LAW. The laws of the State of Delaware, excluding
-------------
its choice of law provisions, shall govern this Agreement. All references
herein to statutes, regulations and governmental agencies are deemed to refer to
their corresponding provisions of succeeding statutes or regulations or to
successor agencies, as the case may be.
20.5 COUNTERPART EXECUTION. This Agreement may be executed in any
---------------------
number of counterparts with the same effect as if all parties hereto had signed
the same document. All counterparts shall be construed together and shall
constitute one Agreement.
20.6 PARTIES IN INTEREST. Each and every covenant, term,
-------------------
provision and agreement herein contained shall be binding upon, and inure to the
benefit of, the parties hereto and their respective heirs, personal
representatives, successors and assigns.
20.7 GENDER AND NUMBER. As the context requires, all words used
-----------------
herein in the singular shall extend to and include the plural; all words used in
the plural shall extend to and include the singular; and all words used in
either gender shall extend to and include the other gender or be neutral.
20.8 SECTION REFERENCES. Except as otherwise specifically noted
------------------
or required in the context, all references herein to Sections shall refer to
Sections of this Agreement.
20.9 ENTIRE AGREEMENT. This Agreement sets forth the entire
----------------
agreement and understanding among the parties as to the specific subject matter
hereof and supersedes all prior discussions, agreements and understandings
between the parties.
-24-
<PAGE>
IN WITNESS WHEREOF, this First Amended and Restated Limited Liability
Company Agreement has been executed as of the date first above written.
ATTEST: ARMSTRONG INTERNATIONAL
TELECOMMUNICATIONS, INC.
By
- ---------------------------- --------------------------------
Title:
----------------------------
FCI MANAGEMENT GROUP
ATTEST: By: EPIC CAPITAL CORP.
By
- ---------------------------- -------------------------
Title:
----------------------
General Partner
ATTEST: By: BFV ASSOCIATES, INC.
By
- ---------------------------- -------------------------
Title:
----------------------
General Partner
-25-
<PAGE>
Exhibit B
FCI (GP), LLC
LIMITED LIABILITY COMPANY AGREEMENT
Dated as of September 30, 1997
<PAGE>
TABLE OF CONTENTS
Section Page
1. Certain Definitions.......................................... 1
2. Organization................................................. 4
2.1 Formation.............................................. 4
2.2 Name................................................... 4
3. Principal Place of Business; Registered Office and Agent..... 5
4. Purposes and Powers of the Company........................... 5
4.1 General Purposes and Powers............................. 5
4.2 Additional Powers....................................... 5
5. Term......................................................... 5
6. Capital Contributions and Related Matters.................... 5
6.1 Capital Contributions.................................. 5
6.2 Additional Capital Contributions....................... 6
6.3 Repayment of Capital Contributions..................... 6
6.4 No Priorities Among Members............................ 6
7. Capital Accounts; Allocations................................ 6
7.1 Capital Accounts....................................... 6
7.2 Allocations of Net Profits............................. 7
7.3 Allocations of Net Losses.............................. 7
7.4 Special Allocations.................................... 8
7.5 Tax Allocations........................................ 9
8. Distributions................................................ 9
9. Books of Account; Reports.................................... 10
9.1 Books of Account....................................... 10
9.2 Reports................................................ 10
10. Management of the Company.................................... 11
10.1 Management by Members.................................. 11
10.2 Management Committee................................... 11
10.3 Title Designations..................................... 11
10.4 Liability and Indemnification.......................... 12
10.5 Banking................................................ 12
10.6 Tax Matters Member..................................... 12
-ii-
<PAGE>
11. Other Activities of the Members.............................. 13
12. Expenses and Fees............................................ 13
12.1 Initial Expenses....................................... 13
12.2 Operating Expenses..................................... 13
12.3 Compensation........................................... 13
13. Transfers of Interests; Admission............................ 13
13.1 Transfer Restrictions.................................. 13
13.2 Admissions............................................. 15
13.3 Distributions and Allocations in Respect to
Transferred Interests.................................. 16
14. Dissolution of Company....................................... 16
15. Winding Up of the Company.................................... 17
15.1 Termination of Company Business........................ 17
15.2 Liquidation of Assets.................................. 17
15.3 Distribution of Assets................................. 18
16. Amendment of Agreement....................................... 19
17. Action by and Meetings of the Members........................ 19
17.1 Action by the Members.................................. 19
17.2 Meetings of Members.................................... 20
18. Members' Covenants; Breach................................... 20
18.1 Covenant Not to Dissolve............................... 20
18.2 Consequences of Violation of Covenant.................. 20
18.3 Breach Payments........................................ 21
18.4 No Bonding............................................. 21
19. Disputes..................................................... 22
20. Miscellaneous................................................ 22
20.1 Notices................................................ 22
20.2 Section Headings....................................... 23
20.3 Severability........................................... 23
20.4 Governing Law.......................................... 23
20.5 Counterpart Execution.................................. 23
20.6 Parties in Interest.................................... 24
20.7 Gender and Number...................................... 24
20.8 Section References...................................... 24
20.9 Entire Agreement....................................... 24
-iii-
<PAGE>
FCI (GP), LLC
LIMITED LIABILITY COMPANY AGREEMENT
THIS LIMITED LIABILITY COMPANY AGREEMENT, dated as of September 30, 1997,
is entered into by and among ARMSTRONG INTERNATIONAL TELECOMMUNICATIONS, INC., a
Delaware corporation ("Armstrong"), and FCI MANAGEMENT GROUP, a Pennsylvania
general partnership ("FMG").
W I T N E S S E T H T H A T :
WHEREAS, the parties have been associated in a Limited Liability Company
under the Act;
WHEREAS, the parties wish to memorialize there understandings in respect of
such Limited Liability Company upon the terms herein set forth;
NOW, THEREFORE, in consideration of the mutual promises made herein, the
parties hereto, intending to be legally bound, do hereby agree as follows:
1. CERTAIN DEFINITIONS.
-------------------
When used herein and except as the context may otherwise require, the
following terms shall have the meanings set forth below:
"ACT" means the Delaware Limited Liability Company Act (Chapter 18,
Title 6 of the Delaware Code Annotated), as amended from time to time.
"ADJUSTED CAPITAL ACCOUNT DEFICIT" means, with respect to any
Member, the deficit balance, if any, in such Member's Capital Account after
giving effect to the following adjustments:
(I) Credit to such Capital Account the sum of (A) any amount
which such Member is obligated to restore pursuant to any provision of this
Agreement, (B) an amount equal to such Member's share of Company Minimum
Gain and of Member Nonrecourse Debt Minimum Gain as determined under Treas.
Regs. 1.704-2(g) and 1.704-2(i)(5), respectively, and (C) any amount which
such Member is deemed to be obligated to restore pursuant to Treas. Reg.
1.704-1(b)(2)(ii)(c); and
<PAGE>
(II) Debit to such Capital Account the items described in
subclauses (4), (5) and (6) of Treas. Reg. 1.704-1(b)(2)(ii)(d).
The foregoing definition of Adjusted Capital Account Deficit is
intended to comply with the provisions of Treas. Reg. 1.704-1(b)(2)(ii)(d) and
shall be interpreted consistently therewith.
"AFFILIATE" means, with respect to any Person, any Person directly
or indirectly controlling, controlled by or under common control with such
Person. As used in the immediately preceding sentence, the term "control"
means, with respect to a Person, the right to exercise, directly or indirectly,
a majority of the voting rights attributable to such Person, and the term
"majority" means more than fifty percent (50%).
"AGREEMENT" means this Limited Liability Company Agreement as the
same may be amended and supplemented from time to time.
"CAPITAL ACCOUNT" means the capital account of each Member
established and maintained in accordance with Section 7.1.
"CAPITAL COMMITMENT", in respect of any Member, means that which is
agreed to be contributed to the capital of the Company by such Member without
regard to such Member's Capital Contribution.
"CAPITAL CONTRIBUTION" means, with respect to any Member, the amount
of cash and/or the fair market value of the property or services actually
contributed to or performed on behalf of the Company by such Member.
"CERTIFICATE" means the certificate of formation of the Company, and
all amendments thereto, executed and filed pursuant to the Act and the terms of
this Agreement.
"Code" means the Internal Revenue Code of 1986, as amended. All
references herein to specific Sections of the Code shall be deemed to refer also
to the corresponding provisions of succeeding law.
"COMPANY" means the Limited Liability Company existing pursuant
to this Agreement.
"COMPANY MINIMUM GAIN" has the same meaning as the phrase
"partnership minimum gain" as set forth in Treas. Regs. 1.704-2(d).
"FISCAL YEAR" means the Company's fiscal year which shall commence
on October 1 and end on September 30 (unless otherwise required by the Code) of
each year, except that such term shall also include any period for which the
Company is required to allocate Net Profits, Net Losses and other items of
income, gain, loss or deduction pursuant to Section 7.
-2-
<PAGE>
"LIQUIDATION TRUSTEE" means the trustee selected by the Members
pursuant to Section 15.2.
"MAJORITY-IN-INTEREST OF THE MEMBERS" means Members holding Units
representing greater than fifty percent (50%) of the total number of Units held
by all Members.
"MANAGEMENT COMMITTEE" means the Management Committee formed
pursuant to Section 10.2.
"MEMBERS" means Armstrong and FMG, and each of them individually,
and any other Person who becomes a Member in accordance with this Agreement.
"MEMBER NONRECOURSE DEBT MINIMUM GAIN" has the same meaning as the
phrase "partner nonrecourse debt minimum gain" as set forth in Treas. Reg.
1.704-2(i).
"MEMBER NONRECOURSE DEDUCTION" has the same meaning as the phrase
"partner nonrecourse deduction" as set forth in Treas. Reg. 1.704-2(i).
"MEMBER NONRECOURSE LOAN" means a loan made to, or credit
arrangement for the benefit of, the Company by a Member or by a person related
to a Member (as defined in Treas. Reg. 1.752-4(b)) which by its terms (or by
operation of law) exculpates the Members from personal liability on the debt,
but under which such Member or related person bears the ultimate economic risk
of loss within the meaning of Treas. Reg. 1.752-2.
"NET LOSSES" for any Fiscal Year means the excess, if any, of the
items of loss and deduction over the items of income and gain of the Company as
recorded on its financial accounting books and records for such Fiscal Year.
"NET PROFITS" for any Fiscal Year means the excess, if any, of the
items of income and gain over the items of loss and deduction of the Company as
recorded on its financial accounting books and records for such Fiscal Year.
"NONRECOURSE DEDUCTIONS" has the meaning set forth in Treas. Reg.
1.704-2(b).
"ORGANIZATIONAL EXPENSES" means the fees, costs and expenses of, and
incidental to, the organization of the Company. Such expenses shall include any
and all amounts categorized as "organizational expenditures" under the Code.
"PERSON" means any individual, partnership, corporation, trust or
other entity.
"PRE-OPERATING EXPENSES" means the investigative fees, costs and
expenses incidental to the creation of the Company and the fees, costs and
expenses incurred in
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<PAGE>
connection with the commencement of operations of the Company. Such expenses
shall include any and all amounts categorized as "start-up expenditures" under
the Code.
"PROPERTY" means all of the property, real, personal or mixed,
tangible or intangible, owned by the Company or in or to which the Company has
any interest of any nature or description.
"TAX MATTERS MEMBER" means the Member of the Company so
designated pursuant to Section 10.6.
"TREAS. REG." and "REGULATIONS" mean the Income Tax Regulations
promulgated under the Code, as such regulations may be amended from time to time
(including corresponding provisions of succeeding regulations).
"Unit", or any fraction thereof, means an ownership interest in the
Company representing the Capital Account of a Member and including such Member's
share of Net Profits and Net Losses, such Member's right to receive
distributions hereunder and any and all other rights and interests to which such
Member may be entitled as provided in this Agreement.
2. ORGANIZATION.
------------
2.1 FORMATION. The Members hereby ratify and confirm the filing
---------
of the Certificate with the Office of the Secretary of State of Delaware on July
31, 1996 and agree to continue the Company as a limited liability company
pursuant to the provisions of the Act and upon the terms and conditions set
forth in this Agreement.
2.2 NAME. The name of the Company is "FCI (GP), LLC".
----
3. PRINCIPAL PLACE OF BUSINESS; REGISTERED OFFICE AND AGENT.
--------------------------------------------------------
(a) The principal place of business of the Company will be
located at 1401 New York Avenue, NW, 8th Floor, Washington, D.C. 20005, or
at such other place as the Members may determine from time to time.
(b) The address of the Company's registered office in Delaware is
1013 Centre Road, Wilmington, Delaware, 19805, and its initial registered
agent for service of process is Corporation Service Company. The Members
may designate a different address of its registered office and a different
registered agent by amending the Certificate in accordance with the Act.
-4-
<PAGE>
4. PURPOSES AND POWERS OF THE COMPANY.
----------------------------------
4.1 GENERAL PURPOSES AND POWERS. The Company is organized for
---------------------------
the purposes of acquiring, owning, operating, managing selling, exchanging or
otherwise disposing of equity interests in entities which are engaged in the
business of providing long-distance and international telephone, data
transmission and other related services, and the Company shall have the power to
do all things as the Members from time to time may deem necessary or advisable
in connection therewith or as otherwise contemplated by this Agreement.
4.2 ADDITIONAL POWERS. The Company shall have and may exercise
-----------------
all of the powers which may be possessed and exercised by limited liability
companies under the Act.
5. TERM. Except as otherwise set forth in this Agreement, the Company
----
shall terminate on December 31, 2025.
6. CAPITAL CONTRIBUTIONS AND RELATED MATTERS.
-----------------------------------------
6.1 CAPITAL CONTRIBUTIONS.
---------------------
(a) As its Capital Commitment, Armstrong shall contribute eighty-
one ($81.00) dollars to the capital of the Company upon the execution
hereof in respect of which Armstrong shall be deemed to have been issued 81
Units as of the date hereof.
(b) As its Capital Commitment, FMG shall contribute nineteen
($19.00) dollars to the capital of the Company upon the execution hereof in
respect of which FMG shall be deemed to have been issued 19 Units as of the
date hereof.
(c) Organizational Expenses and Pre-Operating Expenses incurred
and paid by any Member on behalf of the Company shall not be deemed to be
Capital Contributions. Upon the execution hereof, each Member shall be
reimbursed for any such Organizational Expenses and Pre-Operating Expenses.
6.2 ADDITIONAL CAPITAL CONTRIBUTIONS.
--------------------------------
(a) As further Capital Commitments, Armstrong and FMG each hereby
agree to contribute, in the ratio of their respective Units, such
additional amounts as may be necessary in order for the Company to carry
pout its purposes as set forth in Section 4.
(b) Except as expressly provided in this Agreement and except as
the Members may otherwise unanimously agree, no Member shall be required or
permitted to make any additional contributions to the capital of the
Company.
-5-
<PAGE>
6.3 REPAYMENT OF CAPITAL CONTRIBUTIONS. Except as expressly
----------------------------------
provided in this Agreement, no specific time has been agreed upon for the
repayment of Capital Contributions, and no Member (or its successor in interest)
shall have the right to withdraw any capital contributed to the Company.
6.4 NO PRIORITIES AMONG MEMBERS. Except as expressly provided in
---------------------------
this Agreement, no Member shall have the right to receive property other than
cash in return for its Capital Contribution, nor shall any Member have priority
over any other Member either as to the return of its Capital Account or as to
profits, losses or distributions.
7. CAPITAL ACCOUNTS; ALLOCATIONS.
-----------------------------
7.1 CAPITAL ACCOUNTS.
----------------
(a) There shall be established and maintained for each Member on
the books of the Company a Capital Account initially reflecting an amount
equal to its Capital Contribution. The Capital Accounts shall be adjusted
from time to time to reflect the Members' additional Capital Contributions,
allocable shares of Net Profits or Net Losses or any item thereof,
distributions pursuant to Section 8 and as otherwise required by the
provisions of this Agreement and the Code and Regulations including, but
not limited to, the rules of Treas. Reg. 1.704-1(b)(2)(iv).
(b) If allocations for tax purposes are required to be made
pursuant to Sections 7.5(b) or (c), then the adjustments to the Capital
Accounts of the Members in respect of the property described therein shall
be made in accordance with Treas. Reg. 1.704-1(b)(2)(iv)(g) for allocation
to them of items of income, gain, loss and deduction (including items of
depreciation, depletion, amortization or other cost recovery) as computed
for book purposes, and no further adjustments shall be made to the Capital
Accounts to reflect the Members' shares of the corresponding tax items. In
computing such adjustments to the Capital Accounts, the Company shall
utilize the method of computing such items as is utilized for federal
income tax purposes except that the property's value for book purposes will
be used rather than its adjusted tax basis.
7.2 ALLOCATIONS OF NET PROFITS. Net Profits for any Fiscal Year,
--------------------------
and upon liquidation of the Company's assets pursuant to Section 15, shall be
allocated, subject to Section 7.3(b), to the Members in proportion to the number
of their respective Units.
7.3 ALLOCATIONS OF NET LOSSES. ,
-------------------------
(a) Net Losses for any Fiscal Year, and upon liquidation of the
Company's assets pursuant to Section 15, shall be allocated, subject to
Section 7.3(b), to the Members in proportion to the number of their
respective Units.
-6-
<PAGE>
(b) Net Losses allocated to the FMG pursuant to subsection (a) of
this Section 7.3 shall not exceed the maximum amount that can be so
allocated without causing FMG to have an Adjusted Capital Account Deficit
at the end of any Fiscal Year. All Net Losses in excess of the limitation
("Excess Losses") set forth in the preceding sentence shall be re-allocated
to Armstrong. In the event of any such re-allocation of Excess Losses,
subsequent allocations of Net Profits (or any item thereof) in an amount
sufficient to offset the allocation of such Excess Losses shall be made to
the Armstrong prior to any other allocations being made pursuant to Section
7.2.
7.4 SPECIAL ALLOCATIONS. Notwithstanding any other provision of
-------------------
this Agreement, the following special allocations shall be made for each Fiscal
Year prior to the making of any other allocations under this Agreement and, in
the following order and priority:
(a) Minimum Gain Chargeback.
-----------------------
(i) If there is a net decrease in Company Minimum Gain
during any Fiscal Year so that an allocation is required by Treas. Reg. (S)
1.704-2(f)(1), items of income and gain shall be allocated to the Members
in the manner and to the extent required by such Regulation. This provision
is intended to be a minimum gain chargeback within the meaning of Treas.
Reg. (S) 1.704-2(f)(1) and shall be interpreted and applied consistently
therewith.
(ii) If there is a net decrease in Member Nonrecourse Debt
Minimum Gain during any Fiscal Year so that an allocation is required by
Treas. Reg. (S)1.704-2(i)(4) (minimum gain chargeback attributable to a
partner nonrecourse debt), items of income and gain shall be allocated in
the manner and to the extent required by such Regulation.
(b) Qualified Income Offset. In the event any Member receives
-----------------------
any adjustment, allocation or distribution described in subclause (4), (5)
or in (6) of Treas. Reg. (S) 1.704-1(b)(2)(ii)(d), items of Company income
and gain shall be specially allocated to such Member in an amount and
manner sufficient to eliminate, to the extent required by the Regulations,
the deficit balance in such Member's Capital Account as quickly as
possible, provided that an allocation pursuant to this Section 7.4(b) shall
be made only if and to the extent that such Member would have such deficit
balance after all other allocations provided for in Section 7.2 have been
tentatively made as if this Section 7.4(b) were not in this Agreement.
(c) Member Nonrecourse Deduction. Any Member Nonrecourse
----------------------------
Deduction shall be allocated to the Member who bears the economic risk of
loss with respect to the Member Nonrecourse Loan giving rise to such
deduction within the meaning of Treas. Reg. (S) 1.752-2.
(d) Section 754 Adjustments. To the extent an adjustment to the
-----------------------
adjusted tax basis of any Company asset pursuant to Section 734(b) of the
Code or
-7-
<PAGE>
Section 743(b) of the Code is required pursuant to Treas. Reg.
1.704-1(b)(2)(iv)(m)(2) or with respect to a distribution to a Member in
-
liquidation of such Member's interest in the Company, pursuant to Treas.
Reg. 1.704-1(b)(2)(iv)(m)(4) to be taken into account in determining
-
Capital Accounts, the amount of such adjustment shall be treated as an item
of gain (if the adjustment increases the basis of the asset) or loss (if
the adjustment decreases such basis), and such gain or loss shall be
allocated to the Members in accordance with their interests in the Company,
in the event Treas. Reg. 1.704-1(b)(2)(iv)(m)(2) applies, or to the Member
-
to whom such distribution is made, in the event Treas. Reg. 1.704-
1(b)(2)(iv)(m)(4) applies.
-
7.5 TAX ALLOCATIONS.
---------------
(a) General. For federal, state and local income tax purposes,
-------
all items of taxable income, gain, loss, and deduction for each Fiscal Year
shall, except as provided in Sections 7.5(b) and (c), be allocated among
the Members in accordance with the manner in which the corresponding items
were allocated under Sections 7.2, 7.3 and 7.4.
(b) Contributed property. If property is contributed to the
--------------------
Company by a Member and if there is a difference between the basis of such
property to the Company for federal income tax purposes and the fair market
value at the time of its contribution, then items of income, deduction,
gain and loss with respect to such property as computed for federal income
tax purposes (but not for book purposes) shall be shared among the Members
so as to take account of such difference as required by Section 704(c) of
the Code.
(c) Revalued property. If property (other than property
-----------------
described in Section 7.5(b)) of the Company is reflected in the Capital
Accounts of the Members and on the books of the Company at a book value
that differs from the adjusted basis of such property for federal income
tax purposes by reason of a revaluation of such property, then items of
income, deduction, gain and loss with respect to such property for federal
income tax purposes (but not for book purposes) shall be shared among the
Members in a manner that takes account of the difference between the
adjusted basis of such property for federal income tax purposes and its
book value in the same manner as differences between adjusted basis and
fair market value are taken into account in determining the Members' shares
of tax items under Section 704(c) of the Code.
8. DISTRIBUTIONS.
-------------
(a) The Company may make distributions to the Members from time
to time. All distributions hereunder, whether in cash or other property
(or a combination thereof) shall be made to the Members in proportion their
respective positive Capital Account balances.
-8-
<PAGE>
(b) Distributions shall not be authorized or made hereunder if
and to the extent that such distributions would render the Company
insolvent or impair its ability to discharge its obligations, whether or
not accrued, absolute, fixed or contingent, would interfere with its
ability to carry out the purposes of the Company or otherwise would be in
violation of the Act.
9. BOOKS OF ACCOUNT; REPORTS.
-------------------------
9.1 BOOKS OF ACCOUNT. The Company's books and records shall be
----------------
maintained at the principal office of the Company or at any other location
designated by the Members, and all Members shall have access thereto at all
reasonable times. The books and records shall be kept on the basis of
accounting used for federal income tax purposes, reflect all Company
transactions and shall be otherwise appropriate and adequate for the conduct of
the Company's business.
9.2 REPORTS.
-------
(a) Within seventy-five (75) days after the end of each Fiscal
Year, the Company shall prepare and submit to each Member an annual report
of the Company for such Fiscal Year. The annual report shall include the
balance sheet of the Company as of the last day of such Fiscal Year and
statements of profit or loss and cash flows of the Company for such Fiscal
Year. The report shall be accompanied by a supplementary schedule showing
the entries to the Members' (separately and in the aggregate) Capital
Accounts in respect of such Fiscal Year, together with the appropriate
Internal Revenue Service forms showing entries required to be made on each
such Member's federal income tax return with respect to the Company's Net
Profits or Net Losses.
(b) In connection with the liquidation and dissolution of the
Company, the Members or the Liquidation Trustee (as the case may be) shall
prepare and submit to the Members a termination report containing the
financial statements of the Company as of and for the period ended upon the
substantial completion of liquidation.
10. MANAGEMENT OF THE COMPANY.
-------------------------
10.1 MANAGEMENT BY MEMBERS. The management, operation and control
---------------------
of the Company and its business and affairs shall rest exclusively with the
Members.
10.2 MANAGEMENT COMMITTEE.
--------------------
(a) The management of the Company by and on behalf of the Members
shall be effectuated by a Management Committee comprised of seven
individuals, five (5) of whom shall be designated at any time and from time
to time by Armstrong, and two (2) of whom shall be designated at any time
and from time to time
-9-
<PAGE>
by FMG. Each individual serving on the Management Committee (i) shall serve
at the pleasure of, (ii) may be removed at any time and for any reason by,
(iii) shall be the agent of and (iv) shall cast any votes as may be taken
hereunder on behalf of, the Member who shall have designated such
individual in accordance with this Section. All actions taken and all
determinations and decisions made by (x) a majority in number of the
members of the Management Committee shall be deemed for all purposes to be
the actions taken by the Members and (y) all of the members of the
Management Committee shall be deemed for all purposes to be the actions
taken by all of the Members. Any action, determination or decision
(including matters as to which the Management Committee is given authority
to act by the terms of this Agreement) as to which a majority in number of
the members of the Management Committee cannot agree shall be taken or made
by the Members.
(b) In furtherance of (and subject to) subsection (a) of this
Section 10.2, the following individuals are hereby designated as the
members of the Management Committee
by Armstrong: Jay L. Sedwick;
Kirby J. Campbell;
Dru A. Sedwick;
William C. Stewart, and
Bryan Cipoletti; and
by FMG: Robert L. Reed; and
Walter Burmeister
(c) The Management Committee may adopt and amend such by-laws,
rules, regulations, policies and procedures as it may determine to be in
the best interest of the Company (but not inconsistent with this Agreement)
for the conduct of the business of the Management Committee and the
business and affairs of the Company.
(d) Notwithstanding the foregoing provisions of this Section
10.2, the Management Committee shall not have to power to act in respect of
the following matters without the consent of the Members:
(i) the issuance, sale or other disposition by the Company
of any debt or equity securities or similar interests;
(ii) the sale, lease or transfer of a material portion of the
assets of the Company or the sale, transfer or assignment of any material
governmental permit or license relating to the business of the Company;
(iii) the adoption of operating, capital or other budgets;
-10-
<PAGE>
(iv) the modification to any then-current, approved budget,
or the approval of any expenditure in excess of amounts previously included
in a then-current, approved budget;
(v) causing the Company to (A) guarantee or otherwise become
liable for the indebtedness of any other person, (B) extend credit (other
than in the ordinary course of business) to any person, (C) incur any
indebtedness (other than trade payables incurred in the ordinary course of
business and as contemplated in any then-current, approved budget) or (D)
pledge, encumber or create any lien upon or in any of the assets of the
Company;
(vi) the employment of management personnel or the discharge
or material modification of the terms of employment or duties of any such
personal;
(vii) the authorization or payment of any compensation to any
employee of the Company or any other person engaged by the Company if the
expected annual compensation payable to such employee or other person would
exceed $1,000;
(viii) the authorization, approval or execution of any
contract or other agreement on behalf of the Company under which the
Company would be obligated for amounts in excess of $2,500;
(ix) the authorization or payment of any bonus to any
employee of the Company or any other person engaged by the Company;
(x) any change to the Company's then-existing employee
benefit plans; or
(xi) the approval of any transaction with a person or entity
which is an Affiliate of any Member on terms less advantageous to the
Company than those which would be available from an unrelated party.
10.3 TITLE DESIGNATIONS. The Management Committee shall have the
------------------
power to create such employee or officer-type designations (such as president,
vice-president and the like) as it shall determine to be in the best interests
of the Company, to designate the powers, authorities and responsibilities as
shall be deemed to have been granted to and undertaken by those individuals to
whom such designations are assigned and to determine those individual(s) to whom
such designations (and the accompanying powers, authorities and
responsibilities) shall be assigned. Except as may be limited by contract, each
individual to whom is assigned any such designation shall serve at the pleasure
of the Management Committee, and any such designation (and the accompanying
powers, authorities and responsibilities) may be modified or terminated at any
time in the sole discretion of the Management Committee.
10.4 LIABILITY AND INDEMNIFICATION.
-----------------------------
-11-
<PAGE>
(a) No Member, and no member of the Management Committee, shall
be liable to the Company or to any other Member for any debts owed by the
Company to any such Member, or for any actions taken or omissions made in
good faith and reasonably believed by such Member (or member of the
Management Committee) to be in the best interests of the Company, or for
errors of judgment, except to the extent such acts or omissions constitute
gross negligence, recklessness or willful misconduct.
(b) To the fullest extent permitted by law, the Company shall
indemnify each Member, each member of the Management Committee and the
Company's and each Member's (and member of the Management Committee's)
partners, employees, agents and Affiliates (where acting for or as agent of
the Company or the Member (or the member of the Management Committee) in
its capacity as such) (any of the foregoing Persons being hereinafter an
"Indemnified Person") and save and hold them and each of them harmless from
and in respect of (i) all fees, costs and expenses, including attorneys'
fees, incurred in connection with, or resulting from, any claim, action or
demand against any such Indemnified Person or the Company which arise out
of, or in any way relate to, the Company, its properties, business or
affairs, and (ii) all such claims, actions and demands and any losses,
liabilities or damages resulting therefrom, including amounts paid by such
Indemnified Person with the prior written consent of the Company in
settlement or compromise of any such claim, action or demand; provided,
however, that this indemnity shall not extend to any such Indemnified
Person to the extent that its acts and omissions shall have been adjudged
to constitute a breach of this Agreement or gross negligence, recklessness
or willful misconduct.
10.5 BANKING. All funds of the Company shall be deposited in such
-------
bank account or accounts of federally insured bank(s) as shall be determined by
the Members. Such funds shall not be commingled with any of the funds of any
Member. All withdrawals therefrom shall be made upon written authorization
signed by any Person authorized to do so by the Members.
10.6 TAX MATTERS MEMBER. Armstrong shall be the "tax matters
------------------
partner" (as defined in Section 6231(a)(7) of the Code) to act on behalf of the
Company in connection with Company income tax matters.
11. OTHER ACTIVITIES OF THE MEMBERS. Y Nothing in this Agreement shall
-------------------------------
preclude any Member or its Affiliates from engaging in other transactions and
possessing interests and making investments in and loans to other business
ventures of any nature or description (whether or not competitive with the
business of the Company), independently or with others, whether existing as of
the date hereof or hereafter coming into existence, and neither the Company nor
any other Member shall have any rights in or to any such other transactions,
investments or ventures or the income or profits derived therefrom.
12. EXPENSES AND FEES.
-----------------
-12-
<PAGE>
12.1 INITIAL EXPENSES. Pre-Operating Expenses and Organizational
----------------
Expenses will be amortized as permitted by the Code.
12.2 OPERATING EXPENSES. The Company shall be obligated to pay or
------------------
reimburse the expenses of operating and maintaining the Company and its
Properties, which expenses shall include, without limitation, legal, accounting
and auditing fees and expenses of the Company and the costs of the acquisition,
maintenance, repair and disposition of the Company's Properties and taxes and
assessments with respect thereto.
12.3 COMPENSATION. No Member, as such, shall receive any salary,
------------
fee or draw for services rendered to or on behalf of the Company.
13. ADMISSIONS.
----------
13.1 ADMISSIONS OF ASSIGNEES.
-----------------------
(a) All transfers by a Member of its Units, or any interest
therein, shall entitle the transferee only to receive the allocations and
distributions to which the transferring Member would otherwise be entitled,
and such transferee shall become a Member, and shall have the right to
participate in the management of the business and affairs of the Company,
only upon compliance with the requirements of Sections 13.1(b) and (c) and
only with the advance written consent of the Management Committee, which
consent shall be given in its sole and absolute discretion.
(b) No Person to whom a transferring Member has transferred its
Units, or any interest therein, shall become a Member of the Company or
have the right to participate in the management of the business and affairs
of the Company unless (i) provision therefor is made by the instrument of
assignment, (ii) such Person executes and acknowledges such instruments as
the Management Committee (acting (if applicable) without the participation
of the Member making such transfer) reasonably deems necessary or advisable
to permit such Person to become a Member, (iii) in the opinion of counsel
for the Company, (A) neither the assignment of such Units, or any interest
therein, nor the becoming of a Member by such Person will adversely affect
the Company's classification as a partnership for federal income tax
purposes and (B) neither the offering nor the proposed transfer of such
Units, or interest therein, will violate, or cause the original issue
thereof to be in violation of, the securities laws, rules or regulations of
the United States, any state thereof or any other jurisdiction, (iv) all
other steps are taken which, in the opinion of the Management Committee,
are reasonably necessary to permit such Person to become a Member and
(v) such Person pays for all expenses incurred by the Company in connection
with such Person's becoming a Member.
-13-
<PAGE>
(c) Any Person becoming a Member pursuant to this Section 13 will
succeed to all rights and be subject to all the obligations of the
assigning Member with respect to the Units, or interest therein, assigned
to such Person.
(d) The Management Committee may suspend all transfers and
assignments of Units (or interests therein) for a period of up to 12 months
whenever the Management Committee reasonably determines, or is advised by
counsel, that in light of previous transfers, any subsequent transfer of
Units (or interests therein) may reasonably be expected to result in a
termination of the Company for purposes of Section 708(b) of the Code.
13.2 DISTRIBUTIONS AND ALLOCATIONS IN RESPECT OF TRANSFERRED OR NEW
--------------------------------------------------------------
UNITS. If any Units, or any interest therein, are sold, assigned, transferred
- -----
or issued, or any Person otherwise becomes a Member during any Fiscal Year in
compliance with the provisions of this Section 13, Net Profits, Net Losses, each
item thereof, and all other items attributable to such Units, or interest
therein, for such Fiscal Year shall be allocated among the Members by taking
into account their varying interests during such Fiscal Year in accordance with
Section 706(d) of the Code. Unless otherwise required by the Regulations, such
sale, assignment, transfer, issuance or admission shall be deemed to have
occurred at the end of the calendar month during which such event shall have
actually occurred, and such allocations shall be determined and made pursuant to
a pro forma closing of the books of the Company as of the end of such month.
---------
With respect to a transferred Unit, or any interest therein, all distributions
on or before the deemed date of such transfer shall be made to the transferor
and all distributions thereafter shall be made to the transferee. Neither the
Company nor any Member shall incur any liability for making allocations and
distributions in accordance with the provisions of this Section 13.2.
14. DISSOLUTION OF COMPANY.
----------------------
(a) The Company shall dissolve upon the occurrence of any of the
following events:
(i) the expiration of the term of the Company as provided in
Section 5 unless such term is extended by the unanimous agreement of the
Members;
(ii) the written agreement of all of the Members;
(iii) subject to Section 14(b), the death, retirement,
resignation, expulsion, bankruptcy or dissolution of a Member or the
occurrence of any other event which terminates the continued membership of
a Member in the Company;
(iv) the sale of all or substantially all the assets of the
Company;
-14-
<PAGE>
(v) the entry of an order of judicial dissolution under the
Act; or
(vi) the entry of a final judgment, order or decree of a
court with competent jurisdiction adjudicating the Company to be bankrupt,
and the expiration of the period, if any, allowed by applicable law in
which appeal therefrom.
(b) An event described in clause (iii) of Section 14(a) shall not
cause the Company to dissolve if the business of the Company is continued
with the consent of all of the remaining Members within ninety (90) days
after the date of such event.
15. WINDING UP OF THE COMPANY.
-------------------------
15.1 TERMINATION OF COMPANY BUSINESS. Upon dissolution of the
-------------------------------
Company as provided in Section 14, the Company shall cease to conduct its
activities, and its business and affairs shall be wound up as promptly as
practicable in conformity with the procedures herein set forth and the
requirements of the Act.
15.2 LIQUIDATION OF ASSETS. Upon dissolution of the Company, the
---------------------
Members or a Liquidation Trustee selected by a Majority-in-Interest of the
Members shall arrange for liquidation of the Company's assets and cause such
liquidation to be carried out as promptly as is consistent with realization of
maximum value. The Members or the Liquidation Trustee, as the case may be,
shall have full power and authority to:
(a) sell, at such prices and upon such terms as they or it in
their or its sole discretion may deem appropriate, any or all of the
Company's assets, provided that such sales shall be made for cash to the
fullest extent practicable;
(b) incur such fees, costs and expenses for the account of the
Company as may be reasonable and necessary or advisable to accomplish such
liquidation;
(c) defer and withhold from liquidation Company assets if, in
their or its best judgment, such action is in the best interests of
Company's creditors and the Members; and
(d) take any and all other actions as may be permitted under the
Act.
Pending the liquidation provided for herein, the Members or the
Liquidation Trustee, as the case may be, shall have the power and authority to
operate, manage and otherwise deal with Company Property and to pay or provide
for payment and discharge of the Company's debts, obligations and liabilities,
whether or not accrued, absolute, fixed or contingent.
-15-
<PAGE>
15.3 DISTRIBUTION OF ASSETS.
----------------------
(a) Gain or loss realized upon the sale or exchange of Company
assets pursuant to Section 15.2 shall be allocated to the Members' Capital
Accounts in accordance with the provisions of Section 7.
(b) Prior to any distribution relating to liquidation of the
Company, the Members or the Liquidation Trustee, as the case may be, shall
also adjust each Member's Capital Account to reflect the manner in which
the unrealized income, gain, loss and deduction inherent in the Company's
Property (that has not been reflected in the Members' Capital Accounts
previously) would be allocated among the Members if there were a taxable
disposition of such Property for the fair market value of such Property
(taking Section 7701(g) of the Code into account) on the date of
distribution.
(c) Distributions relating to liquidation may be made in cash or
other property (or a combination thereof).
(d) Distribution of the Company assets upon liquidation shall be
made in the following order:
(i) To the payment and discharge of all debts, liabilities
and obligations of the Company to Company creditors (including Members and
former Members) in the order of priority as provided by law;
(ii) To the establishment of any reserves for any
contingent or unforeseen liabilities or obligations of the Company;
provided, however, that if such reserves are established, the Capital
Accounts of the Members shall be adjusted pursuant to Section 15.3(b) and
upon the determination that it is no longer necessary to maintain any
particular portion of such reserves, such portion shall be immediately
distributed in accordance with Section 15.3(d)(iii).
(iii) To the Members in accordance with the net credit
balances of their respective Capital Accounts, as determined after taking
into account all Capital Account adjustments for the Company's taxable year
during which such liquidation occurs (other than those made pursuant to
this clause (iii) and subsection (e)), by the end of such taxable year (or,
if later, within 90 days after the date of the Company's liquidation).
(e) If any Member has a deficit balance in its Capital Account
following the distribution of Company assets upon dissolution, as
determined after taking into account all Capital Account adjustments for
the taxable year during which such dissolution occurs (other than those
made pursuant to this subsection (e)), such Member shall be required to
restore the amount of such deficit to the Company as soon as practicable
but in no event later than the end of such taxable year (or, if later,
within 90 days after the date of the Company's liquidation), which amount
shall be paid to the
-16-
<PAGE>
Company's creditors or distributed to the Members in accordance with their
respective positive Capital Account balances in accordance with clause
(d)(ii) of this Section 15.3; provided, however, that no Company creditor
may rely upon this sentence in order to create an obligation of any Member
to pay a Company debt which such Member is not otherwise personally
obligated to pay.
(f) Upon the completion of the winding up of the affairs of the
Company and the distribution of its assets as provided for herein and in
the Act, the Members shall cause the Certificate to be canceled in
accordance with the Act.
16. AMENDMENT OF AGREEMENT. This Agreement may be amended in whole or
----------------------
in part only with the written consent of all of the Members; provided, however,
that no such amendment shall directly reduce the Capital Account (except as a
result of a revaluation of the Company's assets) of any Member or its rights to
allocations and distributions without the consent of such Member.
17. ACTION BY AND MEETINGS OF THE MEMBERS.
-------------------------------------
17.1 ACTION BY THE MEMBERS. Any vote, consent, approval,
---------------------
determination, election or agreement in regard to any action required of or
permitted by a Member (including on behalf of a Member by the members of the
Management Committee which are designated by such Member) by any provision of
this Agreement or by law shall be effective if taken, given or made by a
Majority-in-Interest of the Members and may be expressed as follows:
(a) by the written consent of the Member at or prior to the time
of the action for which the consent is intended;
(b) by the Member's failure to respond to a written request for
consent sent by another Member to such Member, which failure to respond
continues for at least 30 days after the date upon which such request was
received by such Member (which date shall be determined with reference to
the date set forth in the return receipt with respect to the mailing of
such request by the Member seeking such consent); or
(c) by the affirmative vote of the Member as to the action for
which the vote is taken at any meeting which may be called and held to
consider such action pursuant to Section 17.2.
17.2 MEETINGS OF MEMBERS.
--------------------
(a) Any matter requiring the vote, consent, approval,
determination, election or agreement of the Members pursuant to any Section
of this Agreement or by law may be considered at a meeting held not fewer
than fifteen (15) days nor greater than sixty (60) days after written
notice thereof shall have been given by any Member.
-17-
<PAGE>
(b) Such meeting may be held at the principal office of the
Company or may be held by means of conference telephone or similar methods
of communication during which all persons participating may be heard
simultaneously.
18. MEMBERS' COVENANTS; BREACH.
--------------------------
18.1 COVENANT NOT TO DISSOLVE. Notwithstanding any provision of the
------------------------
Act or Section 14, each Member hereby covenants and agrees that the Members have
entered into this Agreement based on their mutual expectation that all Members
will continue as Members and carry out the duties and obligations undertaken by
them hereunder and that, except as otherwise permitted by Section 13, no Member
shall cease to be a Member, be entitled to demand or receive any distributions,
a return of such Member's Capital Contributions or profits (or a bond or other
security for the return of such Capital Contributions or profits), or exercise
any power under the Act to dissolve the Company, without the unanimous consent
of the Members.
18.2 CONSEQUENCES OF VIOLATION OF COVENANT. Notwithstanding
-------------------------------------
anything to the contrary in the Act, if a Member (a "Breaching Member") attempts
to cease being a Member or dissolve the Company in breach of Section 18.1, the
Company shall (subject to the requirements of Section 14(b)) continue and such
Breaching Member shall be subject to this Section 18.2. In such event, the
following shall occur:
(a) the Breaching Member shall immediately cease to be a Member
and shall have no further power to participate in the business or affairs
of the Company or to otherwise act for or bind the Company;
(b) the other Members shall continue to have the right to possess
the Company's assets and goodwill and to conduct its business and affairs;
(c) the Breaching Member shall be liable in damages, without
requirement of a prior accounting, to the Company for all costs and
liabilities that the Company or the other Members may incur as a result of
such breach;
(d) the Company shall have no obligation to pay to the Breaching
Member any distributions or its Capital Contribution or profits, but may,
by notice to the Breaching Member within 30 days of such breach, elect to
make Breach Payments (as defined in Section 18.3) to the Breaching Member
in complete satisfaction of the Breaching Member's interest in the Company;
(e) if the Company does not elect to make Breach Payments
pursuant to Section 18.2(d), the Company shall treat the Breaching Member
as if it were an assignee of the Units of the Breaching Member and shall
make allocations and distributions to the Breaching Member only of those
amounts otherwise allocable and distributable with respect to such Units
hereunder;
-18-
<PAGE>
(f) the Company may apply any distributions otherwise payable
with respect to such Breaching Member's Units (including Breach Payments)
to satisfy any claims it may have against the Breaching Member;
(g) the Breaching Member shall have no right to inspect the
Company's books or records or obtain other information concerning the
Company's operations;
(h) the Breaching Member shall continue to be liable to the
Company for any unfulfilled Capital Commitment hereunder with respect to
its Units; and
(i) notwithstanding anything to the contrary hereinabove
provided, unless the Company has elected to make Breach Payments to the
Breaching Member in satisfaction of his Units, the Company may offer and
sell (on any terms that are not manifestly unreasonable) the Units of the
Breaching Member to the other Members or other Persons on the Breaching
Member's behalf, provided that any Person acquiring such Units becomes a
Member with respect to such Units in accordance with Section 13.
18.3 BREACH PAYMENTS. For purposes hereof, Breach Payments shall be
---------------
made in four installments, each equal to one-fourth of the Breach Amount,
payable on the next four consecutive anniversaries following the breach by the
Breaching Member, plus interest accrued from the date of such breach through the
date each such installment on the unpaid balance of such Breach Amount at the
lowest rate permitted under Section 1274 of the Code so as to avoid the
imputation of interest income. The Breach Amount shall be an amount equal to
the lesser of (i) the balance in such Breaching Member's Capital Account on the
date of such breach or (ii) the fair market value of such Breaching Member's
Units in the Company determined by appraisal, the cost of which shall be borne
entirely by the Breaching Member. The Company may, at its sole election, prepay
all or any portion of the Breach Payments and interest accrued thereon at any
time without penalty.
18.4 NO BONDING. Notwithstanding anything to the contrary as may
----------
be provided by law, if, under Section 18.2(e), the Company treats a Breaching
Member as an assignee of Units in the Company, the Company shall not be
obligated to secure the value of the Breaching Member's Units by bond or
otherwise; provided, however, that if a court of competent jurisdiction
determines that, in order to continue the business of the Company such value
must be so secured, the Company may provide such security. If the Company
provides such security, the Breaching Member shall not have any right to
participate in Company profits or distributions during the remaining term of the
Company, or to receive any interest on the value of such Units.
19. DISPUTES. In the event of any dispute with respect to any matter
--------
arising out of this Agreement, as the same may be amended or supplemented, such
dispute shall be submitted to arbitration upon request of any one or more of the
disputants, who shall notify each of the other disputants in writing of such
request. Each of the disputants shall promptly designate one person
-19-
<PAGE>
to serve as an arbitrator and the arbitrators so designated shall within 30 days
select another person as Chairman of the Board of Arbitration by agreement or,
if they are unable to agree, then through the services and facilities of the
Pittsburgh, Pennsylvania regional office of the American Arbitration Association
and in accordance with the rules thereof. The parties hereto agree that in any
such arbitration proceeding (i) discovery in accordance with the Federal Rules
of Civil Procedure shall be available to each of the disputants and (ii) the
Federal Rules of Evidence shall govern the admissibility of all evidence. The
decision and award of a majority of the Board of Arbitration shall be final and
binding upon the disputants, and judgment may be entered thereon in accordance
with applicable law in any court having jurisdiction thereof. The agreement
herein to arbitrate shall be specifically enforceable under applicable law in
any court having jurisdiction thereof. The cost of any arbitration shall be
borne by the non-prevailing party or in such other manner as the Board of
Arbitration may determine.
20. MISCELLANEOUS.
-------------
20.1 NOTICES. Any notice, payment, demand, request or other
-------
communication required or permitted to be given by any provision of this
Agreement or by law shall be in writing and shall be delivered in person, by
overnight air courier, by certified mail, by facsimile transmission or by
telegram. Any such communication shall be deemed to have been effectively
delivered or given, whether or not the same is actually received (except in the
case of payments) (i) if mailed, upon the earlier of actual receipt or five days
after deposit in the United States mail by certified mail, postage prepaid, to
the proper address, (ii) when delivered in person or by overnight air courier,
(iii) when receipt of a facsimile transmission is confirmed by telephone or
(iv) when a telegram is received.
Notices shall be addressed as follows or to such other address or
addresses as may be specified by written notice to the Members:
If to the
Company: FCI (GP), LLC
1401 New York Avenue, NW
8th Floor
Washington, DC 20005
Attention: Walter Burmeister
Fax No.: 202-496-1109
If to Armstrong: ARMSTRONG INTERNATIONAL
TELECOMMUNICATIONS, INC.
One Armstrong Place
Butler, Pennsylvania, 16001
Attention: Kirby J. Campbell
Fax No.: 412-283-2602
With a copy to: Henry C. Cohen, Esq.
Cohen & Grigsby, P.C.
2900 CNG Tower
625 Liberty Avenue
Pittsburgh, PA 15222
Fax No.: (412) 391-3382
-20-
<PAGE>
If to FMG: FCI MANAGEMENT GROUP
c/o Epic Interests, Inc.
Two Gateway Center, 16th Floor
Pittsburgh, PA 15222
Attention: Robert L Reed
Fax No.: 412-471-5637
and c/o BFV Associates, Inc.
6845 Wilson Lane
Bethesda, MD 20817
Attention: Walter Burmeister
Fax No.: 301-320-6498
20.2 SECTION HEADINGS. Section and other headings contained in this
----------------
Agreement are for reference purposes only and are in no way intended to
describe, interpret, define or limit the scope, extent or intent of this
Agreement or any provision hereof.
20.3 SEVERABILITY. The provisions of this Agreement shall be
------------
deemed severable, and the invalidity or unenforceability of any provision shall
not affect the validity or enforceability of the remainder of this Agreement or
any valid clause of any invalid portion.
20.4 GOVERNING LAW. The laws of the State of Delaware, excluding
-------------
its choice of law provisions, shall govern this Agreement. All references
herein to statutes, regulations and governmental agencies are deemed to refer to
their corresponding provisions of succeeding statutes or regulations or to
successor agencies, as the case may be.
20.5 COUNTERPART EXECUTION. This Agreement may be executed in any
---------------------
number of counterparts with the same effect as if all parties hereto had signed
the same document. All counterparts shall be construed together and shall
constitute one Agreement.
20.6 PARTIES IN INTEREST. Each and every covenant, term,
-------------------
provision and agreement herein contained shall be binding upon, and inure to the
benefit of, the parties hereto and their respective heirs, personal
representatives, successors and assigns.
20.7 GENDER AND NUMBER. As the context requires, all words used
-----------------
herein in the singular shall extend to and include the plural; all words used in
the plural shall extend to and include the singular; and all words used in
either gender shall extend to and include the other gender or be neutral.
-21-
<PAGE>
20.8 SECTION REFERENCES. Except as otherwise specifically noted
------------------
or required in the context, all references herein to Sections shall refer to
Sections of this Agreement.
20.9 ENTIRE AGREEMENT. This Agreement sets forth the entire
----------------
agreement and understanding among the parties as to the specific subject matter
hereof and supersedes all prior discussions, agreements and understandings
between the parties.
IN WITNESS WHEREOF, this Limited Liability Company Agreement has been
executed as of the date first above written.
ATTEST: ARMSTRONG INTERNATIONAL
TELECOMMUNICATIONS, INC.
By:
- ----------------------------- ---------------------------------
Title:
------------------------------
FCI MANAGEMENT GROUP
ATTEST: By: EPIC INTERESTS, INC.
By:
- ----------------------------- ---------------------------------
Title:
---------------------------
General Partner
ATTEST: By: BFV ASSOCIATES, INC.
By:
- ----------------------------- ---------------------------------
Title:
------------------------------
General Partner
-22-
<PAGE>
Exhibit C
ASSIGNMENT
----------
THIS ASSIGNMENT (this "Assignment"), is given, effective as of the close of
business December 22, 1997, by ARMSTRONG INTERNATIONAL TELECOMMUNICATIONS, INC.,
a Delaware corporation ("Armstrong"), and FCI MANAGEMENT GROUP, a Pennsylvania
general partnership ("FMG" and together with Armstrong the "Transferors"), to
and for the benefit of FACILICOM INTERNATIONAL, INC., a Delaware corporation
(the "Transferee").
W I T N E S S E T H T H A T:
WHEREAS, Armstrong owns all of the "Units" held by the "Class A Members",
and FMG owns all of the Units held by the "Class B Members" (each as defined and
used in the First Amended and Restated Limited Liability Company Agreement dated
as of September 30, 1997 (the "FaciliCom LLC Agreement") of FaciliCom
International, L.L.C., a Delaware limited liability company ("FaciliCom")) of
FaciliCom, such Units (hereinafter referred to as the "FaciliCom Units")
representing all of the beneficial interests in the equity of FaciliCom;
WHEREAS, the Transferors collectively own 100% of the "Units" (as defined
and used in the Limited Liability Company Agreement dated as of September 30,
1997 (the "FCI (GP) Agreement") of FCI (GP), LLC, a Delaware limited liability
company ("FCI (GP)")) of FCI (GP), such Units (hereinafter referred to as the
"FCI (GP) Units") representing all of the beneficial interests in the equity of
FCI (GP); and
WHEREAS, as provided in that certain Investment and Shareholders Agreement
among the parties hereto and dated as of the date hereof, the Transferors desire
to transfer all of their respective Units in each of FaciliCom and FCI (GP) to
the Transferee;
NOW, THEREFORE, the parties hereto, intending to be legally bound, do
hereby agree as follows:
1. Assignment of Units.
-------------------
The Transferors hereby assign, transfer and convey unto the Transferee,
free and clear of all claims, liens and encumbrances, and the Transferee hereby
receives and accepts, all of Transferors' respective FaciliCom Units and FCI
(GP) Units. The Transferors also hereby assign, transfer and convey any and all
rights Transferors have in, to and under each of the FaciliCom LLC Agreement and
the FCI (GP) Agreement, intending hereby to cause the Transferee to become, and
to be admitted as, the sole member of each of FaciliCom and FCI (GP).
<PAGE>
2. Assumption of Obligations.
-------------------------
The Transferee agrees to be bound by and subject to all of the terms and
conditions of each of the FaciliCom Agreement and the FCI (GP) Agreement as a
member of FaciliCom and FCI (GP), respectively, from and after the effective
date hereof.
3. Miscellaneous.
-------------
This Assignment shall be binding upon and shall inure to the benefit of the
parties hereto, and their respective successors and assigns. This Assignment
shall be construed and enforced in accordance with the laws of the State of
Delaware. This Assignment may be executed in any number of counterparts all of
which shall be considered one and the same instrument.
IN WITNESS WHEREOF, this Assignment has been executed as of the date first
written above.
ATTEST: ARMSTRONG INTERNATIONAL
TELECOMMUNICATIONS, INC.
_________________________________ By _________________________________
Title:______________________________
FCI MANAGEMENT GROUP
ATTEST: By: EPIC INTERESTS, INC.
By _________________________________
Title:______________________________
General Partner
ATTEST: By: BFV ASSOCIATES, INC.
By _________________________________
Title:______________________________
General Partner
2
<PAGE>
ACILICOM INTERNATIONAL INC.
ATTEST: By _________________________________
Title:______________________________
********************************************************************************
CONSENT TO ASSIGNMENT
AND
ADMISSION OF NEW MEMBER
We, the members of the Management Committee of each of FaciliCom
International, L.L.C. and FCI (GP), LLC, hereby consent to the foregoing
Assignment and to the admission of FaciliCom International, Inc. as a member of
each of such limited liability companies.
WITNESSES:
___________________________________ ___________________________________
Jay L. Sedwick
___________________________________ ___________________________________
Kirby J. Campbell
___________________________________ ___________________________________
Dru A. Sedwick
___________________________________ ___________________________________
William C. Stewart
___________________________________ ___________________________________
Bryan Cipoletti
3
<PAGE>
___________________________________ ___________________________________
Robert L. Reed
___________________________________ ___________________________________
Walter J. Burmeister
4
<PAGE>
Exhibit D
BY-LAWS
of
FACILICOM INTERNATIONAL, INC.
(A Delaware corporation)
Adopted December 22, 1997
<PAGE>
INDEX
BY-LAWS
-------
Page
ARTICLE I
STOCKHOLDERS 1
Section 1.01. Annual Meetings 1
Section 1.02. Special Meetings 1
Section 1.03. Notice of Annual and Special Meetings 1
Section 1.04. Quorum 1
Section 1.05. Voting 2
Section 1.06. Procedure at Stockholders' Meetings 2
Section 1.07. Action Without Meeting 3
ARTICLE II
DIRECTORS 3
Section 2.01. Number, Election and Term of Office 3
Section 2.02. Annual Meeting 3
Section 2.03. Regular Meetings 4
Section 2.04. Special Meetings 4
Section 2.05. Notice of Annual and Special Meetings 4
Section 2.06. Quorum and Manner of Acting 4
Section 2.07. Action Without Meeting 5
Section 2.08. Participation by Conference Telephone 5
Section 2.09. Resignations 5
Section 2.10. Removal of Directors 5
Section 2.11. Vacancies 6
Section 2.12. Compensation of Directors 6
Section 2.13. Committees 6
Section 2.14. Personal Liability of Directors 6
ARTICLE III
OFFICERS AND EMPLOYEES 7
Section 3.01. Executive Officers 7
Section 3.02. Additional Officers; Other Agents and Employees 7
Section 3.03. The Chairman 7
Section 3.04. The President 7
Section 3.05. The Vice Presidents 8
Section 3.06. The Secretary and Assistant Secretaries 8
Section 3.07. The Treasurer and Assistant Treasurers 8
Section 3.08. Vacancies 9
Section 3.09. Delegation of Duties 9
-i-
<PAGE>
ARTICLE IV
SHARES OF CAPITAL STOCK 9
Section 4.01. Share Certificates 9
Section 4.02. Transfer of Shares 10
Section 4.03. Transfer Agents and Registrars 10
Section 4.04. Lost, Stolen, Destroyed or Mutilated
Certificates 10
Section 4.05. Regulations Relating to Shares 10
Section 4.06. Holders of Record 10
Section 4.07. Fixing of Record Date 11
ARTICLE V
LOANS, NOTES, CHECKS,
CONTRACTS AND OTHER INSTRUMENTS 11
Section 5.01. Notes, Checks, etc. 11
Section 5.02. Execution of Instruments Generally 11
Section 5.03. Proxies in Respect of Stock or Other
Securities or Other Corporations 12
ARTICLE VI
GENERAL PROVISIONS 12
Section 6.01. Offices 12
Section 6.02. Corporate Seal 12
Section 6.03. Fiscal Year 12
ARTICLE VII
VALIDATION OF CERTAIN CONTRACTS 12
ARTICLE VIII
INDEMNIFICATION OF DIRECTORS AND OFFICERS 12
ARTICLE IX
AMENDMENTS 14
-ii-
<PAGE>
FACILICOM INTERNATIONAL, INC.
By-Laws
ARTICLE I
STOCKHOLDERS
Section 1.01. Annual Meetings. Annual meetings of the stockholders shall
------------ ---------------
be held at such place, either within or without the State of Delaware, and at
such time and date as the Board of Directors shall determine and as set forth in
the notice of the meeting.
Section 1.02. Special Meetings. Special meetings of the stockholders may
------------ ----------------
be called at any time, for the purpose or purposes set forth in the call, by the
Chairman of the Board, the President, the Board of Directors or the holders of
at least one-fifth of all the shares outstanding and entitled to vote thereat,
by delivering a written request to the Secretary. At any time, upon the written
request of any person or persons who have duly called a special meeting, it
shall be the duty of the Secretary to fix the date of the meeting, to be held
not more than 75 days after receipt of the request, and to give due notice
thereof. Special meetings shall be held at such place, either within or without
the State of Delaware, and at such time and date as the Board of Directors shall
determine and as set forth in the notice of the meeting.
Section 1.03. Notice of Annual and Special Meetings. Except as otherwise
------------ -------------------------------------
expressly required by law, notice of each meeting of stockholders, whether
annual or special, shall be given at least 5 and not more than 60 days prior to
the date on which the meeting is to be held to each stockholder of record
entitled to vote thereat by delivery of a notice thereof to him personally or by
sending a copy thereof through the mail or by telecommunication equipment,
charges prepaid, to his address appearing on the records of the Corporation.
Each such notice shall specify the place, day and hour of the meeting and, in
the case of a special meeting, shall briefly state the purpose or purposes for
which the meeting is called. A written waiver of notice, signed by the person
or persons entitled to such notice, whether before or after the date and time
fixed for the meeting shall be deemed the equivalent of such notice. Neither
the business to be transacted at nor the purpose of the meeting need be
specified in a waiver of notice of such meeting.
Section 1.04. Quorum. A stockholders' meeting duly called shall not be
------------ ------
organized for the transaction of business unless a quorum is present. At any
meeting the presence in person or by proxy of stockholders entitled to cast at
least a
<PAGE>
majority of the votes which all stockholders are entitled to cast on the
particular matter shall constitute a quorum for the purpose of considering such
matter, except as otherwise expressly provided by law or by the Certificate of
Incorporation or By-Laws of the Corporation. The stockholders present at a duly
organized meeting can continue to do business until adjournment, notwithstanding
the withdrawal of enough stockholders to leave less than a quorum. If a meeting
cannot be organized because a quorum has not attended, those present may adjourn
the meeting from time to time to such time (not more than 30 days after the next
previous adjourned meeting) and place as they may determine, without notice
other than by announcement at the meeting of the time and place of the adjourned
meeting; and in the case of any meeting called for the election of directors,
those who attend the second of such adjourned meetings, although entitled to
cast less than a majority of the votes entitled to be cast on any matter to be
considered at the meeting, shall nevertheless constitute a quorum for the
purpose of electing directors.
Section 1.05. Voting. At every meeting of stockholders, each holder of
------------ ------
record of issued and outstanding stock of the Corporation entitled to vote at
such meeting shall be entitled to vote in person or by proxy and, except where a
date has been fixed as the record date for the determination of stockholders
entitled to notice of or to vote at such meeting, no holder of record of a share
of stock which has been transferred on the books of the Corporation within 10
days next preceding the date of such meeting shall be entitled to notice of or
to vote at such meeting in respect of such share so transferred. Resolutions of
the stockholders shall be adopted, and any action of the stockholders at a
meeting upon any matter shall be taken and be valid, only if at least a majority
of the votes cast with respect to such resolutions or matter are cast in favor
thereof, except as otherwise expressly provided by law or by the Certificate of
Incorporation or By-Laws of the Corporation. The Chairman of the Board (if one
has been elected and is present) shall be chairman, and the Secretary (if
present) shall act as secretary, at all meetings of the stockholders. In the
absence of the Chairman of the Board, the President shall be chairman; and in
the absence of both of them, the chairman shall be designated by the Board of
Directors or if not so designated shall be elected by the stockholders present;
and in the absence of the Secretary, an Assistant Secretary shall act as
secretary of the meeting.
Section 1.06. Procedure at Stockholders' Meetings. The organization of
------------ -----------------------------------
each meeting of the stockholders, the order of business thereat and all matters
relating to the manner of conducting the meetings shall be determined by the
chairman of the meeting, whose decisions may be overruled only by majority
-2-
<PAGE>
vote (which shall not be by ballot) of the stockholders present and entitled to
vote at the meeting in person or by proxy. Meetings shall be conducted in a
manner designed to accomplish the business of the meeting in a prompt and
orderly fashion and to be fair and equitable to all stockholders, but it shall
not be necessary to follow Roberts' Rules of Order or any other manual of
parliamentary procedure.
Section 1.07. Action Without Meeting. Any action required or permitted to
------------ ----------------------
be taken at any annual or special meeting of stockholders, or any action which
may be taken at any annual or special meeting, may be taken without a meeting,
without prior notice and without a vote, if a consent in writing, setting forth
the action so taken, shall be signed by the holders of outstanding stock having
not less than the minimum number of votes that would be necessary to authorize
or take such action at a meeting at which all shares entitled to vote thereon
were present and voted, and such written consent is filed with the minutes of
proceedings of the stockholders. Prompt notice of the taking of the corporate
action without a meeting by less than unanimous written consent shall be given
to those stockholders who have not consented in writing.
ARTICLE II
DIRECTORS
Section 2.01. Number, Election and Term of Office. The number of
------------ ------------------------------------
directors which shall constitute the full Board of Directors shall be determined
by resolution of the board of directors or by the stockholders at the annual
meeting provided, however, that in no event shall the number of directors be
less than three or more than eleven. Each director shall hold office for the
term for which he is elected and thereafter until his successor is duly elected
or until his prior death, resignation or removal. Directors need not be
stockholders.
Section 2.02. Annual Meeting. Annual Meetings of the Board of Directors
------------ --------------
shall be held each year at the same place as and immediately after the annual
meeting of stockholders, or at such other place and time as shall theretofore
have been determined by the Board. At its regular annual meeting, the Board of
Directors shall organize itself and elect the officers of the Corporation for
the ensuing year, and may transact any other business.
-3-
<PAGE>
Section 2.03. Regular Meetings. Regular meetings of the Board of
------------ ----------------
Directors may be held at such intervals and at such time and place as shall from
time to time be determined by the Board. After there has been such
determination and notice thereof has been once given to each person then a
member of the Board of Directors, regular meetings may be held at such intervals
and time and place without further notice being given.
Section 2.04. Special Meetings. Special meetings of the Board of
------------ ----------------
Directors may be called at any time by the Board, by the Chairman of the Board,
by the President or by any two directors to be held on such day and at such time
and place as shall be specified by the person or persons calling the meeting.
Section 2.05. Notice of Annual and Special Meetings. Except as otherwise
------------ -------------------------------------
expressly required by law, notice of the annual meeting of the Board of
Directors need not be given. Except as otherwise expressly required by law,
notice of every special meeting of the Board of Directors specifying the place,
date and time thereof shall be given to each director either by being mailed on
at least the third day prior to the date of the meeting or by being sent by
telecommunications equipment or given personally or by telephone at least 24
hours prior to the time of the meeting. A written waiver of notice of a special
meeting, signed by the person or persons entitled to such notice, whether before
or after the date and time stated therein fixed for the meeting, shall be deemed
the equivalent of such notice, and attendance of a director at a meeting shall
constitute a waiver of notice of such meeting except when the director attends
the meeting for the express purpose of objecting, when he enters the meeting, to
the transaction of any business because the meeting is not lawfully called or
convened.
Section 2.06. Quorum and Manner of Acting. At all meetings of the Board
------------ ---------------------------
of Directors, except as otherwise expressly provided by law or by the
Certificate of Incorporation or By-Laws of the Corporation, the presence of a
majority of the full Board shall be necessary and sufficient to constitute a
quorum for the transaction of business. If a quorum is not present at any
meeting, the meeting may be adjourned from time to time by a majority of the
directors present until a quorum as aforesaid shall be present, but notice of
the time and place to which such a meeting is adjourned shall be given to any
directors not present either by being sent by telecommunications equipment or
given personally or by telephone at least 8 hours prior to the date of
reconvening. Resolutions of the Board of Directors shall be adopted, and any
action of the Board at a meeting upon any matter shall be taken and be valid,
only with the affirmative vote of at least a majority of the directors present
at the
-4-
<PAGE>
meeting, except as otherwise provided herein. The Chairman of the Board (if one
has been elected and is present) shall be chairman, and the Secretary (if
present) shall act as secretary, at all meetings of the Board. In the absence of
the Chairman of the Board, the President shall be chairman, and in the absence
of both of them the directors present shall select a member of the Board of
Directors to be chairman; and in the absence of the Secretary, the chairman of
the meeting shall designate any person to act as secretary of the meeting.
Section 2.07. Action Without Meeting. Any action required or permitted to
------------ ----------------------
be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting if a consent in writing, setting forth the
actions so taken, shall be signed by all members of the Board or such
committees, as the case may be, and such written consent is filed with the
minutes of the Board or committee.
Section 2.08. Participation by Conference Telephone. Members of the Board
------------ -------------------------------------
of Directors of the Corporation, or any committee designated by the Board, may
participate in a meeting of the Board or committee by means of conference
telephone or similar communications equipment by which all persons participating
in the meeting can hear each other, and participation in a meeting by such means
shall constitute presence in person at such meeting.
Section 2.09. Resignations. A director may resign by submitting his
------------ ------------
written resignation to the Chairman of the Board (if one has been elected) or
the Secretary. Unless otherwise specified therein, the resignation of a
director need not be accepted to make it effective and shall be effective
immediately upon its receipt by such officer or as otherwise specified therein.
If the resignation of a director specifies that it shall be effective at some
time later than receipt, until that time the resigning director shall be
competent to act on all matters before the Board of Directors, including filling
the vacancy caused by such resignation.
Section 2.10. Removal of Directors. The entire Board of Directors or any
------------ --------------------
individual director may be removed at any time for cause or without cause by the
holders of a majority of the shares then entitled to vote at an election of
directors. The vacancy or vacancies caused in the Board of Directors by such
removal may but need not be filled by such stockholders at the same meeting or
at a special meeting of the stockholders called for that purpose.
-5-
<PAGE>
Section 2.11. Vacancies. Any vacancy that shall occur in the Board of
------------ ---------
Directors by reason of death, resignation, removal, increase in the number of
directors or any other cause whatever shall, unless filled as provided in
Section 2.10 of this Article II, be filled by a majority of the then members of
the Board, whether or not a quorum, and each person so elected shall be a
director until he or his successor is elected by the stockholders at a meeting
called for the purpose of electing directors, or until his prior death,
resignation or removal.
Section 2.12. Compensation of Directors. The Corporation may allow
------------ -------------------------
compensation to its directors for their services, as determined from time to
time by resolution adopted by the Board of Directors.
Section 2.13. Committees. The Board of Directors may, by resolution
------------ ----------
adopted by a majority of the full Board, designate one or more committees
consisting of directors to have and exercise such authority of the Board in the
management of the business and affairs of the Corporation as the resolution of
the Board creating such committee may specify and as is otherwise permitted by
law. The Board of Directors may designate one or more directors as alternate
members of any committee, who may replace any absent or disqualified member at
any meeting of the committee. In the absence or disqualification of any member
of such committee or committees, the member or members thereof present at any
meeting and not disqualified from voting, whether or not he or they constitute a
quorum, may unanimously appoint another director to act at the meeting in the
place of such absent or disqualified member.
Section 2.14. Personal Liability of Directors.
------------ -------------------------------
(a) To the fullest extent that the laws of the State of Delaware, as the
same exist or may hereafter be amended, permit elimination of the personal
liability of directors, no director of this Corporation shall be personally
liable to this Corporation or its stockholders for monetary damages for breach
of fiduciary duty as a director.
(b) The provisions of this Section 2.14 shall be deemed to be a contract
with each director of this Corporation who serves as such at any time while this
Section 2.14 is in effect, and each such director shall be deemed to be serving
as such in reliance on the provisions of this Section 2.14. Any amendment or
repeal of this Section 2.14 or adoption of any By-Law of this Corporation or
other provision of the Certificate of Incorporation of this Corporation which
has the effect of increasing director liability shall operate prospectively only
-6-
<PAGE>
and shall not affect any action taken, or any failure to act, by a director of
this Corporation prior to such amendment, repeal, By-Law or other provision
becoming effective.
ARTICLE III
OFFICERS AND EMPLOYEES
----------------------
Section 3.01. Executive Officers. The Executive Officers of the
------------ ------------------
Corporation shall be the President, a Secretary and a Treasurer, and may include
a Chairman of the Board and one or more Vice Presidents as the Board of
Directors may from time to time determine, all of whom shall be elected by the
Board of Directors. Any two or more offices may be held by the same person.
Each Executive Officer shall hold office until the next succeeding annual
meeting of the Board of Directors and thereafter until his successor is duly
elected and qualifies, or until his earlier death, resignation or removal.
Section 3.02. Additional Officers; Other Agents and Employees. The Board
------------ -----------------------------------------------
of Directors may from time to time appoint or hire such additional officers,
assistant officers, agents, employees and independent contractors as the Board
deems advisable; and the Board or the President shall prescribe their duties,
conditions of employment and compensation. Subject to the power of the Board of
Directors, the President may employ from time to time such other agents,
employees, and independent contractors as he may deem advisable for the prompt
and orderly transaction of the business of the Corporation, and he may prescribe
their duties and the conditions of their employment, fix their compensation and
dismiss them, without prejudice to their contract rights, if any.
Section 3.03. The Chairman. If there shall be a Chairman of the Board, he
------------ ------------
shall be elected from among the directors, shall preside at all meetings of the
stockholders and of the Board, and shall have such other powers and duties as
from time to time may be prescribed by the Board.
Section 3.04. The President. The President shall be the chief executive
------------ -------------
officer of the Corporation. Subject to the control of the Board of Directors,
the President shall have general policy supervision of and general management
and executive powers over all the property, business, operations and affairs of
the Corporation, and shall see that the policies and programs adopted or
approved by the Board are carried out. The President shall exercise such
further powers and duties as from time to time may be prescribed in these By-
Laws or by the Board of Directors.
-7-
<PAGE>
Section 3.05. The Vice Presidents. The Vice Presidents may be given by
------------ -------------------
resolution of the Board of Directors general executive powers, subject to the
control of the President, concerning one or more or all segments of the
operations of the Corporation. The Vice Presidents shall exercise such further
powers and duties as from time to time may be prescribed in these By-Laws or by
the Board of Directors or by the President. At the request of the President or
in his absence or disability, the senior Vice President shall exercise all the
powers and duties of the President.
Section 3.06. The Secretary and Assistant Secretaries. It shall be the
------------ ---------------------------------------
duty of the Secretary (a) to keep or cause to be kept an original or duplicate
record of the proceedings of the stockholders and the Board of Directors, and a
copy of the Certificate of Incorporation and of the By-Laws; (b) to attend to
the giving of notices of the Corporation as may be required by law or these By-
Laws; (c) to be custodian of the corporate records and of the seal of the
Corporation and see that the seal is affixed to such documents as may be
necessary or advisable; (d) to have charge of the stock books of the
Corporation, and a share register, giving the names of the stockholders in
alphabetical order, and showing their respective addresses, the number and
classes of shares held by each, the number and date of certificates issued for
the shares, and the date of cancellation of every certificate surrendered for
cancellation; and (e) to exercise all powers and duties as may be prescribed by
the Board of Directors or by the President from time to time. The Secretary by
virtue of his office shall be an Assistant Treasurer. The Assistant Secretaries
shall assist the Secretary in the performance of his duties and shall also
exercise such further powers and duties as from time to time may be assigned to
them by the Board of Directors, the President or the Secretary. At the direction
of the Secretary or in his absence or disability, an Assistant Secretary shall
perform the duties of the Secretary.
Section 3.07. The Treasurer and Assistant Treasurers. The Treasurer shall
------------ --------------------------------------
have custody of all the funds and securities of the Corporation. He shall
collect all moneys due the Corporation and deposit such moneys to the credit of
the Corporation in such banks, trust companies, or other depositories as may
have been duly designated by the Board of Directors. He shall endorse for
collection on behalf of the Corporation checks, notes, drafts and other
documents, and may sign and deliver receipts, vouchers and releases of liens
evidencing payments made to the Corporation. Subject to Section 5.01 of these
By-Laws, he shall cause to be disbursed the funds of the Corporation by
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<PAGE>
payment in cash or by checks or drafts upon the authorized depositories of the
Corporation. He shall have charge of the books and accounts of the Corporation.
He shall perform all acts incident to the office of Treasurer and such other
duties as may be assigned to him by the Board of Directors. The Treasurer by
virtue of his office shall be an Assistant Secretary. The Assistant Treasurers
shall assist the Treasurer in the performance of his duties and shall also
exercise such further powers and duties as from time to time may be assigned to
them by the Board of Directors, the President or the Treasurer. At the direction
of the Treasurer or in his absence or disability, an Assistant Treasurer shall
perform the duties of the Treasurer.
Section 3.08. Vacancies. Vacancy in any office or position by reason of
------------ ---------
death, resignation, removal, disqualification, disability or other cause, shall
be filled in the manner provided in this Article III for regular election or
appointment to such office.
Section 3.09. Delegation of Duties. The Board of Directors may in its
------------ --------------------
discretion delegate from time to time the powers and duties, or any of them, of
any officer to any other person whom it may select.
ARTICLE IV
SHARES OF CAPITAL STOCK
-----------------------
Section 4.01. Share Certificates. Every holder of stock in the
------------ ------------------
Corporation shall be entitled to a certificate or certificates, to be in such
form as the Board of Directors may from time to time prescribe, signed by the
Chairman of the Board, the President or any Vice President and by the Treasurer
or any Assistant Treasurer or the Secretary or any Assistant Secretary. The
signatures of such officers may be facsimiles. Each such certificate shall set
forth the name of the registered holder thereof, the number and class of shares
and the designation of the series, if any, which the certificate represents.
The Board of Directors may, if it so determines, direct that certificates for
shares of stock of the Corporation be signed by a transfer agent or registered
by a registrar or both, in which case such certificates shall not be valid until
so signed or registered.
In the case of any officer of the Corporation who shall have signed, or
whose facsimile signature shall have been used on, any certificate for shares of
stock of the Corporation shall cease to be such officer, whether because of
death, resignation, removal or otherwise, before such certificate shall have
been delivered by the Corporation, such certificate shall nevertheless
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<PAGE>
be deemed to have been adopted by the Corporation and may be issued and
delivered as though the person who signed such certificate or whose facsimile
signature shall have been used thereon had not ceased to be such officer.
Section 4.02. Transfer of Shares. Transfer of shares of stock of the
------------ ------------------
Corporation shall be made only on the books of the Corporation by the registered
holder thereof or by his attorney thereunto authorized by an instrument duly
executed and filed with the Corporation, and on surrender of the certificate or
certificates for such shares properly endorsed or accompanied by properly
executed stock powers and evidence of the payment of all taxes imposed upon such
transfer. Except as provided in Section 4.04 of this Article IV, every
certificate surrendered for transfer shall be cancelled and no new certificate
or certificates shall be issued in exchange for any existing certificate until
such existing certificate shall have been so cancelled.
Section 4.03. Transfer Agents and Registrars. The Board of Directors may
------------ ------------------------------
appoint any one or more qualified banks, trust companies or other corporations
organized under any law of any state of the United States or under the laws of
the United States as agent or agents for the Corporation in the transfer of the
stock of the Corporation and likewise may appoint any one or more such qualified
banks, trust companies or other corporations as registrar or registrars of the
stock of the Corporation.
Section 4.04. Lost, Stolen, Destroyed or Mutilated Certificates. New
------------ -------------------------------------------------
certificates for shares of stock may be issued to replace certificates lost,
stolen, destroyed or mutilated upon such terms and conditions, which may but
need not include the giving of a satisfactory bond or other indemnity, as the
Board of Directors may from time to time determine.
Section 4.05. Regulations Relating to Shares. The Board of Directors
------------ ------------------------------
shall have power and authority to make such rules and regulations not
inconsistent with these By-Laws or with law as it may deem expedient concerning
the issue, transfer and registration of certificates representing shares of
stock of the Corporation.
Section 4.06. Holders of Record. The Corporation shall be entitled to
------------ -----------------
treat the holder of record of any share or shares of stock as the holder and
owner in fact thereof and shall not be bound to recognize any equitable or other
claim to or interest in such shares on the part of any other person, whether or
not it shall have express or other notice thereof, except as
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<PAGE>
otherwise expressly provided by the laws of the State of Delaware.
Section 4.07. Fixing of Record Date. The Board of Directors may fix a
------------ ---------------------
time, not less than 10 or more than 60 days prior to the date of any meeting of
stockholders, or the date fixed for the payment of any dividend or distribution,
or the date for the allotment of rights, or the date when any change or
conversion or exchange of shares will be made or go into effect, as a record
date for the determination of the stockholders entitled to notice of, or to vote
at, any such meeting, or entitled to receive payment of any such dividend or
distribution, or to receive any such allotment of rights, or to exercise the
rights in respect to any such change, conversion or exchange of shares. In such
case, only such stockholders as shall be stockholders of record on the date so
fixed shall be entitled to notice of, or to vote at, such meeting or to receive
payment of such dividend, or to receive such allotment of rights, or to exercise
such rights, as the case may be, notwithstanding any transfer of any shares on
the books of the Corporation after any record date fixed as aforesaid.
ARTICLE V
LOANS, NOTES, CHECKS,
---------------------
CONTRACTS AND OTHER INSTRUMENTS
-------------------------------
Section 5.01. Notes, Checks, etc. All notes, drafts, acceptances, checks,
------------ -------------------
endorsements (other than for deposit) and all evidences of indebtedness of the
Corporation whatsoever shall be signed by such officers or agents and shall be
subject to such requirements as to countersignature or other conditions as the
Board of Directors from time to time may designate. Facsimile signatures on
checks may be used unless prohibited by the Board of Directors.
Section 5.02. Execution of Instruments Generally. Except as provided in
------------ ----------------------------------
Section 5.01 of this Article V, all contracts and other instruments requiring
execution by the Corporation may be executed and delivered by the President, any
Vice President or the Treasurer, and authority to sign any such contracts or
instruments, which may be general or confined to specific instances, may be
conferred by the Board of Directors upon any other person or persons. Any
person having authority to sign on behalf of the Corporation may delegate, from
time to time, by instrument in writing, all or any part of such authority to any
person or person if authorized so to do by the Board of Directors.
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<PAGE>
Section 5.03. Proxies in Respect of Stock or Other Securities or Other
------------ --------------------------------------------------------
Corporations. Unless otherwise provided by the Board of Directors, the
- ------------
President may from time to time appoint an attorney or attorneys or an agent or
agents of the Corporation to exercise in the name and on behalf of the
Corporation the powers and rights which the Corporation may have as the holder
of stock or other securities in any other corporation to vote or consent in
respect of such stock or other securities, may instruct the person or persons so
appointed as to the manner of exercising such powers and rights and may execute
or cause to be executed in the name and on behalf of the Corporation and under
its corporate seal or otherwise all such written proxies or other instruments as
he may deem necessary or proper in order that the Corporation may exercise its
said powers and rights.
ARTICLE VI
GENERAL PROVISIONS
------------------
Section 6.01. Offices. The registered office of the Corporation shall be
------------ -------
at 1013 Centre Road, Wilmington, Delaware. The Corporation may have other
offices, within or without the State of Delaware, at such place or places as the
Board of Directors may from time to time determine or the business of the
Corporation may require.
Section 6.02. Corporate Seal. The Board of Directors shall prescribe the
------------ --------------
form of a suitable corporate seal, which shall contain the full name of the
Corporation and the year and state of incorporation. Such seal may be used by
causing it or a facsimile or reproduction thereof to be affixed to or placed
upon the document to be sealed.
Section 6.03. Fiscal Year. Unless otherwise determined by the Board of
------------ -----------
Directors, the fiscal year of the Corporation shall be the calendar year.
ARTICLE VII
VALIDATION OF CERTAIN CONTRACTS
-------------------------------
Section 7.01. No contract or other transaction between the Corporation and
------------
another person shall be invalidated or otherwise adversely affected by the fact
that any one or more stockholders, directors or officers of the Corporation -
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<PAGE>
(i) is pecuniarily or otherwise interested in, or is a stockholder,
director, officer, or member of, such other person, or
(ii) is a party to, or is in any other way pecuniarily or otherwise
interested in, the contract or other transaction, or
(iii) is in any way connected with any person pecuniarily or otherwise
interested in such contract or other transaction, provided the fact of such
interest shall be disclosed or known to the Board of Directors or the
stockholders, as the case may be, and in any action of the stockholders or of
the Board authorizing or approving any such contract or other transaction, any
and every stockholder or director may be counted in determining the existence of
a quorum with like force and effect as though he were not so interested, or were
not such a stockholder, director, member or officer, or were not such a party,
or were not so connected. Such director, stockholder or officer shall not be
liable to account to the Corporation for any profit realized by him from or
through any such contract or transaction approved or authorized as aforesaid.
As used herein, the term "person" includes a corporation, partnership, firm,
association or other legal entity.
ARTICLE VIII
INDEMNIFICATION OF DIRECTORS AND OFFICERS
-----------------------------------------
Section 8.01. To the maximum extent provided by applicable law, no
------------
director shall be personally liable to the Corporation or its stockholders for
monetary damages for any breach of fiduciary duty by such director as a
director. The foregoing sentence shall not eliminate or limit the liability of
a director, (i) for breach of the director's duty of loyalty of the Corporation
or its stockholders, (ii) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, (iii) pursuant to
Section 174 of the Delaware General Corporation Law or (iv) for any transaction
from which the director derived an improper personal benefit. No amendment to
or repeal of this Article VIII shall apply to or have any effect on the
liability or alleged liability of any director or officer of the Corporation for
or with respect to any acts or omissions of such director or officer occurring
prior to such amendment.
Directors and officers of the Corporation shall be indemnified as of right
to the fullest extent now or hereafter permitted by law in connection with any
actual or threatened civil, criminal, administrative or investigative action,
suit or
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<PAGE>
proceeding (whether brought by or in the name of the Corporation or otherwise)
arising out of their service to the Corporation or to another organization at
the request of the Corporation. Persons who are not directors or officers of the
Corporation may be similarly indemnified in respect of such service to the
extent authorized at any time by the Board of Directors of the Corporation. The
Corporation may purchase and maintain insurance to protect itself and any such
director, officer or other person against any liability asserted against him and
incurred by him in respect of such service whether or not the Corporation would
have the power to indemnify him against such liability by law or under the
provisions of this Article. The provisions of this Article shall be applicable
to actions, suits or proceedings commenced after the adoption hereof, whether
arising from acts or omissions occurring before or after the adoption hereof,
and to directors, officers and other persons who have ceased to render such
service, and shall inure to the benefit of the heirs, executors and
administrators of the directors, officers and other persons referred to in this
Article.
ARTICLE IX
AMENDMENTS
----------
Section 9.01. These By-Laws may be amended, altered and repealed, and new
------------
By-Laws may be adopted, by the stockholders or the Board of Directors of the
Corporation at any regular or special meeting. No provision of these By-laws
shall vest any property or contract right in any stockholder.
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<PAGE>
Exhibit E
FACILICOM INTERNATIONAL, INC.
-----------------------------
1997 STOCK OPTION PLAN NO. 1
1. Definitions.
-----------
The terms defined in this Section 1 shall, for all purposes of this Plan,
have the meanings herein specified:
(a) "Administrator" shall mean such one or more persons who shall have
been appointed in accordance with Section 3.
(b) "Affiliate" shall mean, with respect to any shareholder of the
Corporation, any individual or entity directly or indirectly controlling,
controlled by or under common control with such shareholder, and such term shall
include any individual who is an officer, director or employee of such
shareholder or any Affiliate of such entity. As used in the immediately
preceding sentence, the term "control" means, with respect to an entity, the
right to exercise, directly or indirectly, a majority of the voting rights
attributable to such entity, and the term "majority" means more than fifty
percent (50%).
(c) "Board" shall mean the board of directors of the Corporation.
(d) "Change in Control" shall mean the events described in Section 9
hereof.
(e) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(f) "Common Stock" shall mean the Corporation's presently authorized
Common Stock, except as this definition may be modified as provided in Section 8
hereof.
(g) "Corporation" shall mean FACILICOM INTERNATIONAL, INC., a Delaware
corporation.
(h) "Director" or "Directors" shall mean a member or members of the Board.
(i) "Disabled Optionee" shall mean an Optionee who becomes disabled within
the meaning of the first sentence Section 22(e)(3) of the Code.
(j) "Effective Date" shall mean December 22, 1997.
(k) "Employee" or "Employees" shall mean key persons employed by the
Corporation, or a Subsidiary thereof, on a full-time basis and who are
compensated for such employment by a regular salary.
<PAGE>
(l) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
(m) "Fair Market Value" shall have the meaning given that term in Section
7(G) hereof.
(n) "Option" shall mean an Option granted by the Corporation pursuant to
the Plan to purchase shares of Common Stock.
(o) "Optionee" shall mean a person who accepts an Option granted under the
Plan.
(p) "Option Price" shall mean the price to be paid for the shares of
Common Stock being purchased pursuant to a Stock Option Agreement.
(q) "Option Period" shall mean the period from the date of grant of an
Option to the date after which such Option may no longer be exercised. Nothing
in this Plan shall be construed to extend the termination date of the Option
Period beyond the date set forth in the Stock Option Agreement.
(r) "Plan" shall mean this FaciliCom International, Inc. 1997 Stock Option
Plan No. 1.
(s) "Stock Option Agreement" shall mean the written agreement between the
Corporation and Optionee confirming the Option and setting forth the terms and
conditions upon which it may be exercised.
(t) "Subsidiary" shall mean any corporation, partnership, limited
liability company, business trust, joint venture or other business entity in
which the Corporation owns, directly or indirectly through Subsidiaries, at
least 50% of the beneficial interests or total combined voting power of all
classes of equity.
2. Purposes.
--------
The purposes of the Plan are to promote the growth and profitability of the
Corporation and its Subsidiaries by enabling it to attract and retain the best
available personnel for positions of substantial responsibility, to provide
Directors, officers and key Employees with an opportunity for investment in the
Corporation's Common Stock and to give them an additional incentive to increase
their efforts on behalf of the Corporation and its Subsidiaries.
-2-
<PAGE>
It is the Corporation's intent, but it is not required, that Options be
granted under this Plan in replacement and substitution of rights which may,
from time to time, be outstanding pursuant to the Corporation's 1997 Phantom
Stock Rights Plan.
3. Administration.
--------------
The Plan shall be administered by the Administrator. The Administrator
shall be appointed by the Board and shall consist of one or more, but not more
than three, members of the Board.
The Administrator shall have plenary authority in its discretion, subject
to and not inconsistent with the express provisions of the Plan, (i) to grant
Options, to determine the purchase price of the shares of Common Stock covered
by each Option, the term of each Option, the persons to whom, and the time or
times at which Options shall be granted, and the number of shares of Common
Stock to be covered by each Option; (ii) to interpret the Plan; (iii) to
prescribe, amend and rescind rules and regulations relating to the Plan; (iv) to
determine the terms and provisions of the Stock Option Agreements (which need
not be identical) entered into in connection with awards under the Plan; and (v)
to make all other determinations (including factual determinations) deemed
necessary or advisable for the administration of the Plan. The Administrator
may delegate to one or more of its members or to one or more agents such
administrative duties as it may deem advisable, and the Administrator or any
person to whom it has delegated duties as aforesaid may employ one or more
persons to render advice with respect to any responsibility or authority the
Administrator or such person may have under the Plan. Notwithstanding the
foregoing, each grant of an Option and the terms thereof to a member of the
Administrator shall be approved by the Board.
The Administrator may employ attorneys, consultants, accountants or other
persons, and the Administrator, the Corporation and its officers and directors
shall be entitled to rely upon the advice, opinions or valuations of any such
persons. All actions taken and all interpretations and determinations made by
the Administrator in good faith shall be final and binding upon all persons who
have received Options, the Corporation and all other interested persons. No
member or agent of the Administrator shall be personally liable for any action,
determination or interpretation taken or made in good faith with respect to the
Plan or awards made thereunder, and all members and agents of the Administrator
shall be fully indemnified and protected by the Corporation in respect of any
such action, determination or interpretation.
4. Eligibility.
-----------
Subject to the provisions of the Plan, the Administrator shall determine
and designate from time to time those Directors, officers and key Employees of
the Corporation or its Subsidiaries to whom Options are to be granted and the
number of shares of Common Stock covered by such grants (subject to the approval
of the Board in
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<PAGE>
the case of a grant to a member of the Administrator). In determining the
eligibility of a Director, officer or key Employee to receive an Option, as well
as in determining the number of shares covered by such Option, the Administrator
(or the Board, in the case of a member of the Administrator) shall consider the
position and responsibilities of such Employee, the nature and value to the
Corporation or a Subsidiary of his or her services and accomplishments, his or
her present and potential contribution to the success of the Corporation or its
Subsidiaries and such other factors as the Administrator (or the Board) may deem
relevant.
5. Shares Available under the Plan.
-------------------------------
The aggregate number of shares of Common Stock which may be issued or
delivered and as to which Options may be granted under the Plan is 6,175 shares.
All such shares are subject to adjustment and substitution as set forth in
Section 8. If any Option granted under the Plan is canceled by mutual consent
or terminates or expires for any reason without having been exercised in full,
the shares of Common Stock subject to such Option shall again be available for
purposes of the Plan.
The shares of Common Stock which may be issued or delivered under the Plan
may be either authorized but unissued shares or repurchased shares or partly
each, as shall be determined from time to time by the Board.
6. Grant of Options.
----------------
The Administrator shall have full and complete authority, in its discretion
but subject to the provisions of the Plan, to grant Options containing such
terms and conditions as shall, in the judgment of the Administrator, be
necessary or desirable.
7. Terms and Conditions of Options.
-------------------------------
Options granted under the Plan shall be subject to the following terms and
conditions:
(A) The Option Price at which each Option may be exercised shall
be such price as the Administrator, in its discretion, shall determine.
(B) The Option Price shall be payable in any one or more of the
following ways:
(i) in full in cash or in any combination of cash and
installment payments as may be determined by the Administrator
(or the Board in the case of Options granted to a member of the
Administrator); and/or
(ii) in shares of the Common Stock (which are owned by the
Optionee free and clear of all liens and other encumbrances)
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<PAGE>
having a Fair Market Value on the date of exercise of the Option
which is equal to the Option Price for the shares being
purchased.
If the Option Price is paid in whole or in part in shares of
Common Stock, any portion of the Option Price representing a fraction of a share
shall be paid in cash. The date of exercise of an Option shall be determined
under procedures established by the Administrator, and the Option Price shall be
payable at such time or times as the Administrator, in its discretion, shall
determine. No shares shall be issued or delivered upon exercise of an Option
until full payment of the Option Price has been made. When full payment of the
Option Price has been made, the Optionee shall be considered for all purposes to
be the owner of the shares with respect to which payment has been made. Payment
of the Option Price with shares shall not increase the number of shares of
Common Stock which may be issued or delivered under the Plan as provided in
Section 5.
(C) Subject to Section 9 hereof, no Option shall be exercisable
during the first six months of its term, except that this limitation on exercise
shall not apply (i) if the Optionee dies during such six-month period or (ii) if
the Optionee becomes a Disabled Optionee, and his or her employment is
voluntarily terminated with the consent of the Corporation or a Subsidiary
during such six-month period. No Option shall be exercisable after the
expiration of ten years and six months from the date of grant. Subject to this
Section 7(C) and Sections 7(E) and 7(F), Options may be exercised at such times,
in such amounts and subject to such restrictions as shall be determined, in its
discretion, by the Administrator.
(D) No Option shall be transferable by an Optionee other than by
will, or if an Optionee dies intestate, by the laws of descent and distribution,
and all Options shall be exercisable during the lifetime of an Optionee only by
the Optionee.
(E) Unless otherwise determined by the Administrator and set
forth in the Stock Option Agreement:
(i) If the employment of an Optionee who is not also a
Director or officer (whether or not a Disabled Optionee) is
voluntarily terminated with the written consent of the
Corporation or a Subsidiary, or if an Optionee retires under any
retirement plan of the Corporation or a Subsidiary, or if an
Optionee who is a Director or officer ceases to be such at a time
when such Optionee is not also an Employee, any then-outstanding
Option held by such Optionee shall be exercisable (to the extent
exercisable on the date of such event) by such Optionee at any
time prior to the expiration
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<PAGE>
date of such Option or within three months after the date of such event,
whichever is the shorter period;
(ii) Following the death of an Optionee during employment or while
serving as a Director or officer, any outstanding Option held by such Optionee
at the time of death shall be exercisable in full (whether or not so exercisable
on the date of the death of such Optionee) by the person or persons entitled to
do so under the will of the Optionee, or, if the Optionee shall fail to make
testamentary disposition of such Option or shall die intestate, by the legal
representative of the estate of such Optionee, at any time prior to the
expiration date of such Option or within nine months after the date of death,
whichever is the shorter period. Following the death of an Optionee after
termination of employment or of the status of Director or officer during a
period when an Option is exercisable as provided in clause (i) above, any
outstanding Option held by the Optionee at the time of death shall be
exercisable by such person or persons entitled to do so under the Will of the
Optionee or by such Optionee's legal representative to the extent that such
Option was exercisable by the Optionee at the time of death at any time prior to
the expiration date of such Option or within nine months after the date of
death, whichever is the shorter period;
(iii) If the employment, or the status as a Director or officer, of an
Optionee is terminated by the Corporation or a Subsidiary without cause, any
then-outstanding Option held by such Optionee shall be exercisable (to the
extent exercisable on the date of termination of employment) by such Optionee at
any time prior to the expiration date of such Option or within 30 days after the
date of termination of employment, whichever is the shorter period; and
(iv) If the employment, or the status as a Director or officer, of an
Optionee terminates for any reason other than voluntary termination with the
consent of the Corporation or a Subsidiary, retirement under any retirement plan
of the Corporation or a Subsidiary, death or involuntary termination without
cause, the rights of such Optionee under any then-outstanding Option shall
terminate at the time of such termination. In addition, if an Optionee engages
in the operation or management of a business, whether as owner, partner,
officer, director, employee or otherwise and whether during or after termination
of employment, which is in competition with the Corporation or any of its
Subsidiaries, the Administrator may in its
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<PAGE>
discretion immediately terminate all Options held by the Optionee. For
purposes of this subsection (E), the following events or circumstances
shall constitute "cause", to wit: perpetration of defalcations; willful,
-- ---
reckless or grossly negligent conduct entailing a substantial violation of
any material laws or governmental regulations or orders applicable to the
Corporation or a Subsidiary; or repeated and deliberate failure, after
written notice, to comply with policies or directives of the Chief
Executive Officer of the Corporation or a Subsidiary or of the Board.
Whether termination of employment, or the status as a Director or officer, is a
voluntary termination with the written consent of, or an involuntary termination
for cause from, the Corporation or a Subsidiary, whether an Optionee is a
Disabled Optionee and whether an Optionee has engaged in the operation or
management of a business which is in competition with the Corporation or any of
its Subsidiaries shall be determined in each case by the Administrator (or in
the case of a member of the Administrator, by the Board), and any such
determination shall be final and binding.
(F) All Options granted hereunder shall be effective solely upon the
delivery of a Stock Option Agreement, or an amendment thereto, duly executed by
the Chief Executive Officer of the Corporation on behalf of the Corporation and
by the Director, officer or Employee to whom such Options are granted.
(G) Fair Market Value of the Common Stock shall be determined (as of a
date not more than 12 months preceding the date as of which such determination
is required to be made hereunder) in good faith by the Board. The Board shall
take into consideration such factors as it deems relevant, which factors may
include but are not limited to (i) the Corporation's past, current and expected
profitability, (ii) the Corporation's past, present and expected revenues and
net cash flow, (iii) the Corporation's book value, and (iv) the absence of an
organized tracking market for shares of the Common Stock.
The date of the determination of the Administrator to grant an Option shall be
deemed to be the date on which an Option is granted, provided that the Director,
officer or Employee to whom the Option is granted is promptly notified of the
grant and an Option Agreement is duly executed as of the date of the resolution.
(H) The obligation of the Corporation to issue or deliver shares of the
Common Stock under the Plan shall be subject to (i) the effectiveness of a
registration statement under the Securities Act of 1933, as amended, with
respect to such shares, if deemed necessary or
-7-
<PAGE>
appropriate by counsel for the Corporation, and (ii) all other
applicable securities laws, regulations, rules and orders which may
then be in effect.
Subject to the foregoing provisions of this Section 7 and the other
provisions of the Plan, any Option granted under the Plan shall be subject to
such other terms and conditions as the Administrator shall deem advisable.
8. Adjustment and Substitution of Shares.
-------------------------------------
If a dividend or other distribution shall be declared upon the Common Stock
payable in shares of Common Stock, the number of shares of Common Stock then
subject to any outstanding Option and the number of shares which may be issued
or delivered under the Plan but are not then subject to an outstanding Option
shall be adjusted by adding thereto the number of shares which would have been
distributable thereon if such shares had been outstanding on the date fixed for
determining the stockholders entitled to receive such stock dividend or
distribution.
If the outstanding shares of Common Stock shall be changed into or
exchangeable for a different number or kind of shares of stock or other
securities of the Corporation or another corporation, whether through
reorganization, reclassification, recapitalization, stock split-up, combination
of shares, merger or consolidation, then there shall be substituted for each
share of Common Stock subject to any then-outstanding Option and for each share
of Common Stock which may be issued or delivered under the Plan but is not then
subject to an outstanding Option, the number and kind of shares of stock or
other securities into which each outstanding share of Common Stock shall be so
changed or for which each such share shall be exchangeable.
In the case of any adjustment or substitution as provided for in this
Section 8, the aggregate Option Price for all shares subject to each then-
outstanding Option prior to such adjustment or substitution shall be the
aggregate Option Price for all shares of stock or other securities (including
any fraction) to which such shares shall have been adjusted or which shall have
been substituted for such shares. Any new Option Price per share shall be
carried to at least three decimal places with the last decimal place rounded
upwards to the nearest whole number.
No adjustment or substitution provided for in this Section 8 shall require
the Corporation to issue or sell a fraction of a share or other security.
Accordingly, all fractional shares or other securities which result from any
such adjustment or substitution shall be eliminated and not carried forward to
any subsequent adjustment or substitution.
9. Acceleration of the Exercise Date of Options.
--------------------------------------------
Notwithstanding any other provisions of this Plan, all Options shall become
exercisable upon the occurrence of a Change in Control of the Corporation
whether or not such Options are then exercisable under the provisions of the
Stock Option
-8-
<PAGE>
Agreements relating thereto. A Change in Control of the Corporation is any of
the following: (i) a merger, consolidation or other reorganization in which the
Corporation (x) is not the surviving entity or (y) survives only as a subsidiary
of any entity (other than a previously wholly-owned Subsidiary of the
Corporation), (ii) the acquisition by any person, entity or affiliated group of
persons and entities (other than any one or more of the shareholders of the
Corporation as of the Effective Date, and their respective Affiliates) of 50% or
more of the combined voting power of the Corporation's then outstanding
securities (including securities exercisable for or convertible into voting
securities), or (iii) the consummation of a transaction requiring shareholder
approval and involving the sale, lease or exchange of all or substantially all
the assets of the Corporation.
10. Effect of the Plan on the Rights of Employees and Employer.
----------------------------------------------------------
Neither the adoption of the Plan nor any action of the Board or the
Administrator pursuant to the Plan shall be deemed to give any Director, officer
or Employee any right to be granted an Option under the Plan, and nothing in the
Plan, in any Option granted under the Plan or in any Stock Option Agreement
shall confer any right to any Director, officer or Employee to continue in the
employment of, or in such status with, the Corporation or any Subsidiary or
interfere in any way with the rights of the shareholders, the Corporation or any
Subsidiary to terminate the employment or other status of any Director, officer
or Employee at any time.
11. Interpretation, Amendment, and Termination.
------------------------------------------
Except as provided elsewhere in this Plan, in the event of any dispute or
disagreement as to the interpretation of this Plan or of any rule, regulation or
procedure, or as to any question, right or obligation arising from or related to
the Plan, the decision of the Board shall be final and binding upon all persons.
The Board may, in its discretion, amend or terminate this Plan at any time.
Without limiting the generality of the foregoing, the Board may, without
approval of the shareholders of the Corporation, (a) increase the total number
of shares which may be issued or delivered under the Plan, (b) increase the
total number of shares which may be covered by any Option granted to any one
Optionee, (c) make any changes in the class of Employees to whom Options may be
granted or modify the eligibility requirements applicable to the granting of
Options, (d) extend the period during which Options may be granted and (e)
otherwise materially increase the benefits accruing to Directors, officers and
Employees under the Plan. Termination of the Plan shall not affect the rights of
Optionees or their successors under any Options outstanding and not exercised in
full on the date of termination.
12. Withholding Taxes.
-----------------
The Corporation unilaterally or by arrangement with the Optionee shall make
appropriate provision for satisfaction of any obligation to withhold taxes in
the case of
-9-
<PAGE>
any grant, award, exercise or other transaction which gives rise to a
withholding requirement. An Optionee or other person receiving shares issued
upon exercise of an Option shall be required to pay the Corporation or any
Subsidiary in cash the amount of any taxes which the Corporation or Subsidiary
is required to withhold.
Notwithstanding the preceding sentence and subject to such rules as the
Administrator may adopt, Optionees who are subject to Section 16(b) of the
Exchange Act, and, if determined by the Administrator, other Optionees, may
satisfy the obligation, in whole or in part, by election on or before the date
that the amount of tax required to be withheld is determined, to have the number
of shares received upon exercise of an Option reduced by a number of shares.
13. Effective Date and Duration of Plan.
-----------------------------------
The effective date and the date of adoption of the Plan shall be the
Effective Date. No Option may be granted under the Plan subsequent to the date
which is ten (10) years following the Effective Date.
-10-
<PAGE>
Exhibit F
FACILICOM INTERNATIONAL, INC.
----------------------------
1997 STOCK OPTION PLAN NO. 2
1. Definitions.
-----------
The terms defined in this Section 1 shall, for all purposes of this Plan,
have the meanings herein specified:
(a) "Administrator" shall mean such one or more persons who shall have
been appointed in accordance with Section 3.
(b) "Affiliate" shall mean, with respect to any shareholder of the
Corporation, any individual or entity directly or indirectly controlling,
controlled by or under common control with such shareholder, and such term shall
include any individual who is an officer, director or employee of such
shareholder or any Affiliate of such entity. As used in the immediately
preceding sentence, the term "control" means, with respect to an entity, the
right to exercise, directly or indirectly, a majority of the voting rights
attributable to such entity, and the term "majority" means more than fifty
percent (50%).
(c) "Board" shall mean the board of directors of the Corporation.
(d) "Change in Control" shall mean the events described in Section 9
hereof.
(e) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(f) "Common Stock" shall mean the Corporation's presently authorized
Common Stock, except as this definition may be modified as provided in Section 8
hereof.
(g) "Corporation" shall mean FACILICOM INTERNATIONAL, INC., a Delaware
corporation.
(h) "Director" or "Directors" shall mean a member or members of the
Board.
(i) "Disabled Optionee" shall mean an Optionee who becomes disabled
within the meaning of the first sentence Section 22(e)(3) of the Code.
(j) "Effective Date" shall mean December 22, 1997.
(k) "Employee" or "Employees" shall mean key persons employed by the
Corporation, or a Subsidiary thereof, on a full-time basis and who are
compensated for such employment by a regular salary.
<PAGE>
(l) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
(m) "Fair Market Value" shall have the meaning given that term in Section
7(G) hereof.
(n) "Option" shall mean an Option granted by the Corporation pursuant to
the Plan to purchase shares of Common Stock.
(o) "Optionee" shall mean a person who accepts an Option granted under
the Plan.
(p) "Option Price" shall mean the price to be paid for the shares of
Common Stock being purchased pursuant to a Stock Option Agreement.
(q) "Option Period" shall mean the period from the date of grant of an
Option to the date after which such Option may no longer be exercised. Nothing
in this Plan shall be construed to extend the termination date of the Option
Period beyond the date set forth in the Stock Option Agreement.
(r) "Plan" shall mean this FaciliCom International, Inc. 1997 Stock
Option Plan No. 1.
(s) "Stock Option Agreement" shall mean the written agreement between the
Corporation and Optionee confirming the Option and setting forth the terms and
conditions upon which it may be exercised.
(t) "Subsidiary" shall mean any corporation, partnership, limited
liability company, business trust, joint venture or other business entity in
which the Corporation owns, directly or indirectly through Subsidiaries, at
least 50% of the beneficial interests or total combined voting power of all
classes of equity.
2. Purposes.
--------
The purposes of the Plan are to promote the growth and profitability of the
Corporation and its Subsidiaries by enabling it to attract and retain the best
available personnel for positions of substantial responsibility, to provide
Directors, officers and key Employees with an opportunity for investment in the
Corporation's Common Stock and to give them an additional incentive to increase
their efforts on behalf of the Corporation and its Subsidiaries.
-2-
<PAGE>
3. Administration.
--------------
The Plan shall be administered by the Administrator. The Administrator
shall be appointed by the Board and shall consist of one or more, but not more
than three, members of the Board.
The Administrator shall have plenary authority in its discretion, subject
to and not inconsistent with the express provisions of the Plan, (i) to grant
Options, to determine the purchase price of the shares of Common Stock covered
by each Option, the term of each Option, the persons to whom, and the time or
times at which Options shall be granted, and the number of shares of Common
Stock to be covered by each Option; (ii) to interpret the Plan; (iii) to
prescribe, amend and rescind rules and regulations relating to the Plan; (iv) to
determine the terms and provisions of the Stock Option Agreements (which need
not be identical) entered into in connection with awards under the Plan; and (v)
to make all other determinations (including factual determinations) deemed
necessary or advisable for the administration of the Plan. The Administrator may
delegate to one or more of its members or to one or more agents such
administrative duties as it may deem advisable, and the Administrator or any
person to whom it has delegated duties as aforesaid may employ one or more
persons to render advice with respect to any responsibility or authority the
Administrator or such person may have under the Plan. Notwithstanding the
foregoing, each grant of an Option and the terms thereof to a member of the
Administrator shall be approved by the Board.
The Administrator may employ attorneys, consultants, accountants or other
persons, and the Administrator, the Corporation and its officers and directors
shall be entitled to rely upon the advice, opinions or valuations of any such
persons. All actions taken and all interpretations and determinations made by
the Administrator in good faith shall be final and binding upon all persons who
have received Options, the Corporation and all other interested persons. No
member or agent of the Administrator shall be personally liable for any action,
determination or interpretation taken or made in good faith with respect to the
Plan or awards made thereunder, and all members and agents of the Administrator
shall be fully indemnified and protected by the Corporation in respect of any
such action, determination or interpretation.
4. Eligibility.
-----------
Subject to the provisions of the Plan, the Administrator shall determine
and designate from time to time those Directors, officers and key Employees of
the Corporation or its Subsidiaries to whom Options are to be granted and the
number of shares of Common Stock covered by such grants (subject to the approval
of the Board in the case of a grant to a member of the Administrator). In
determining the eligibility of a Director, officer or key Employee to receive an
Option, as well as in determining the number of shares covered by such Option,
the Administrator (or the Board, in the case of a member of the Administrator)
shall consider the position and responsibilities of
-3-
<PAGE>
such Employee, the nature and value to the Corporation or a Subsidiary of his or
her services and accomplishments, his or her present and potential contribution
to the success of the Corporation or its Subsidiaries and such other factors as
the Administrator (or the Board) may deem relevant.
5. Shares Available under the Plan.
-------------------------------
The aggregate number of shares of Common Stock which may be issued or
delivered and as to which Options may be granted under the Plan is 5,135 shares.
All such shares are subject to adjustment and substitution as set forth in
Section 8. If any Option granted under the Plan is canceled by mutual consent or
terminates or expires for any reason without having been exercised in full, the
shares of Common Stock subject to such Option shall again be available for
purposes of the Plan.
The shares of Common Stock which may be issued or delivered under the Plan
may be either authorized but unissued shares or repurchased shares or partly
each, as shall be determined from time to time by the Board.
6. Grant of Options.
----------------
The Administrator shall have full and complete authority, in its discretion
but subject to the provisions of the Plan, to grant Options containing such
terms and conditions as shall, in the judgment of the Administrator, be
necessary or desirable.
7. Terms and Conditions of Options.
-------------------------------
Options granted under the Plan shall be subject to the following terms and
conditions:
(A) The Option Price at which each Option may be exercised
shall be such price as the Administrator, in its discretion, shall
determine but, except as may be approved by the Board, such price
shall not be less than one hundred (100%) percent of the Fair Market
Value per share of the Common Stock covered by such Option on the
date of its grant.
(B) The Option Price shall be payable in any one or more of
the following ways:
(i) in full in cash or in any combination of cash and
installment payments as may be determined by the Administrator
(or the Board in the case of Options granted to a member of the
Administrator); and/or
(ii) in shares of the Common Stock (which are owned by
the Optionee free and clear of all liens and other
encumbrances)
-4-
<PAGE>
having a Fair Market Value on the date of exercise of the
Option which is equal to the Option Price for the shares being
purchased.
If the Option Price is paid in whole or in part in shares of
Common Stock, any portion of the Option Price representing a fraction
of a share shall be paid in cash. The date of exercise of an Option
shall be determined under procedures established by the
Administrator, and the Option Price shall be payable at such time or
times as the Administrator, in its discretion, shall determine. No
shares shall be issued or delivered upon exercise of an Option until
full payment of the Option Price has been made. When full payment of
the Option Price has been made, the Optionee shall be considered for
all purposes to be the owner of the shares with respect to which
payment has been made. Payment of the Option Price with shares shall
not increase the number of shares of Common Stock which may be issued
or delivered under the Plan as provided in Section 5.
(C) Subject to Section 9 hereof, no Option shall be
exercisable during the first six months of its term, except that this
limitation on exercise shall not apply (i) if the Optionee dies
during such six-month period or (ii) if the Optionee becomes a
Disabled Optionee, and his or her employment is voluntarily
terminated with the consent of the Corporation or a Subsidiary during
such six-month period. No Option shall be exercisable after the
expiration of ten years and six months from the date of grant.
Subject to this Section 7(C) and Sections 7(E) and 7(F), Options may
be exercised at such times, in such amounts and subject to such
restrictions as shall be determined, in its discretion, by the
Administrator.
(D) No Option shall be transferable by an Optionee other than
by will, or if an Optionee dies intestate, by the laws of descent and
distribution, and all Options shall be exercisable during the
lifetime of an Optionee only by the Optionee.
(E) Unless otherwise determined by the Administrator and set
forth in the Stock Option Agreement:
(i) If the employment of an Optionee who is not also a
Director or officer (whether or not a Disabled Optionee) is
voluntarily terminated with the written consent of the
Corporation or a Subsidiary, or if an Optionee retires under
any retirement plan of the Corporation or a Subsidiary, or if
an Optionee who is a Director or officer ceases to be such at a
time when such Optionee is not also an Employee, any then-
outstanding Option held by such Optionee shall be exercisable
(to the extent exercisable on the date of such event) by such
Optionee at any time prior to the expiration
-5-
<PAGE>
date of such Option or within three months after the date of
such event, whichever is the shorter period;
(ii) Following the death of an Optionee during
employment or while serving as a Director or officer, any
outstanding Option held by such Optionee at the time of death
shall be exercisable in full (whether or not so exercisable on
the date of the death of such Optionee) by the person or
persons entitled to do so under the will of the Optionee, or,
if the Optionee shall fail to make testamentary disposition of
such Option or shall die intestate, by the legal representative
of the estate of such Optionee, at any time prior to the
expiration date of such Option or within nine months after the
date of death, whichever is the shorter period. Following the
death of an Optionee after termination of employment or of the
status of Director or officer during a period when an Option is
exercisable as provided in clause (i) above, any outstanding
Option held by the Optionee at the time of death shall be
exercisable by such person or persons entitled to do so under
the Will of the Optionee or by such Optionee's legal
representative to the extent that such Option was exercisable
by the Optionee at the time of death at any time prior to the
expiration date of such Option or within nine months after the
date of death, whichever is the shorter period;
(iii) If the employment, or the status as a Director or
officer, of an Optionee is terminated by the Corporation or a
Subsidiary without cause, any then-outstanding Option held by
such Optionee shall be exercisable (to the extent exercisable
on the date of termination of employment) by such Optionee at
any time prior to the expiration date of such Option or within
30 days after the date of termination of employment, whichever
is the shorter period; and
(iv) If the employment, or the status as a Director or
officer, of an Optionee terminates for any reason other than
voluntary termination with the consent of the Corporation or a
Subsidiary, retirement under any retirement plan of the
Corporation or a Subsidiary, death or involuntary termination
without cause, the rights of such Optionee under any then-
outstanding Option shall terminate at the time of such
termination. In addition, if an Optionee engages in the
operation or management of a business, whether as owner,
partner, officer, director, employee or otherwise and whether
during or after termination of employment, which is in
competition with the Corporation or any of its Subsidiaries,
the Administrator may in its
-6-
<PAGE>
discretion immediately terminate all Options held by the
Optionee. For purposes of this subsection (E), the following
events or circumstances shall constitute "cause", to wit:
perpetration of defalcations; willful, reckless or grossly
negligent conduct entailing a substantial violation of any
material laws or governmental regulations or orders applicable
to the Corporation or a Subsidiary; or repeated and deliberate
failure, after written notice, to comply with policies or
directives of the Chief Executive Officer of the Corporation or
a Subsidiary or of the Board.
Whether termination of employment, or the status as a Director or
officer, is a voluntary termination with the written consent of, or
an involuntary termination for cause from, the Corporation or a
Subsidiary, whether an Optionee is a Disabled Optionee and whether an
Optionee has engaged in the operation or management of a business
which is in competition with the Corporation or any of its
Subsidiaries shall be determined in each case by the Administrator
(or in the case of a member of the Administrator, by the Board), and
any such determination shall be final and binding.
(F) All Options granted hereunder shall be effective solely
upon the delivery of a Stock Option Agreement, or an amendment
thereto, duly executed by the Chief Executive Officer of the
Corporation on behalf of the Corporation and by the Director, officer
or Employee to whom such Options are granted.
(G) Fair Market Value of the Common Stock shall be determined
(as of a date not more than 12 months preceding the date as of which
such determination is required to be made hereunder) in good faith by
the Board. The Board shall take into consideration such factors as it
deems relevant, which factors may include but are not limited to (i)
the Corporation's past, current and expected profitability, (ii) the
Corporation's past, present and expected revenues and net cash flow,
(iii) the Corporation's book value, and (iv) the absence of an
organized tracking market for shares of the Common Stock.
The date of the determination of the Administrator to grant an Option
shall be deemed to be the date on which an Option is granted,
provided that the Director, officer or Employee to whom the Option is
granted is promptly notified of the grant and an Option Agreement is
duly executed as of the date of the resolution.
(H) The obligation of the Corporation to issue or deliver
shares of the Common Stock under the Plan shall be subject to (i) the
effectiveness of a registration statement under the Securities Act of
1933, as amended, with respect to such shares, if deemed necessary or
-7-
<PAGE>
appropriate by counsel for the Corporation, and (ii) all other
applicable securities laws, regulations, rules and orders which may
then be in effect.
Subject to the foregoing provisions of this Section 7 and the other
provisions of the Plan, any Option granted under the Plan shall be subject to
such other terms and conditions as the Administrator shall deem advisable.
8. Adjustment and Substitution of Shares.
-------------------------------------
If a dividend or other distribution shall be declared upon the Common Stock
payable in shares of Common Stock, the number of shares of Common Stock then
subject to any outstanding Option and the number of shares which may be issued
or delivered under the Plan but are not then subject to an outstanding Option
shall be adjusted by adding thereto the number of shares which would have been
distributable thereon if such shares had been outstanding on the date fixed for
determining the stockholders entitled to receive such stock dividend or
distribution.
If the outstanding shares of Common Stock shall be changed into or
exchangeable for a different number or kind of shares of stock or other
securities of the Corporation or another corporation, whether through
reorganization, reclassification, recapitalization, stock split-up, combination
of shares, merger or consolidation, then there shall be substituted for each
share of Common Stock subject to any then-outstanding Option and for each share
of Common Stock which may be issued or delivered under the Plan but is not then
subject to an outstanding Option, the number and kind of shares of stock or
other securities into which each outstanding share of Common Stock shall be so
changed or for which each such share shall be exchangeable.
In the case of any adjustment or substitution as provided for in this
Section 8, the aggregate Option Price for all shares subject to each then-
outstanding Option prior to such adjustment or substitution shall be the
aggregate Option Price for all shares of stock or other securities (including
any fraction) to which such shares shall have been adjusted or which shall have
been substituted for such shares. Any new Option Price per share shall be
carried to at least three decimal places with the last decimal place rounded
upwards to the nearest whole number.
No adjustment or substitution provided for in this Section 8 shall require
the Corporation to issue or sell a fraction of a share or other security.
Accordingly, all fractional shares or other securities which result from any
such adjustment or substitution shall be eliminated and not carried forward to
any subsequent adjustment or substitution.
9. Acceleration of the Exercise Date of Options.
--------------------------------------------
Notwithstanding any other provisions of this Plan, all Options shall become
exercisable upon the occurrence of a Change in Control of the Corporation
whether or not such Options are then exercisable under the provisions of the
Stock Option
-8-
<PAGE>
Agreements relating thereto. A Change in Control of the Corporation is any of
the following: (i) a merger, consolidation or other reorganization in which the
Corporation (x) is not the surviving entity or (y) survives only as a subsidiary
of any entity (other than a previously wholly-owned Subsidiary of the
Corporation), (ii) the acquisition by any person, entity or affiliated group of
persons and entities (other than any one or more of the shareholders of the
Corporation as of the Effective Date, and their respective Affiliates) of 50% or
more of the combined voting power of the Corporation's then outstanding
securities (including securities exercisable for or convertible into voting
securities), or (iii) the consummation of a transaction requiring shareholder
approval and involving the sale, lease or exchange of all or substantially all
the assets of the Corporation.
10. Effect of the Plan on the Rights of Employees and Employer.
----------------------------------------------------------
Neither the adoption of the Plan nor any action of the Board or the
Administrator pursuant to the Plan shall be deemed to give any Director, officer
or Employee any right to be granted an Option under the Plan, and nothing in the
Plan, in any Option granted under the Plan or in any Stock Option Agreement
shall confer any right to any Director, officer or Employee to continue in the
employment of, or in such status with, the Corporation or any Subsidiary or
interfere in any way with the rights of the shareholders, the Corporation or any
Subsidiary to terminate the employment or other status of any Director, officer
or Employee at any time.
11. Interpretation, Amendment, and Termination.
------------------------------------------
Except as provided elsewhere in this Plan, in the event of any dispute or
disagreement as to the interpretation of this Plan or of any rule, regulation or
procedure, or as to any question, right or obligation arising from or related to
the Plan, the decision of the Board shall be final and binding upon all persons.
The Board may, in its discretion, amend or terminate this Plan at any time.
Without limiting the generality of the foregoing, the Board may, without
approval of the shareholders of the Corporation, (a) increase the total number
of shares which may be issued or delivered under the Plan, (b) increase the
total number of shares which may be covered by any Option granted to any one
Optionee, (c) make any changes in the class of Employees to whom Options may be
granted or modify the eligibility requirements applicable to the granting of
Options, (d) extend the period during which Options may be granted and (e)
otherwise materially increase the benefits accruing to Directors, officers and
Employees under the Plan. Termination of the Plan shall not affect the rights of
Optionees or their successors under any Options outstanding and not exercised in
full on the date of termination.
12. Withholding Taxes.
-----------------
The Corporation unilaterally or by arrangement with the Optionee shall make
appropriate provision for satisfaction of any obligation to withhold taxes in
the case of
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<PAGE>
any grant, award, exercise or other transaction which gives rise to a
withholding requirement. An Optionee or other person receiving shares issued
upon exercise of an Option shall be required to pay the Corporation or any
Subsidiary in cash the amount of any taxes which the Corporation or Subsidiary
is required to withhold.
Notwithstanding the preceding sentence and subject to such rules as the
Administrator may adopt, Optionees who are subject to Section 16(b) of the
Exchange Act, and, if determined by the Administrator, other Optionees, may
satisfy the obligation, in whole or in part, by election on or before the date
that the amount of tax required to be withheld is determined, to have the number
of shares received upon exercise of an Option reduced by a number of shares.
13. Effective Date and Duration of Plan.
-----------------------------------
The effective date and the date of adoption of the Plan shall be the
Effective Date. No Option may be granted under the Plan subsequent to the date
which is ten (10) years following the Effective Date.
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<PAGE>
Exhibit G
FACILICOM INTERNATIONAL, INC.
1997 PHANTOM STOCK RIGHTS PLAN
1. Definitions.
-----------
The terms defined in this Section 1 shall, for all purposes of this
Plan, have the meanings herein specified:
(a) "Administrator" shall mean such one or more persons who shall have
been appointed by the Board.
(b) "Board" shall mean the board of directors of the Corporation.
(c) "Change in Control" shall mean the events described in Section 13
hereof.
(d) "Common Stock" shall mean the Corporation's presently authorized
Common Stock.
(e) "Corporation" shall mean FaciliCom International, Inc., a Delaware
corporation.
(f) "Director" or "Directors" shall mean a member or members of the
Board.
(g) "Employee" or "Employees" shall mean key persons employed by the
Corporation, or a Subsidiary thereof, on a full-time basis and who are
compensated for such employment by a regular salary.
(h) "Fair Market Value" shall mean the fair market value of the
Corporation's Common Stock determined in accordance with Section 10 hereof.
(i) "Initial Value" shall mean the initial value of a Phantom Stock
Right as set forth in the Phantom Stock Right Agreement.
(j) "Maturity Date" in respect of a Participant shall mean the
effective date of the occurrence of a Triggering Event.
(k) "Net Value" of a Phantom Stock Right shall mean an amount equal to
the excess (if any) of the Fair Market Value of a Phantom Stock Right on the
Maturity Date over the Initial Value of such Phantom Stock Right.
(l) "Participant" shall mean a person who is granted a Phantom Stock
Right under the Plan.
<PAGE>
(m) "Phantom Stock Right" shall mean the right in accordance with the terms
and conditions of this Plan and of a Phantom Stock Right Agreement to receive a
cash payment equal to the Net Value as to such Phantom Stock Right.
(n) "Phantom Stock Right Agreement" shall mean a written agreement between
the Corporation and a Participant setting forth the terms and conditions of the
Phantom Stock Rights granted to such Participant hereunder.
(o) "Plan" shall mean the FaciliCom International, Inc. 1997 Phantom Stock
Plan.
(p) "Subsidiary" shall mean any entity in which the Corporation owns,
directly or indirectly through other Subsidiaries, more than 50% of the total
combined voting power.
(q) "Total Disability" in respect of a Participant shall mean the inability
of such Participant, by reason of physical or mental incapacity, to perform the
reasonably expected or customary duties of such Participant on a substantially
full-time basis for a period either (x) longer than six consecutive months or
(y) more than nine months in any consecutive twelve month period, as determined
by the Administrator (or in the case of the Administrator, by the Board) in its
(or their) sole discretion.
(r) "Triggering Event" in respect of a Participant shall mean the
occurrence of any of the following events: (i) retirement of such Participant
from the employ, or as a Director or officer, of the Corporation or a Subsidiary
both (A) at the time or after such Participant has attained the age of 65 years
and (B) following not fewer than 10 years of continuous employment of such
Participant by, or service by such Participant to, the Corporation or a
Subsidiary; (ii) termination of such Participant's employment with, or status as
a Director or officer of, the Corporation or a Subsidiary, but only with the
written agreement of the Corporation or such Subsidiary that such termination
constitutes a Triggering Event under this Plan; (iii) such Participant's death
or (iv) such Participant's Total Disability.
-2-
<PAGE>
2. Purposes.
--------
The purposes of the Plan are to promote the growth and profitability of the
Corporation by enabling it to attract and retain the best available personnel
for positions of substantial responsibility, to provide Directors, officers and
key Employees with an opportunity to share in the growth in value of the
Corporation and to give them an additional incentive to increase their efforts
on behalf of the Corporation and its Subsidiaries.
3. Administration.
--------------
The Plan shall be administered by the Administrator. The Administrator
shall be appointed by the Board and shall consist of such members as the Board
may determine. The Administrator shall be eligible to receive Phantom Stock
Rights hereunder only with the consent of the Board.
The Administrator shall interpret the Plan and prescribe such rules,
regulations and procedures in connection with the operation of the Plan as it
shall deem to be necessary and advisable for the administration of the Plan
consistent with the purposes of the Plan.
4. Eligibility.
-----------
Subject to the provisions of the Plan, the Administrator shall determine and
designate from time to time those Directors, officers and key Employees of the
Corporation or its Subsidiaries to whom Phantom Stock Rights are to be granted
and the number of Phantom Stock Rights covered by such grants. In determining
the eligibility of a Director or an officer or Employee to receive Phantom Stock
Rights, as well as in determining the number of Phantom Stock Rights to be
granted, the Administrator shall consider the position and responsibilities of
such Director, officer or Employee, the nature and value to the Corporation or a
Subsidiary of his or her services and accomplishments, his or her present and
potential contribution to the success of the Corporation or its Subsidiaries and
such other factors as the Administrator may deem relevant.
5. Phantom Stock Rights Available under the Plan.
---------------------------------------------
The aggregate number of Phantom Stock Rights which may be granted under the
Plan is 6,175. All such Phantom Stock Rights are subject to adjustment and
substitution as set forth in Section 11.
-3-
<PAGE>
If any Phantom Stock Right granted under the Plan is cancelled by mutual
consent or terminates or expires for any reason prior to maturity in accordance
with Section 8 hereof, that number of Phantom Stock Rights so cancelled shall
again be available for purposes of the Plan.
6. Grant of Phantom Stock Rights.
-----------------------------
The Administrator (or as it relates to a member of the Administrator, the
Board) shall have full and complete authority, in its discretion subject to the
provisions of the Plan, to grant Phantom Stock Rights containing such terms and
conditions as the Administrator (or the Board) shall determine. The
Administrator shall establish appropriate records for all Participants in which
there shall be entered from time to time the number of Phantom Stock Rights
granted to each Participant and the Initial Value thereof. All Phantom Stock
Rights granted hereunder shall be effective only upon the execution and delivery
of a Phantom Stock Agreement, or an amendment thereto, duly executed by the
Chief Executive Officer or the President (if other than the Chief Executive
Officer) on behalf of the Corporation and by the Participant to whom such
Phantom Stock Rights are granted.
7. Vesting of Phantom Stock Rights.
-------------------------------
(a) Subject to the provisions of this Plan for forfeiture set forth in
Section 8 hereof, Phantom Stock Rights granted pursuant to this Plan shall vest
in a Participant in accordance with the schedule as set forth in the Phantom
Stock Agreement. Notwithstanding such vesting schedule, all Phantom Stock
Rights granted to a Participant pursuant to this Plan shall be 100% vested upon
the Maturity Date in respect of such Participant.
(b) Notwithstanding the foregoing vesting schedule, all Phantom Stock
Rights granted pursuant to this Plan shall be 100% vested upon the occurrence of
a Change of Control pursuant to Section 13 hereof.
8. Maturity of Phantom Stock Rights and Payment of Net Value.
---------------------------------------------------------
(a) Maturity. Phantom Stock Rights granted under this Plan shall mature
--------
and become payable to a Participant upon the Maturity Date in respect of such
Participant.
(b) Payment. Upon such Maturity Date, the Corporation shall become
-------
obligated to pay to such Participant the Net Value of his or her Units. At the
Corporation's option and irrespective of the manner of its exercise of such
option in the case of any other Participant, the amount owing to any particular
Participant hereunder
-4-
<PAGE>
shall be either (x) paid without interest to such Participant in a lump sum
within 180 days following the Maturity Date or (y) deferred and credited to a
liability account which shall be established on the books and records of the
Corporation in the name of such Participant.
(a) Any such amount which is so deferred shall be paid to such
Participant, together with accrued and unpaid interest at the rate of 8% per
annum commencing on the Maturity Date, in 20 equal semi-annual installments
beginning on the first day of the second month following the month during which
such Maturity Date occurs.
(b) The Corporation shall have the right to prepay (together with
accrued and unpaid interest on the amount being paid) at any time and from time
to time any portion or all of the amount so deferred.
9. Forfeiture of Phantom Stock Rights.
----------------------------------
If the employment of a Participant (or, in the case of a Director or an
officer who is not also an Employee, his or her status as such) terminates for
any reason not constituting a Triggering Event, the rights of such Participant
in respect of any then unvested Phantom Stock Rights shall thereupon terminate.
If a Participant
(a) engages in the operation or management of a business, whether as
owner, partner, officer, director, employee or otherwise and whether during or
after termination of employment (or, in the case of a Director or an officer who
is not also an Employee, termination of his or her status as such), which is in
competition with the Corporation or any of its Subsidiaries, or if such
Participant otherwise violates the terms of any similar restrictive covenant
contained in any agreement to which such Participant is a party,
(b) is terminated from the employ of the Corporation or a Subsidiary
(or, in the case of a Director or an officer who is not also an Employee, whose
status as such is terminated) in connection with the commission by such
Participant of any crime,
(c) is terminated from the employ of the Corporation or a Subsidiary
for "cause" (as the same may be defined in such Participant's employment
agreement with the Corporation or a Subsidiary), or
(d) is terminated from the employ of the Corporation or a Subsidiary
(or, in the case of a Director or an officer who is not also an Employee, whose
status as such is terminated) on account of the commission of any act
constituting gross
-5-
<PAGE>
negligence or willful misconduct in the performance of his or her employment or
other duties,
then the Administrator (or in the case of the Administrator or a Director, the
Board) may in its discretion immediately terminate all rights in, to and in
respect of all vested and unvested Phantom Stock Rights held by such
Participant. All determinations made by the Administrator (or Board) under this
Section 9 shall be final and binding.
10. Determination of Value of Phantom Stock Rights.
----------------------------------------------
(a) The Initial Value of each Phantom Stock Right shall be such value as
the Administrator, in its discretion, shall determine.
(b) The Net Value of a Phantom Stock Right at any Maturity Date (in
respect of a share of the Corporation's Common Stock) shall be equal to the
excess (if any) of the Fair Market Value of a share of the Corporation's Common
Stock on the Maturity Date over the Initial Value of such Phantom Stock Right.
(c) The Fair Market Value of the Corporation's Common Stock shall be
determined (as of a date not more than 12 months preceding the date as of which
such determination is required to be made hereunder) in good faith by the Board.
The Board shall take into consideration such factors as it deems relevant, which
factors may include but are not limited to (i) the Corporation's past, current
and expected profitability, (ii) the Corporation's past, present and expected
revenues and net cash flow, (iii) the Corporation's book value, and (iv) the
absence of an organized tracking market for shares of the Common Stock.
11. Adjustment in Number and Initial Value of Phantom Stock Rights.
--------------------------------------------------------------
In the event of any increase or decrease in the number of outstanding
shares of the Common Stock resulting from a subdivision or combination of shares
or payment of a stock dividend, proportionate adjustments shall be made in the
number of Phantom Stock Rights granted and/or in the Initial Value of all such
Phantom Stock Rights by appropriate additional and correcting entries to the
Corporation's Phantom Stock Rights ledger.
In the event of any reorganization of the Corporation, recapitalization or
reclassification of the Common Stock (other than by subdivision or combination
of outstanding shares or payments of a stock dividend), or merger or
consolidation of the Corporation, the Administrator in its sole discretion shall
make equitable modifications and adjustments to the Phantom Stock Rights ledger
and in the operation of this Plan to the end that the amount and character of
the economic interests of each Participant shall correspond, as nearly as
practicable, to the amount and character of such economic
-6-
<PAGE>
interests prior to such reorganization, recapitalization, reclassification,
merger or consolidation.
Whenever the Corporation pays a dividend on the Common Stock, the Initial
Value of each Phantom Stock Right shall be reduced by an amount equal to the
amount of the dividend divided by the number of shares of Common Stock then
outstanding.
12. Restrictions on Transfer of Phantom Stock Rights.
------------------------------------------------
No Phantom Stock Right shall be transferable by a Participant other than by
will, or if a Participant dies intestate, by the laws of descent and
distribution of the state of domicile of the Participant at the time of death or
pursuant to a final order of a court of competent jurisdiction. Except as set
forth in the preceding sentence, no Phantom Stock Right or other rights or
benefits under this Plan shall be in any manner either (x) subject to
anticipation, alienation, sale, assignment, pledge, encumbrance or charge (and
any attempt to effect same shall be null and void ab initio) or (y) liable for
or subject to the debts, contracts, liabilities or legal or equitable duties of
any Participant or any other person. A Participant may file with the
Corporation a written designation of one or more primary beneficiaries and one
or more contingent beneficiaries to whom payments coming due hereunder after the
death of the Participant shall be made. If no primary or contingent beneficiary
is named by the Participant, or if none survives the Participant, such payments
shall be made to the estate of the Participant.
13. Acceleration of the Maturity Date of Phantom Stock Rights.
---------------------------------------------------------
Notwithstanding any other provisions of this Plan, all Phantom Stock Rights
shall mature and become payable upon the occurrence of a Change in Control of
the Corporation whether or not such Phantom Stock Rights are then vested under
the provisions of the applicable agreements relating thereto. A Change in
Control of the Corporation is any of the following: (i) a merger, consolidation
or other reorganization in which the Corporation (x) is not the surviving entity
or (y) survives only as a subsidiary of any entity (other than a previously
wholly-owned Subsidiary of the Corporation), (ii) the acquisition by any person,
entity or affiliated group of persons and entities (other than any one or more
of the shareholders of the Corporation as of the Effective Date, and their
respective Affiliates) of 50% or more of the combined voting power of the
Corporation's then outstanding securities (including securities exercisable for
or convertible into voting securities), or (iii) the consummation of a
transaction requiring shareholder approval and involving the sale, lease or
exchange of all or substantially all the assets of the Corporation. For purposes
hereof, "Affiliate" shall mean, with respect to any shareholder of the
Corporation, any individual or entity directly or indirectly controlling,
controlled by or under common control with such shareholder, and such term shall
include any individual who is an officer, director or employee of such
shareholder or any Affiliate of such entity. As used in the
-7-
<PAGE>
immediately preceding sentence, the term "control" means, with respect to an
entity, the right to exercise, directly or indirectly, a majority of the voting
rights attributable to such entity, and the term "majority" means more than
fifty percent (50%).
14. Effect of the Plan on the Rights of Employees.
---------------------------------------------
Neither the adoption of the Plan nor any action of the Board or the
Administrator pursuant to the Plan shall be deemed to give any Director, officer
or Employee any entitlement to be granted a Phantom Stock Right under the Plan,
and nothing in the Plan, in any Phantom Stock Right granted under the Plan or in
any Phantom Stock Right Agreement shall confer any right to any Director,
officer or Employee to continue in the employment of, or in such status with,
the Corporation or any Subsidiary or interfere in any way with the rights of the
shareholders, the Corporation or any Subsidiary to terminate the employment or
other status of any Director, officer or Employee at any time. The Phantom
Stock Rights granted hereunder shall not be deemed to be securities of the
Corporation and shall not confer upon a Participant any rights as a shareholder
of the Corporation.
15. Interpretation, Amendment, and Termination.
------------------------------------------
In the event of any dispute or disagreement as to the interpretation of
this Plan or of any rule, regulation or procedure, or as to any question, right
or obligation arising from or related to the Plan, the decision of the Board
shall be final and binding upon all persons. The Board may, in its discretion,
amend or terminate this Plan at any time. Termination of the Plan shall not
affect the rights of Participants or their successors under any Phantom Stock
Rights outstanding on the date of termination.
16. Withholding Taxes.
-----------------
The Corporation unilaterally or by arrangement with the Participant shall
make appropriate provision for satisfaction of any obligation to withhold taxes
in the case of any grant, award, or other transaction which gives rise to a
withholding requirement. A Participant shall be required to pay the Corporation
or any Subsidiary in cash the amount of any taxes which the Corporation or
Subsidiary is required to withhold.
17. Effective Date of Plan.
----------------------
The effective date and date of adoption of the Plan shall be December 22,
1997 (the "Effective Date").
-8-
<PAGE>
Exhibit H
FACILICOM INTERNATIONAL, INC.
TAX SHARING AGREEMENT
---------------------
THIS TAX SHARING AGREEMENT is made as of December 22, 1997 between
ARMSTRONG HOLDINGS, INC, a Delaware corporation ("AHI"), and FACILICOM
INTERNATIONAL, INC., a Delaware corporation ("FaciliCom").
Preamble
--------
AHI is the common parent corporation of an affiliated group of
corporations (within the meaning of section 1504(a) of the Internal Revenue Code
of 1986, as amended (the "Code")) which, effective as of the date hereof,
includes FaciliCom (FaciliCom and every corporation which hereafter becomes a
member of such affiliated group as a result of direct or indirect stock
ownership by FaciliCom, being hereinafter referred to collectively as the
"FaciliCom Group", all of the other corporations now or in the future comprising
such affiliated group being hereinafter referred to as the "AHI Group", and the
FaciliCom Group and the AHI Group being hereinafter referred to collectively as
the "Affiliated Group").
The parties deem it appropriate to define the method by which the
Federal income tax liability of the Affiliated Group shall be allocated between
them and the manner in which such allocated tax liability shall be paid.
Therefore, in consideration of the premises and the mutual covenants hereinafter
set forth and intending to be legally bound, the parties hereto agree as
follows:
Agreement:
---------
1. Definitions. The following terms as used in this Agreement shall
-----------
have the meanings set forth below:
(a) "Consolidated Return" shall mean a consolidated Federal income tax
return filed by the Affiliated Group pursuant to section 1501 of the Code.
(b) "Regulations" shall mean the Income Tax Regulations promulgated by
the Treasury Department as in effect from time to time.
<PAGE>
(c) "IRS" shall mean the Internal Revenue Service.
(d) "Consolidated Tax Liability" shall mean the consolidated Federal
income tax liability (including all penalties, interest and additional amounts
relating thereto) of the Affiliated Group for any taxable year for which a
Consolidated Return is filed.
(e) "FaciliCom Tax Liability" shall mean the Consolidated Tax
Liability but calculated as if the AHI Group were not included in the Affiliated
Group; provided, however, that if the members (in the aggregate) of the AHI
Group shall have an "excess loss account" (within the meaning of (S)1.1502-19 of
the Regulations) in respect of their investment in the stock of FaciliCom, then
the FaciliCom Tax Liability in respect of that portion of FaciliCom's taxable
income as shall be equal to such excess loss account shall be deemed to be zero.
2. Payments. For each taxable year with respect to which a
--------
Consolidated Return is filed or is expected to be filed, the following payments
shall be made:
(a) On or before the 15th day of the fourth month of such taxable year
(commencing with the taxable year beginning October 1, 1997), AHI shall estimate
the Consolidated Tax Liability and, if applicable, the FaciliCom Tax Liability.
(b) If a FaciliCom Tax Liability exists, FaciliCom shall pay to AHI on
or before each of the due dates of the estimated payments of the Consolidated
Tax Liability, one-fourth of the FaciliCom Tax Liability (the "Estimated
Amount"). If, after paying any such installment of the Estimated Amount, AHI
makes a new estimate of the Consolidated Tax Liability or the FaciliCom Tax
Liability, the amount of the remaining installment payments of the Estimated
Amount shall be the amount which would have been payable if the new estimate had
been made when the first estimate for the taxable year was made, increased or
decreased, as applicable, by the amount computed by dividing:
(i) the difference between (A) the amount of the total Estimated
Amounts required to be paid before the date on which the new estimate is made,
and (B) the amount of the total Estimated Amounts which would have been required
to be paid before such date if the new estimate had been made when the first
estimate was made, by
2
<PAGE>
(ii) the number of installments remaining to be paid on or after
the date on which the new estimate is made.
(c) Pursuant to paragraph 5 hereof, AHI will make the required
deposits of the estimated Consolidated Tax Liability as required by applicable
law.
(d) If, after the filing of the Consolidated Return, it is determined
that the actual amount of the FaciliCom Tax Liability is greater or lesser than
the Estimated Amounts actually paid by FaciliCom, then FaciliCom shall pay such
greater amount to AHI or AHI shall pay to FaciliCom such lesser amount, as the
case may be. All payments required under this subparagraph 2(d) shall be made
on or before the later of (x) the 15th day of the third month after the end of
the taxable year and (y) the date on which such excess is finally determined,
which shall be not later than 15 days after the Consolidated Return for such
taxable year is filed.
3. Subsequent Adjustments. If any adjustments are made to
----------------------
the income, gains, losses, deductions, or credits of the Affiliated Group,
whether by reason of the filing of an amended return or a claim for refund with
respect to such taxable year or an examination by the IRS with respect to such
taxable year, the amounts due under this Agreement for such taxable year shall
be redetermined by taking into account such adjustments. If, as a result of such
redetermination, any amounts due under this Agreement shall differ from the
amounts previously paid, then payment of such difference shall be made (a) in
the case of an adjustment resulting in a credit or refund, on the date on which
such credit or refund is allowed with respect to such adjustment, or (b) in the
case of an adjustment resulting in the assertion of a deficiency on the date on
which such deficiency is paid. Any amounts due under this paragraph 3 shall
include any interest attributable thereto under sections 6601 and 6611 of the
Code, as the case may be, and any penalties or additional amounts which may be
imposed.
4. Procedural Matters. AHI shall prepare and file the Consolidated
------------------
Return and any other returns, documents or statements required to be filed with
respect to the determination of the Consolidated Tax Liability. FaciliCom shall
deliver to AHI before such date as is reasonably determined by the Chief
Financial Officer of AHI all data required for preparation of the Consolidated
Return. Such data shall have been reviewed by the principal financial officer
of FaciliCom.
3
<PAGE>
5. Payment of Taxes. AHI shall have the responsibility and authority
----------------
to make all estimated and final deposits of the Consolidated Tax Liability and
shall collect all tax refunds.
In its good faith discretion, AHI shall have the right with respect to
any Consolidated Return (a) to determine (i) the manner in which such
Consolidated Return, or any documents or statements shall be prepared and filed,
including, without limitation, the manner in which any item of income, gain,
loss, deduction or credit shall be reported and (ii) whether any extensions may
be requested; (b) to contest, compromise or settle any adjustment or deficiency
proposed, asserted or assessed as a result of any examination by the IRS; (c) to
file, prosecute, compromise or settle any claim for refund; and (d) to determine
whether any refunds shall be paid by way of refund or credited against the
Consolidated Tax Liability. FaciliCom hereby irrevocably appoints AHI as its
agent and attorney-in-fact to take such action (including the execution of
documents) as AHI may deem appropriate to effect the foregoing.
6. Miscellaneous Provisions.
------------------------
(a) Consent to Regulations. FaciliCom consents to all Regulations
----------------------
relating to the filing of a consolidated income tax return.
(b) Amendments. All amendments to this Agreement shall be in writing
----------
and signed by the parties.
(c) Elections. FaciliCom hereby agrees that AHI shall have the
---------
authority to make any or all elections which are available to the Affiliated
Group under the Code or Regulations. FaciliCom agrees to make any and all
separate company elections requested by AHI to minimize the Consolidated Tax
Liability.
(d) Termination. This Agreement will not apply to taxable years of
-----------
FaciliCom commencing on or after such time as the FaciliCom Group is no longer
included in the Affiliated Group.
4
<PAGE>
(e) Conduct of Examination. FaciliCom agrees that AHI shall have the
----------------------
responsibility for managing any IRS examination of the Affiliated Group. All
costs and expenses of the examination, including the expense of defending any
adjustments or proposed adjustments, which are directly attributable to the
FaciliCom Group shall be billed to FaciliCom. All costs and expenses not
directly attributable to the FaciliCom Group or the AHI Group shall be borne and
paid by AHI and FaciliCom on an equitable basis.
(f) Cooperation in Examination. FaciliCom agrees that it will inform
--------------------------
AHI promptly of all questions raised by the IRS or state agents conducting an
examination of tax returns at FaciliCom's office and shall cooperate with AHI's
lawyers, accountants, and tax advisers in working with the agents and providing
all requested information.
(g) Authority to Settle Examination. FaciliCom hereby waives any and
-------------------------------
all present and future claims against AHI relating to any compromise,
arrangement or other agreement between AHI and the IRS based on an allegation
that such compromise, arrangement or agreement improperly causes an
overstatement of the FaciliCom Tax Liability or that FaciliCom could have
reached a more favorable agreement with the IRS on a separate company basis.
ATTEST: ARMSTRONG HOLDINGS, INC.
________________________________ __________________________________
Its:
FACILICOM INTERNATIONAL, INC.
________________________________ __________________________________
Its:
5
<PAGE>
Exhibit I
FACILICOM INTERNATIONAL, INC.
Joinder Agreement
-----------------
With the intent to be legally bound, the undersigned hereby agrees that all
shares of the common stock of FaciliCom International, Inc., a Delaware
corporation (the "Company"), now owned or hereafter acquired by the undersigned
shall be held under and subject to all the restrictions, covenants, terms and
provisions of that certain Investment and Shareholders Agreement dated as of
December 22, 1997 by and among the Company and its Shareholders (other than
Section 2 thereof), and that the undersigned shall be deemed a "Shareholder"
thereunder having all the rights, duties and obligations accorded thereto.
WITNESS the due execution hereof this ______ day of ______________, 199_.
______________________________________
Name:
<PAGE>
EXHIBIT 5.1
[SWIDLER & BERLIN LETTERHEAD]
May 1, 1998
The Board of Directors
FaciliCom International, Inc.
1401 New York Avenue, NW
Washington, DC 20005
Re: Registration Statement on Form S-4
Gentlemen:
We have acted as counsel to FaciliCom International, Inc., a Delaware
corporation (the "Company"), with respect to the Company's Registration
Statement on Form S-4 (the "Registration Statement") filed with the Securities
and Exchange Commission, in connection with the registration under the
Securities Act of 1933, as amended (the "Securities Act"), of $300,000,000
aggregate amount outstanding of 10 1/2% Series B Senior Notes due 2008 (the
"Notes"). This opinion letter is furnished to you at your request to enable
you to fulfill the requirements of Item 601(b)(5) of Regulation S-K, 17 C.F.R.
ss. 229.601(b)(5), in connection with the Registration Statement.
As counsel to the Company, we have examined the Company's Certificate of
Incorporation, as amended (the "Certificate"), and such Company records,
certificates and other documents and relevant statutes, regulations, published
rulings and such questions of law as we considered necessary or appropriate
for the purpose of this opinion.
In our examination, we have assumed the authenticity of original documents,
the accuracy of copies and the genuineness of signatures. We have relied upon
the representations and statements of officers and other representatives of
the Company with respect to the factual determinations underlying the legal
conclusions set forth herein. We have not attempted to verify independently
such representations and statements.
This opinion letter is based as to matters of law arising solely under the
laws of the State of New York as currently in effect, and we express no
opinion herein as to any other laws, statutes, ordinances, rules or
regulations.
Based upon, subject to and limited by the foregoing and the other
qualifications herein, we are of the opinion that, when the Registration
Statement has become effective under the Securities Act, and upon issuance and
delivery of such Notes as contemplated by the Registration Statement, such
Notes will be binding obligations of the Company.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to all references to our firm in the Registration
Statement. In giving this consent, we do not admit that we come within the
category of persons whose consent is required under Section 7 of the
Securities Act or the rules promulgated thereunder.
This opinion is rendered solely for your benefit in connection with the
transactions described above upon the understanding that we are not hereby
assuming any professional responsibility to any other person. This opinion may
not be used, disclosed, quoted, filed with a governmental agency or otherwise
referred to without our express prior written consent. The opinions expressed
in this letter are limited to the matters expressly set forth herein, and no
other opinions should be inferred beyond the matters expressly stated herein.
Very truly yours,
Swidler & Berlin, Chartered
<PAGE>
EXHIBIT 10.17
INTERCONNECT AGREEMENT
Between
Telia AB (publ)
and
Nordiska Tele8 AB
MAIN AGREEMENT Confidential
Table of Contents
1. Background
2. Definitions
3. Basic Interconnect Services
4. Compensation for Basic Interconnect Services
5. Specific Interconnect Services
6. Interconnect Points
7. Number Implementation
8. Other Measures
9. Registration and Billing
10. Technical Requirements and Network Arrangements
11. Installation, Management, and Maintenance
12. Operating Agreement
13. Secrecy and Supplying Information
14. Liability
15. Force Majeure
16. Non-Assignment
17. Amendments and Supplements
18. Agreement's Term and Termination
19. Disputes
INTERIM SUPPLEMENT
APPENDICES
COMPENSATION TO TELIA FOR BASIC INTERCONNECT SERVICES Appendix
COMPENSATION TO TELE8 FOR BASIC INTERCONNECT SERVICES Appendix
TERMS AND CONDITIONS FOR PROVIDING TELIA'S SPECIFIC
INTERCONNECT SERVICES Appendix
TERMS AND CONDITIONS FOR PROVIDING TELE8'S SPECIFIC
INTERCONNECT SERVICES Appendix
TRAFFIC REGISTRATION, BILLING ROUTINES, AND
PAYMENT TERMS Appendix
LIST OF INTERCONNECT AREAS
(CONNECTION POINTS AND AREA CODES) Appendix
COMPENSATION RELATED TO POINTS OF INTERCONNECT Appendix
TECHNICAL REQUIREMENTS AND NETWORK ARRANGEMENTS Appendix
IMPLEMENTATION OF NUMBER SERIES Appendix
1
<PAGE>
SIGNALING NETWORK Appendix
ADDRESSES AND CONTACT POINTS BETWEEN TELIA AND TELE8 Appendix
Specification References
Telia's Specifications (see also Appendix 7):
8211-A 302,rev A
8211-A 303,rev A
8211-A 304,rev C
8211-A 305,rev B
8211-A 306,rev A
8211-A 307,rev A
8211-A 308,rev A
8211-A 312,rev A
8211-A 313,rev A
8211-A 314,rev C
8211-A 317,rev A
8211-A 318,rev A
8211-A 335,rev A
Telia AB, org. no. 556103-4249, 123 86 FARSTA, hereinafter referred to as
"Telia," and Nordiska Tele8 AB, org. no. 556452-3842, Hans Michelsensgatan 6B,
211 20 MALMO, hereinafter referred to as "Tele8," have, for the purposes of
Interconnect between Telia's network and Tele8's network, entered into the
following agreement:
INTERCONNECT AGREEMENT, ETC.
----------------------------
1. BACKGROUND
The Swedish National Post and Telecom Agency has granted Tele8 permission to
provide telephone service in a publicly accessible telecommunications network.
Tele8 wishes to interconnect with Telia's switched telephone network, and the
parties have therefore agreed to the technical and financial conditions for the
Interconnect, as specified in this agreement.
There is an existing Interconnect agreement between the parties that expires on
January 1, 1998, at which time this agreement becomes effective.
2. DEFINITIONS
As used in this agreement, the following terms shall have the meanings specified
below.
1. Telia's network: Telia's switched telephone network
2. Tele8's network: Tele8's switched telephone network
2
<PAGE>
3. Sending operator: the party, either Telia or Tele8, from whose network a
telephone call is sent
4. Receiving operator: the party, either Telia or Tele8, by whose network a
telephone call is received
5. Third operator: an operator other than Telia or Tele8
6. Termination: for the receiving operator, this means a telephone call from
the sending operator's network that ends in the receiving operator's
network
7. Transfer: for the sending operator, this means a telephone call that goes
from the sending operator's network to the receiving operator's network
8. Access: a telephone call from a subscriber in a sending operator's network
to a receiving operator's network, for which the receiving operator has a
customer relationship with the subscriber in the sending operator's network
(has "access" to the subscriber)
9. Transiting: the transport of a telephone call, via Telia's or Tele8's
network, that goes to or comes from Tele8 or Telia and neither originates
nor terminates in that network through which the transport takes place
10. Interconnect point: the point at which Telia's network is connected with
another operator's network, thereby constituting - regarding Interconnect -
an interface between both networks
11. Area of Interconnect: geographic area in Sweden that forms the base for the
rate structure at Interconnect
12. Local segment: refers to a pricing situation that arises when a telephone
call is transferred to a local point of Interconnect, within an area code,
for which the called subscriber is connected
13. Single segment: refers to a pricing situation that arises when a traffic
connection is transferred within an Interconnect area where both operators
have Interconnect points
14. Double segment: refers to a pricing situation that arises when establishing
a traffic connection from an Interconnect point within an Interconnect area
to a subscriber in another Interconnect area
15. Single transiting: refers to a pricing situation that arises when a traffic
connection is transferred to an Interconnect area where another operator
has an Interconnect point
16. Double transiting: refers to a pricing situation that arises when a traffic
connection is transferred to an Interconnect area where another operator
does not have an Interconnect point
17. BASIC INTERCONNECT SERVICES
3.1 TELIA'S BASIC INTERCONNECT SERVICES
Telia offers the following basic Interconnect services, see also Appendix 1.
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a) termination of traffic from Tele8's network in Telia's network
b) access for Tele8 for traffic from Telia's network
c) transiting of traffic from Tele8 via Telia's network
3.2 TELE8'S BASIC INTERCONNECT SERVICES
Tele8 offers the following basic Interconnect services, see also Appendix 2.
a) termination of traffic from Telia's network in Tele8's network
b) access for Telia for traffic from Tele8's network
c) transiting of traffic from Telia via Tele8's network
4. COMPENSATION FOR BASIC INTERCONNECT SERVICES
4.1 RATE STRUCTURE
Telia's network is divided into thirteen Interconnect areas with two
Interconnect points in each Interconnect area. The Interconnect areas are
specified in Appendix 5.
Regarding termination and access, the compensation amounts refer to local
segments, single segments, or double segments. Compensation for each respective
type of segment is independent of the distance within and between the
Interconnect areas, respectively.
Regarding transiting, the compensation amounts refer to either single transiting
or double transiting. Compensation for each respective type of connection is
independent of the distance within and between the Interconnect areas,
respectively.
4.2 LEVEL OF COMPENSATION
Compensation for basic Interconnect services is specified in Appendix 1 (Telia)
and Appendix 2 (Tele8). Price changes shall be negotiated between the parties in
accordance with the provisions specified in Section 18.
4.3 CHARGEABLE TIME
The chargeable time for each telephone call shall be the "conversation time" as
stipulated in Section 1.2.2 of CCITT-Recommendation D.150 (Mar del Plata
version, 1968; amended at Melbourne, 1988).
The total chargeable time per calendar month shall be calculated so that the
total number of seconds for all telephone calls during the period relating to a
particular service is added together and divided by 60, after which the quotient
is accordingly rounded up or down to the nearest whole minute. Thirty seconds or
more shall be rounded up while time under thirty seconds shall be rounded down.
4.4 THE EFFECT OF TRAFFIC VOLUME ON COMPENSATION
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See Appendix 1.
5. SPECIFIC INTERCONNECT SERVICES
The parties shall offer specific Interconnect services to the extent and under
the conditions specified in Appendix 3.
Prices and accessibility regarding specific Interconnect services can be
registered in a separate document called the "traffic matrix."
If changes are agreed to by the parties, then Appendix 3 and the traffic matrix
shall be amended accordingly.
6. INTERCONNECT POINTS
Regional Interconnect points can be established in Interconnect areas at those
locations and addresses listed in Appendix 5.
Delivery time for a point of Interconnect is specified in Appendix 6.
The parties are entitled to reimbursement for costs resulting from the
establishment of Interconnect points, as well as for operating costs, in
accordance with Appendix 6.
Telia shall establish groups of 30 at each respective point of Interconnect in
accordance with the wishes of Tele8. Compensation for establishing and
administrating such groups shall be made according to what is specified in
Appendix 6. The party shall, based on the established groups of 30 at the
Interconnect points and the traffic forecasts, adjust the dimensioning of the
traffic capacity.
7. NUMBER IMPLEMENTATION
The cost of implementing access numbers (network prefixes) and subscriber
numbers shall be paid by the party requesting the step, if not otherwise agreed.
Conditions for number implementation are specified in Appendix 8.
8. OTHER MEASURES
Other measures that may be required in the network of either party as a result
of Interconnect, shall, provided the parties are in agreement that the actions
should be carried out, be paid by the party requesting the steps.
The party carrying out the measures shall provide information about the cost
levels within one month of the opposite party's inquiry. If no inquiry has been
made, then information about the cost levels shall be provided before work is
started.
9. REGISTRATION AND BILLING
Registration of telephone traffic for basic and specific Interconnect services
shall be performed by the sending operator. The sending operator is responsible
for ensuring that only
5
<PAGE>
traffic for which the parties have agreed to interconnect, as specified in this
agreement or the traffic matrix wherein the agreed services and traffic cases
have been registered, is transferred to the receiving operator. Should the
sending operator nevertheless transfer traffic to the receiving operator for
which the parties have not agreed to interconnect, then the receiving operator
is entitled to compensation, according to this party's price list, for the
service in question.
Billing will be in Swedish kronor. Routines for registration, billing, and
payment are described in Appendix 4.
10. TECHNICAL REQUIREMENTS AND NETWORK ARRANGEMENTS
10.1 SPECIFICATIONS AND NETWORK ARRANGEMENTS
Each respective party is responsible for ensuring that their network meets the
technical specifications and network arrangements stipulated by the government's
statutory regulations and for which the parties have agreed to in Appendix 7.
Changes in network arrangements (i.e., routing of traffic) shall be paid by the
party requesting the action, unless otherwise agreed.
10.2 A-NUMBER IDENTIFICATION
A so-called A-number identification (calling party address) shall be provided,
where permitted by existing technology, for each telephone call from the
parties' respective telephone networks in the signaling system between the
parties. The A-number information shall be assignable to the subscriber from
where the call has originated (for calls forwarded, the subscriber where the
telephone call was last forwarded) or assignable to that network from where the
telephone call has been transferred to the opposite party's network. Detailed
requirements regarding A-number transfer are specified in Telia's specification
8211-A 318,rev A.
A-number information can be used for the following:
a) charging a customer in connection with the basic Interconnect service Access
b) settlement between the parties in connection with basic or specific
Interconnect services
c) implementation of certain Interconnect services, including correct customer
charging related to these services
d) traffic statistics
e) presentation of an A-number to a called customer (receiving subscriber).
Terms and conditions for presenting A-numbers from each respective party's
network to a receiving subscriber are specified in Appendix 3
No specific compensation shall be made for providing information for the above
stated uses in items a) - d).
Certain Interconnect services can only be offered on condition that the sending
operator provides A-number identification. If a party does not provide A-number
identification and thereby prevents settlement or charging with the receiving
party, then the receiving party has
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<PAGE>
the right not to provide such Interconnect service even though the service is
included in this agreement. This does not apply if the sending operator provides
other information that makes such settlement or charging possible. Before a
service is discontinued, the parties shall try to find technical or other
solutions to the problem.
A-numbers may be forwarded to a third operator's network in Sweden, where they
may be used for accounting, statistics, and similar purposes. An A-number that
is forwarded to a third operator's network may not be disclosed by the third
operator to the receiving subscriber without a separate agreement between the
operator to whose network the phoned subscriber is connected and the third
operator. If the third operator should disclose an A-number or disclose an
A-number in opposition to an existing agreement, then the party has the right to
stop all transferring of A-numbers to that party who forwards A-numbers. Before
A-number transfer is discontinued, the forwarding party shall be given the
opportunity to take the necessary steps to stop the disclosure of A-numbers in
the third operator's network.
The parties can not guarantee that the information according to this section,
Section 10.2, contains the A-number which the parties in each specific case
wishes to receive. The parties are prepared to discuss steps that can improve
the possibility of obtaining relevant A-number information for the parties.
10.3 B-NUMBER IDENTIFICATION
B-number identification, also called "called party address," shall, in the
signaling system between the parties, be stated in accordance with technical
conditions 8211-A 308,rev B, in Appendix 7.
11. INSTALLATION, MANAGEMENT, AND MAINTENANCE
Each party is responsible for the installation, management, and maintenance of
systems on their side of the interface between the networks/point of
Interconnect.
Telia can provide installation, management, and maintenance of a system that,
according to the above paragraph, is the responsibility of Tele8. Such a
commitment shall be governed by a separate agreement.
12. OPERATING AGREEMENT
Questions regarding practical arrangements for maintaining traffic accessibility
in each respective network, as well as the conditions for cooperation between
the parties in the event of interruptions in operations, etc., shall be governed
by a separate operating agreement.
13. SECRECY AND SUPPLYING INFORMATION
The parties agree not to disclose the contents of this contract to outsiders
without a special agreement, except for what is permitted by law.
Information that is received by the party about the opposite party, with the
support of this agreement, shall be treated as confidential information.
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Neither party may, without the opposite party's written consent, during the time
of the agreement and three (3) years after the agreement expires, disclose
information that has been received, both at collective bargaining and during the
period of the agreement, from the opposite party and which concerns the
agreement or its application unless the information has become general knowledge
in some other way after it has been received or was already known by the party
before the agreement was entered.
Within the respective party's company, the contents of this agreement or other
information of confidential nature, which the party has received in connection
to the carrying out of this agreement, may only be disclosed to personnel who
require the information in order to comply with the agreement.
The parties commit themselves to submit, as soon as possible, necessary
information regarding changes or plans for changes within their respective
network, which could affect the parties' business and operations. Examples of
such changes are the introduction of a new signaling system or changes to an
existing signaling system between the networks.
14. LIABILITY
The parties shall, in the application of this agreement, exercise as much care
and skill as can reasonably be expected from a competent telephone operator.
Consultations shall occur between the parties before introducing new technology,
number changes, new or revised traffic routing, revised administrative routines,
etc., which can affect the opposite party.
Neither party shall be liable to pay for damages suffered by the opposite party
as a result of contractual claims from a third party.
A discontinuation of traffic and/or traffic interruptions resulting from
regulations in Swedish legislation or from a decision by government authorities
or from binding international obligations for which Sweden must comply with,
shall not entitle the party suffering a loss from such an event to compensation
from the other party for that loss.
15. FORCE MAJEURE
The commitments made by the parties according to this agreement are valid
provided the commitment does not prevent or become unreasonably burdensome due
to circumstances beyond the control of the party, and which could not reasonably
be foreseen at the time the agreement came into being (Force Majeure).
If any force majeure condition occurs, the party shall immediately inform the
opposite party that such a situation exists.
In the case of force majeure, the party is released from performing its
commitments as long as the force majeure condition exists.
16. NON-ASSIGNMENT
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Neither party is permitted to transfer rights or obligations that are stated in
this agreement without the opposite party's written approval.
However, a party is permitted to transfer rights or obligations that are stated
in the agreement to another company within that party's group of companies,
under the condition that appropriate licenses and permits, issued by PTS, are
transferred to the acquiring company and that the acquiring company, by way of
written agreement, assumes all obligations of the transferring company as stated
and specified in the agreement.
17. AMENDMENTS AND SUPPLEMENTS
To be valid, all amendments and supplements to this agreement, including its
appendices, shall be drawn up, dated, and signed by both parties.
18. AGREEMENT'S TERM AND TERMINATION
The agreement is valid from the date on which it is signed and until either
party gives written notice of cancellation of the agreement in accordance with
the provisions stated below in this section.
It is evident from the various provisions in this agreement and its appendices
that changes in the agreement's appendices can, in certain cases, be made
without affecting the rest of the agreement.
Either party has the right to terminate this agreement for immediate cessation
if
. the opposite party stops payment or is declared bankrupt.
. the opposite party commits a principal breach of contract for which said
breach is not ceased or, in some other way, not remedied within one month
from a written request to take such action.
Irrespective of what has been stated above, either party has the right to
terminate this agreement for renegotiation if statutory regulations, government
decisions or a change in some other factor essential to the agreement affects
the conditions of the agreement. Such renegotiation shall commence no later than
two months after notice of termination. Termination and renegotiation according
to this paragraph does not mean that Interconnect is stopped. The conditions in
force at the time of termination for renegotiation, according to this paragraph,
shall, if not otherwise decided, remain applicable until new conditions have
been agreed between the Parties or settled in accordance with Section 19 below.
Either party has the right to request renegotiation of compensation amounts in
this agreement. Such renegotiation can refer to, for example, possibilities for
volume rebates. Such renegotiation shall have commenced within one month of the
request. Changes in compensation amounts shall not affect the rest of the
agreement.
Either party is entitled, at anytime, to terminate the agreement with one (1)
year's notice.
19. DISPUTES
Any disputes between the parties regarding the application or interpretation of
this agreement shall first be attempted to be resolved through negotiations
between the parties.
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In the event the parties fail to solve the dispute, either party has the right
to request mediation in accordance with the law on mediators. Disputes can not
be referred to a court of law except for those cases that fall within ss.ss.
11-14 in the law on the protection of company secrets.
Interpretation, application, and execution of this agreement shall be based on
Swedish law. Mediation or court proceedings shall take place in Sweden and be
conducted in Swedish.
________________________________________________________________________________
This agreement has been prepared in duplicate, from which each party receives
one copy.
________________________ __________________________________
Place and date Place and date
TELIA AB (publ) Nordiska Tele8 AB
________________________ __________________________________
Thorleif Herrstrom Matz Olsson
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<PAGE>
INTERIM SUPPLEMENT
SUPPLEMENT TO THE INTERCONNECT AGREEMENT BETWEEN TELE8 AND TELIA REGARDING
INTERCONNECT PRICES FOR 1998.
LOCAL SEGMENT
Until the registering party is able to separate traffic in the local segment
(LS) and single segment (SS), prices for traffic in these segments (LS and SS
respectively) shall be calculated as follows:
Both parties agree as to which area codes within the regional Interconnect area
shall have LS. Up to five (5) area codes per Interconnect area are applied to
LS, the remaining area code areas within the Interconnect area are applied to
SS.
LOCAL POINTS OF INTERCONNECT
Each respective party intends to offer the possibility for local Interconnect
wherever it is technically possible. Each party shall then announce defined
local points of Interconnect in their network to which the opposite party can be
physically connected. Planned utilization of local segments shall not affect
existing routing at regional points of Interconnect until agreement has been
made concerning local points of Interconnect.
The parties have agreed that, during 1998, the following five (5) area codes
shall be applied to LS within each respective regional Interconnect area:
Interconnect Area 6 (Stockholm) 5 LS
0512, 0156, 0158, 0159, 08
Interconnect Area 9 (Gothenburg) 5 LS + 3 SS
0300, 0301, 0302, 0303, 0304, 031, 0322, 0340
Interconnect Area ll (Kristianstad) 5 LS + 9 SS
044, 0451, 0454, 0455, 0456, 0457, 0471, 0479, 0480, 0481,
0485, 0486, 0491, 0499
Interconnect Area 12 (Helsingborg) 5 LS + 4 SS
0345, 0346, 035, 0418, 042, 0460, 0431, 0433, 0435
Interconnect Area 13 (Malmo) 5 LS + 4 SS
040, 0410, 0411, 0413, 0414, 0415, 0416, 0417, 046
COMPENSATION ADJUSTMENT BASED ON TRAFFIC VOLUME
Proportional distribution of the rental costs for Interconnect capacity (groups
of 30 and connections) based on Interconnect compensation, shall be applied when
the party with the least volume reaches 15% of the total Interconnect
compensation.
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APPENDICES
- ----------
1. COMPENSATION TO TELIA FOR BASIC INTERCONNECT SERVICES
2. COMPENSATION TO TELE8 FOR BASIC INTERCONNECT SERVICES
3A. Terms and Conditions for Providing Telia's Specific Interconnect Services
3A.1 Telia Frisamtal (toll free calls)
3A.2 Telia Betalsamtal (toll calls)
3A.3 077 Numbers
3A.4 90 Numbers
3A.5 Transiting to or terminating in another country
3A.6 Specific services from other service providers
3A.7 078 Numbers
3A.8 Personal Number Services: 0701>075
3A.9 A-Number Presentation
3B. Terms and Conditions for Providing Tele8's Specific Interconnect Services
3B.1 Tele8 Fritele (toll free calls)
3B.2 Tele8 Betalsamtal (toll calls)
3B.3 Transiting to or terminating in another country
3B.4 077 Numbers
3B.5 078 Numbers
3B.6 Personal Number Services: 0702>075
3B.7 International Premium Rate Services (IPRS)
3B.8 A-Number Presentation
4. TRAFFIC REGISTRATION, BILLING ROUTINES, AND PAYMENT TERMS
5. LIST OF INTERCONNECT AREAS (connection points and area codes)
6. COMPENSATION RELATED TO POINTS OF INTERCONNECT
7. TECHNICAL REQUIREMENTS AND NETWORK ARRANGEMENTS
8. IMPLEMENTATION OF NUMBER SERIES
9. SIGNALING NETWORK
10. ADDRESSES AND CONTACT POINTS BETWEEN TELIA AND TELE8
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APPENDIX 1 to the Interconnect Agreement between Telia & Tele8
COMPENSATION TO TELIA FOR BASIC INTERCONNECT SERVICES
Compensation to Telia for basic Interconnect services is specified in the tables
below.
Prices are in Swedish currency (oren) and are effective as of January 1, 1998.
Value added tax is added in accordance with current legislation.
1. PRICE CHANGES
Price changes are negotiated between the parties in accordance with the
provisions stated in Section 18 of the main agreement.
2. TERMINATION OF TRAFFIC FROM TELE8'S NETWORK AND ACCESS TO TELIA'S NETWORK
FOR TRAFFIC TO TELE8'S NETWORK
Table 1 specifies the compensation Telia shall receive from Tele8 for the
following:
a) termination in Telia's network of traffic from a Tele8 subscriber
b) termination in Telia's network of traffic that Tele8 connects from another
country
c) access to Telia's network for traffic to Tele8's network
The rates for each service listed in items a, b, and c are in Swedish ore per
completed telephone call (telephone calls with B-response) and in Swedish ore
per minute, where minute refers to the conversation time according to ITU
(CCITT). Rec. D.150.
TABLE 1
<TABLE>
<CAPTION>
OFF-PEAK
RATE PER RATE PEAK RATE
TELEPHONE CALL PER MINUTE PER MINUTE
- ------------- -----------------------------------------------------
<S> <C> <C> <C>
LOCAL SEGMENT 7 ore 3,6 ore 7,3 ore
SINGLE SEGMENT 7 ore 6,3 ore 12,6 ore
DOUBLE SEGMENT 7 ore 9,0 ore l8,0 ore
</TABLE>
Peak Hours: Ordinary business days: Monday - Friday, 8:00 a.m. - 6:00 p.m.
Off-Peak Hours: Remaining time
All services, with the exception of the local segment, are provided via a
regional point of Interconnect.
The local segment is provided via a local point of Interconnect.
3. TRANSITING TRAFFIC FROM TELE8'S NETWORK TO A THIRD OPERATOR'S NETWORK IN
SWEDEN
Telia transits traffic from Tele8's network to a third operator's network in
Sweden. Implemented types of transit shall be specified in a separate document
called the traffic matrix."
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Rates are specified in Swedish ore per minute.
TABLE 2
<TABLE>
<CAPTION>
OFF-PEAK RATE PER MINUTE PEAK RATE PER MINUTE
--------------------------------------------------
<S> <C> <C>
Single Transiting 2,5 ore 5,0 ore
Double Transiting 6,0 ore 12,0 ore
</TABLE>
Peak Hours: Ordinary business days: Monday - Friday, 8:00 a.m.-6:00 p.m.
Off-Peak Hours: Remaining time.
Telia transits traffic from Tele8's network to a third operator's network in
Sweden. Tele8 may only deliver traffic for transiting if the third operator
agrees to receive the transited traffic. (Telia does not block traffic that is
destined to a third operator's network.)
4. TRAFFIC VOLUME'S EFFECT ON COMPENSATION
4.1 Definitions
Traffic volume: The number of conversation minutes, in both directions, per
established group of 30 connecting lines (2 Mbit/s PCM system) in the
Interconnect points in a certain Interconnect area.
Basic monthly traffic volume: 200 000 minutes per group of 30 connecting lines
(2 Mbit/s PCM system) and month.
Tele8's traffic volume: Average traffic volume, based on the sum of traffic in
both directions, in each respective Interconnect point established by Telia
exclusively for Tele8 and solely used by Tele8.
Tele8's average monthly traffic volume: The average of Tele8's traffic volume
during the last 12 successive calendar months.
4.2 Price Adjustment
In Tables 1 and 2 specified compensations are effective under the condition that
Tele8's monthly traffic volume amounts to 65% or more of the basic monthly
traffic volume. If Tele8's monthly traffic volume falls below 65% of the basic
monthly traffic volume, then the specified compensations in Tables 1 and 2
shall, during the actual calendar month and regarding an Interconnect area, be
increased according to Table 3 below.
4.3 Terms and Conditions for Applying Price Adjustment
Section 4.2 shall be applicable when the number of connecting lines in an
Interconnect area contain at least three groups of 30 lines. Section 4.2 shall
be applicable the first time during the 13th calendar month, which is calculated
from the month the third group of 30 connecting lines was put into operation in
the actual Interconnect area.
The purpose of the above is to enable Tele8 to gauge traffic in an efficient
way.
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TABLE 3
<TABLE>
<CAPTION>
TRAFFIC AS A % OF THE
BASIC TRAFFIC VOLUME PRICE INCREASE
- ---------------------------------------------
<S> <C>
55-65% +20%
45-55% +40%
35-45% +60%
25-35% +80%
greater than 25% +100%
</TABLE>
APPENDIX 2 to the Interconnect Agreement between Telia & Tele8
COMPENSATION TO TELE8 FOR BASIC INTERCONNECT SERVICES
Compensation to Tele8 for basic Interconnect services is specified in the tables
below.
Prices are in Swedish currency (oren) and are effective as of 98-01-01.
Value added tax is added in accordance with current legislation
1. PRICE CHANGES
Price changes are negotiated between the parties in accordance with the
provisions stated in Section 18 of the main agreement.
2. TERMINATION OF TRAFFIC FROM TELIA'S NETWORK AND ACCESS TO TELE8'S NETWORK
FOR TRAFFIC TO TELIA'S NETWORK
Table 1 specifies the compensation Tele8 shall receive from Telia for the
following:
a) termination in Tele8's network of traffic from a Telia subscriber
b) termination in Tele8's network of traffic that Telia connects from another
country
c) access to Tele8's network for traffic to Telia's network
The rates for each service listed in items a, b, and c are in Swedish ore per
completed telephone call (telephone calls with B-response) and in Swedish ore
per minute, where minute refers to the conversation time according to ITU
(CCITT), Rec. D.150.
TABLE 1
<TABLE>
<CAPTION>
RATE PER OFF-PEAK
TELEPHONE RATE PER PEAK RATE
CALL MINUTE PER MINUTE
-------------------------------------------------
<S> <C> <C> <C>
LOCAL SEGMENT 7 ore 3,6 ore 7,3 ore
SINGLE SEGMENT 7 ore 6,3 ore 12,6 ore
DOUBLE SEGMENT 7 ore 9,0 ore 18,0 ore
</TABLE>
Peak Hours: Ordinary business days: Monday - Friday, 8:00 a.m. - 6:00 p.m.
Off-Peak Hours: Remaining time.
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All services, with the exception of the local segment, are provided via a
regional point of Interconnect.
The local segment is provided via a local point of Interconnect.
APPENDIX 3 to the Interconnect Agreement between Telia & Tele8
3A. TERMS AND CONDITIONS FOR PROVIDING TELIA'S SPECIFIC INTERCONNECT SERVICES
3A.1 Telia Frisamtal (toll free calls)
3A.2 Telia Betalsamtal (toll calls)
3A.3 077 Numbers 3A.4 90 Numbers
3A.5 Transiting to or terminating in another country
3A.6 Specific services from other service providers
3A.7 078 Numbers
3A.8 Personal Number Services: 0701>075
3A.9 A-Number Presentation
Rates and accessibility (for Tele8) regarding the above specified services are
also registered in a separate work document entitled "traffic matrix." Changes
in accessibility and rates are registered in the traffic matrix; corresponding
changes are to be made in this appendix and its sub-appendices.
3B. TERMS AND CONDITIONS FOR PROVIDING TELE8'S SPECIFIC INTERCONNECT SERVICES
3B.1 Tele8 Fritele (toll free calls)
3B.2 Tele8 Betalsamtal (toll calls)
3B.3 Transiting to or terminating in another country
3B.4 077 Numbers
3B.5 078 Numbers
3B.6 Personal Number Services: 0702>075
3B.7 International Premium Rate Services (IPRS)
3B.8 A-Number Presentation
APPENDIX 3A.1 to the Interconnect Agreement between Telia & Tele8
3A. TERMS AND CONDITIONS FOR PROVIDING TELIA'S SPECIFIC INTERCONNECT SERVICES
TELIA FRISAMTAL (REVERSED BILLING ROUTE)
(toll free calls)
DESCRIPTION OF THE SERVICE
When Tele8 transfers the telephone call to Telia's network, Telia directs the
telephone call to the subscriber extension, which the owner of the actual 020
number has decided. There is no connection between the extension's geographical
location and the 020 number.
The 020 number series at Telia's disposal is specified in the PTS numbering
plan.
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In order for Telia to be able provide this Interconnect service, Tele8 must send
A-numbers in accordance with specification 8211-A 318, rev A.
TELEPHONE CALLS TO A 020 CUSTOMER IN SWEDEN
Telia compensates Tele8 for terminating in Tele8's network according to the
provisions in Appendix 2.
Presently closed services:
- --------------------------
020 0015 Ordering Telia Telemote (teleconference)
020 0018 Ordering calls abroad, Message supplying abroad
020 0021 Telegram, Greetings Telegram, Fonotext
020 882288 Telex Information
TELEPHONE CALLS TO A 020 CUSTOMER ABROAD (IN THE 020 79 NUMBER SERIES)
Telia compensates Tele8 for terminating in Tele8's network according to the
provisions in Appendix 2.
Billing and payment terms are specified in Appendix 4.
Price changes follow Appendix 2 to the main agreement.
APPENDIX 3A.2 to the Interconnect Agreement between Telia & Tele8
TELIA BETALSAMTAL
(toll calls)
Tele8 is responsible for all of its customer relations with users of the Telia
Betalsamtal service and, consequently, for any customer loses or costs that may
occur as a result of misuse. With regard to Telia's customers, the safety level
for these services will gradually be heightened by providing, for example,
information about service price and personal codes. The parties are responsible
for their own actions regarding their customers. Any costs to the opposite party
shall be compensated by the initiating party.
071 NUMBER SERIES
The maximum time for a 071 telephone call is 8 minutes. Thereafter the telephone
call is disconnected.
071 1XXXXX 97.5% of Telia's final customer rate
071 2XXXXX 97.5% of Telia's final customer rate
071 3XXXXX 97.5% of Telia's final customer rate
071 4XXXXX 97.5% of Telia's final customer rate
071 5XXXXX 97.5% of Telia's final customer rate
071 6XXXXX 97.5% of Telia's final customer rate
071 7XXXXX 97.5% of Telia's final customer rate
X = one number between 0 and 9
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MASS CALLING
0718 1XXXXX 97.5% of Telia's final customer rate
0718 2XXXXX 97.5% of Telia's final customer rate
0718 3XXXXX 97.5% of Telia's final customer rate
0718 4XXXXX 97.5% of Telia's final customer rate
0718 88XXXX 97.5% of Telia's final customer rate
X = one number between 0 and 9
PRICE PER TELEPHONE CALL
0719 31XXXX 97.5% of Telia's final customer rate
0719 32XXXX 97.5% of Telia's final customer rate
0719 33XXXX 97.5% of Telia's final customer rate
0719 34XXXX 97.5% of Telia's final customer rate
0719 35XXXX 97.5% of Telia's final customer rate
0719 36XXXX 97.5% of Telia's final customer rate
0900 NUMBER SERIES, INFORMATION
Service with free rate setting, i.e., the number does not specify any rate
class. The final customer rate is either in Swedish kronor per minute or Swedish
kronor per telephone call.
0900 10XXXX Closed Until Further Notice
0900 20XXXX Not Open
0939 NUMBER SERIES, ENTERTAINMENT
Service with free rate setting, i.e., the number does not specify any rate
class. The final customer rate is either in Swedish kronor per minute or Swedish
kronor per telephone call.
0939 10XXXX Closed Until Further Notice
0939 20XXXX Not Open
0944 NUMBER SERIES, OTHER SERVICES
Service with free rate setting, i.e., the number does not specify any rate
class. The final customer rate is either in Swedish kronor per minute or Swedish
kronor per telephone call.
0944 10XXXX Closed Until Further Notice
0944 20XXXX Not Open
There are no rate differentiations with regard to time of day or weekdays.
Billing and payment terms are according to Appendix 4.
Telia Betalsamtal is related to Telia's final customer rates.
APPENDIX 3A.3 to the Interconnect Agreement between Telia & Tele8
18
<PAGE>
077 NUMBERS - SERVICE WITH SHARED COST
COMPANY NUMBERS
077 1XXXXX 97.5% of Telia's final customer rate
X = one number between 0 and 9
ACCESS TO SPECIAL TELIA SERVICES
Telia offers certain access services to subscribers in Telia's network within
the 020-0XXXXX number series.
Corresponding services can be offered to Tele8 within the 077-0XXXXX number
series.
077 0XXXXX 0.25 SEK/min.
X = one number between 0 and 9
GENERAL TERMS AND CONDITIONS FOR 077 SERVICES
Billing and payment terms are stated in Appendix 4.
Telia 077 numbers are related to Telia's final customer rates. The rate is 97.5%
of Telia's current final customer rates and is adjusted in step with changes in
the final customer rate. Tele8 is informed one month prior to any change in
final customer rates taking place.
APPENDIX 3A.4 to the Interconnect Agreement between Telia & Tele8
90 NUMBERS
<TABLE>
<S> <C>
90 000/112 SOS Alarm 0.05 SEK/minute
90 120 Special Information 97.5% of Telia'sfinal customer rate
90 160 Telephone Calls from text telephone 0.09 SEK/minute
90 165 Telephone Calls from text telephone 0.09 SEK/minute
90 510 Time 97.5% of Telia'sfinal customer rate
90 180 Wake-Up Call 97.5% of Telia'sfinal customer rate
</TABLE>
Presently closed services:
- -------------------------
90130 Expediting telephone calls, supplying messages within Sweden, ordering
telephone calls within Sweden
There are no rate differentiations with regard to time of day or weekdays.
Billing and payment terms are stated in Appendix 4.
Tele8 is informed one month prior to any rate change taking place in addition to
those services in which the conditions for compensation are 97.5% of the final
customer rate. The new rates are billed beginning with the following month's
bill.
APPENDIX 3A.5 to the Interconnect Agreement between Telia and Tele8
TELIA'S SERVICES FOR INTERNATIONAL TERMINATION
19
<PAGE>
Prices are valid from January 1, 1998 to December 31, 1998 and are extended
thereafter one month at a time provided neither party informs the other party,
in writing and no later than 15 days before the prices expires, about a change
or cancellation.
Note 1. Telia intends to revise the price list in this appendix every quarter.
- -------
The revised price list shall be entered as part of this agreement, either in the
form of a supplement to the agreement or a revised appendix.
Note 2. An addition to this agreement is the estimating of traffic volume with
- -------
the purpose of correctly gauging the network capacity. It is in the interest of
both parties to avoid barriers in the network.
Note 3. Agreements on larger capacities to international destinations are
- -------
handled separately by the parties.
Compensation to Telia is as follows:
Price per destination (expressed in SDR per minute) as specified in
the following pages. Billing is in Swedish kronor (SEK). The
converting of SDR to SEK is based on the average rate for SDR (for the
actual traffic month) according to the exchange rates posted by the
Bank of Sweden in Stockholm.
Value added tax is added in accordance with current legislation.
Additional billing and payment terms are specified in Appendix 4 to the
Interconnect Agreement.
Price changes are negotiated between the parties in accordance with what is
stated in Section 18 of the main agreement.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
INTERNATIONAL TERMINATION
PRICE LIST IS EFFECTIVE AS OF NOVEMBER 11, 1997
- --------------------------------------------------------------------------------
DESTINATIONS SDR/MIN. TRAFFIC VOLUME/MONTH
- --------------------------------------------------------------------------------
<S> <C> <C>
AFGHANISTAN 1,7787
ALASKA 0,1400
ALBANIA 0,3220
ALGERIA 0,4091
AM. SAMOA 0,5942
ANDORRA 0,2153
ANGOLA 0,8530
APPENDIX 3A.5 to the Interconnect Agreement between Telia & Tele8 App. 3 A 5 (2)
<CAPTION>
- --------------------------------------------------------------------------------
DESTINATIONS SDR/MIN. TRAFFIC VOLUME/MONTH
- --------------------------------------------------------------------------------
<S> <C> <C>
ANGUILLA 1,5315
ANTIGUA 0,7667
ARGENTINA 0,8932
ARMENIA 0,6920
ARUBA 0,4421
</TABLE>
20
<PAGE>
<TABLE>
<S> <C> <C>
ASCENSION 0,6632
AUSTRALIA 0,1552
AUSTRIA 0,1694
AZERBAIJAN 0,5379
BAHAMAS 0,9613
BAHRAIN 0,8503
BANGLADESH 1,0114
BARBADOS 0,9325
BELARUS 0,2915
BELGIUM 0,1488
BELIZE 0,4965
BENIN 0,9078
BERMUDA 0,4907
BHUTAN 0,6632
BOLIVIA 1,0161
BOSNIA HERC 0,2879
BOTSWANA 0,5885
BRAZIL 0,3972
BRITISH VIRGIN ISLANDS 0,6057
BRUNEI 0,1667
BULGARIA 0,2336
BURKINA FASO 1,0473
BURUNDI 0,7062
CAMBODIA 1,6292
CAMEROON 0,9312
CANADA 0,0927
CAPE VERDE 1,0268
CAYMAN ISLAND 1,2152
CENTRAL AFRICAN REP. 1,4378
CHAD 1,3164
CHILE 0,2863
CHINA 0,5517
CHRISTMAS ISLANDS 0,3182
COCOS ISLANDS 0,3182
COLOMBIA 0,7646
COMOROS 1,3187
CONGO 0,8993
- --------------------------------------------------------------------------------
COOK ISLANDS 1,2842
COSTA RICA 0,7627
CROATIA 0,2365
CUBA 0,7353
APPENDIX 3A.5 to the Interconnect Agreement between Telia & Tele8 App. 3 A 5 (3)
<CAPTION>
- --------------------------------------------------------------------------------
DESTINATIONS SDR/MIN. TRAFFIC VOLUME/MONTH
- --------------------------------------------------------------------------------
<S> <C> <C>
CYPRUS 0,2492
CZECH REPUBLIC 0,1760
DENMARK 0,0617
DIEGO GARCIA 0,0617
DJIBOUTI 0,8292
DOMINICA 0,4613
</TABLE>
21
<PAGE>
<TABLE>
<S> <C> <C>
DOMINICAN REP. 0,6203
ECUADOR 0,66960
EGYPT 0,6833
EL SALVADOR 0,6332
EQUATORIAL GUINEA 0,8932
ERITREA 0,9105
ESTONIA 0,1528
ETHIOPIA 0,8869
FALKLAND ISLAND 0,6747
FEROE IS 0,3429
FIJI 0,6747
FINLAND 0,0735
FRANCE 0,1079
FRENCH GUYANA 0,6609
FRENCH POLYNESIA 0,5942
GABON 0,5789
GAMBIA 1,0427
GEORGIEN 1,0657
GERMANY 0,0924
GHANA 0,4850
GIBRALTAR 0,5063
GREECE 0,2530
GREENLAND 1,1515
GRENADA 0,8724
GUADALOUPE 0,7610
GUAM 0,5942
GUATEMALA 0,5571
GUINEA, REP. 0,5310
GUINEA-BISSAU 1,3855
GUYANA 0,7163
HAITI 0,7245
HAWAII 0,1400
HONDURAS 0,6777
HONG KONG 0,2595
HUNGARY 0,1672
ICELAND 0,2496
INDIA 0,5517
INDONESIA 1,1693
IRAN 0,7113
IRAQ 0,9507
APPENDIX 3A.5 to the Interconnect Agreement between Telia & Tele8 App. 3 A 5 (4)
<CAPTION>
- --------------------------------------------------------------------------------
DESTINATIONS SDR/MIN. TRAFFIC VOLUME/MONTH
- --------------------------------------------------------------------------------
<S> <C> <C>
IRELAND 0,1334
ISRAEL 0,6098
ITALY 0,1638
IVORY COAST 1,0255
JAMAICA 1,0265
JAPAN 0,2039
JORDAN 0,9354
</TABLE>
22
<PAGE>
<TABLE>
<S> <C> <C>
KAZAKSTAN 0,8932
KENYA 1,1290
KHABAROVISK 0,7112
KIRGISTAN 1,1290
KIRIBATI 0,6402
KOREA, NORTH 1,3578
KOREA, SOUTH 0,3650
KUWAIT 0,6754
LAOS 1,5545
LATVIA 0,1890
LEBANON 0,8990
LESOTHO 0,8070
LIBERIA 0,7483
LIBYA 0,4355
LICHTENSTEIN 0,2042
LITHUANIA 0,2100
LUXEMBURG 0,1274
MACAW 0,6805
MACEDONIA 0,3904
MADAGASCAR 2,1237
MALAWI 0,6632
MALAYSIA 0,6061
MALDIVE ISLANDS 1,2121
MALI 0,6724
MALTA 0,3205
MARSHALL ISLANDS 0,6402
MARTINIQUE 0,7140
MAURETANIA 1,1973
MAURITIUS 1,7937
MAYOTTE 0,6609
MEXICO 0,4332
MICRONESIA 0,6920
MIDWAY 1,5711
MOCAMBIQUE 0,7487
MOLDAVIA 0,3326
MONACO 0,1005
MONGOLIA 1,6177
MONTSERRAT 0,7202
MOROCCO 0,4309
APPENDIX 3A.5 to the Interconnect Agreement between Telia & Tele8 App. 3 A 5 (5)
<CAPTION>
- --------------------------------------------------------------------------------
DESTINATIONS SDR/MIN. TRAFFIC VOLUME/MONTH
- --------------------------------------------------------------------------------
<S> <C> <C>
MYANMAR 1,7845
NAKHODKA 1,1405
NAMIBIA 0,3757
NAURU 0,6402
NEPAL 0,6632
NETHERLANDS 0,0988
NETHERL. ANTILLES 0,9831
NEW CALEDONIA 0,5022
</TABLE>
23
<PAGE>
<TABLE>
<S> <C> <C>
NEW ZEALAND 0,3182
NICARAGUA 0,7363
NIGER 1,4828
NIGERIA 1,5543
NIUE 0,8242
NORFOLK ISLAND 0,3872
NORWAY 0,0666
OMAN 0,9078
PAKISTAN 1,1870
PALAU 2,9698
PANAMA 0,6763
PAPUA NEW GUINEA 0,5482
PARAGUAY 1,0378
PERU 0,6774
PHILIPPINES/PLOT 0,5597
PITCAIRN 1,5890
POLAND 0,1881
PORTUGAL 0,2325
PUERTO RICO 0,1400
QATAR 0,6778
REUNION 0,6609
ROMANIA 0,2711
RUSSIA 0,3438
RWANDA 1,0803
S HELENA 0,6632
A PIERRE 6 MIQUELON 0,8185
SAIPAN 1,7615
SAKHALIN 1,1405
SAN MARINO 0,2670
SAO TOME AND PRINCIPE 1,0427
SAUDI ARABIA 0,8788
SENEGAL 1,0056
SERBIA/MONTENEGRO 0,2233
SEYCHELLES 1,0082
SIERRA LEONE 1,2267
SINGAPORE 0,2196
SLOVAKIA 0,1980
SLOVENIA 0,1672
APPENDIX 3A.5 to the Interconnect Agreement between Telia & Tele8 App. 3 A 5 (6)
<CAPTION>
- --------------------------------------------------------------------------------
DESTINATIONS SDR/MIN. TRAFFIC VOLUME/MONTH
- --------------------------------------------------------------------------------
<S> <C> <C>
SOLOMON ISLANDS 0,4907
SOMALIA 0,7782
SOUTH AFRICA 0,3329
SPAIN 0,2093
SRI LANKA 0,9808
ST CHRISTOPHER-NEVIS 1,2152
ST LUCIA 1,0349
ST VINCENT 1,0360
SUDAN 0,7077
</TABLE>
24
<PAGE>
<TABLE>
<S> <C>
SURINAME 0,9622
SWAZILAND 0,6632
SWITZERLAND 0,1194
SYRIA 0,8702
TADJIKISTAN 0,9910
TAIWAN 0,3753
TANZANIA 0,6397
THAILAND 0,5375
TOGO 0,6920
TONGA 0,8300
TRINIDAD &TOBAGO 0,9624
TRISTAN DA CUNHA 2,3423
TUNISIA 0,4163
TURKEY 0,3138
TURKMENISTAN 0,6057
TURKS & CAICOS 1,4510
TWALU 0,5482
UGANDA 0,7353
UK 0,0683
UKRAINE 0,3280
UNITED ARAB EMIRATES 0,5482
URUGUAY 0,7059
USA 0,0788
UZBEKISTAN 1,1813
VANUATU 0,5022
VENEZUELA 0,8075
VIET NAM 1,5729
VIRGIN ISLANDS (US) 0,2147
WAKE 1,7270
WALLIS IS 1,4682
WESTERN SAHARA 0,4309
WESTERN SAMOA 0,8530
YEMEN 0,8926
ZAIRE 0,5770
ZAMBIA 0,6657
ZIMBABWE 0,4562
</TABLE>
APPENDIX 3A.6 to the Interconnect Agreement between Telia & Tele8
SPECIFIC SERVICES, WHICH ARE PROVIDED BY ANOTHER PARTY VIA A SEPARATE
AGREEMENT
Tele8 shall, for the specific services listed below, make a separate agreement
with each respective service provider within Telia's group of companies
(presently Telia InfoMedia Respons AB), if access to the services is desired.
The specific service is billed by the service provider. Telia only provides
telephone call connection between Tele8's network and the service provider.
25
<PAGE>
Telia is obligated to establish telephone connection to service providers with
which Tele8 has made an agreement with. The stated price refers to compensation
from Tele8 to Telia for telephone calls from Tele8's telephone network to the
service provider.
Telia bills Tele8 for telephone call connection between Tele8's network and the
service provider. Billing and payment terms are according to the provisions in
Appendix 4 to the main agreement.
A charge of 0.09 SEK/min. is applied for telephone connection to service
providers in connection with the services listed below.
Price changes are negotiated between the parties in accordance with the
provisions stated in Section 18 of the main agreement.
TELIA INFOMEDIA RESPONS AB:
07975 Directory Assistance - Sweden
07977 Directory Assistance - Abroad
TELIA MOBILE AB:
074 0, 074 6-9 Paging
APPENDIX 3A. 7 to the Interconnect Agreement between Telia & Tele8
NETWORK OPERATOR'S SPECIFIC SERVICE, 078 NUMBER SERIES
Telia has been allocated this number series. The service is not yet open. The
parties intend to negotiate this service's commercial conditions before its
introduction.
APPENDIX 3A.8 to the Interconnect Agreement between Telia & Tele8
PERSONAL NUMBER SERVICES, NUMBER SERIES: 0701>075
TELIA PERSONA:
The service provides a personal number service with the possibility of directing
incoming telephone calls to an optional telephone number in a fixed or mobile
network. The number series will be changed from 0701 to 075; both numbers will
exist at the same time during a period of one year.
Calling number Rate
- -------------- ----
0701 10XXX-0701 59XXX 97.5% of Telia's final customer rate
X = one number between 0 and 9
REDIRECTING
26
<PAGE>
The user can redirect telephone numbers by calling a special telephone number.
Telia enables subscribers in Telia's network to redirect by calling 020-0700.
The corresponding service from Tele8's network is offered by calling 077-03XX.
GENERAL TERMS AND CONDITIONS FOR TELIA PERSONA
Billing and payment terms are according to the provisions stated in Appendix 4.
Telia Persona is related to Telia's final customer rates. The rate is 97.5% of
Telia's current final customer rates and is adjusted in step with changes in the
final customer rate.
APPENDIX 3A.9 to the Interconnect Agreement between Telia & Tele8
A-NUMBER PRESENTATION
TERMS AND CONDITIONS FOR PRESENTING TELIA'S SUBSCRIBERS' A-NUMBERS
Telia's subscribers' A-numbers refer to calls made by the subscribers that are
billed by Telia AB.
Telia gives Nordiska Tele8 AB the right to present Telia's subscribers'
A-numbers to a receiving subscriber in Nordiska Tele8's network. The right is
not valid in those cases where the subscriber resists presenting its subscriber
number.
Nordiska Tele8 AB shall, as compensation for this right, pay 1 (one) ore to
Telia for each call that is put through from Nordiska Tele8's network.
APPENDIX 3B.1 to the Interconnect Agreement between Telia & Tele8
3B TERMS AND CONDITIONS FOR PROVIDING TELE8'S SPECIFIC INTERCONNECT SERVICES
TELE8 FRITELE (REVERSED BILLING ROUTE)
(toll free calls)
DESCRIPTION OF THE SERVICE
When Telia transfers the telephone call to Tele8's network, Tele8 directs the
telephone call to the subscriber extension, which the owner of the actual 020
number has decided. There is no connection between the extension's geographical
location and the 020 number.
Tele8 Fritele contains the number series 020 ZZZXXXX, where ZZZ forms a number
series that is assigned by The Swedish National Post and Telecom Agency.
CALLS TO A 020 CUSTOMER IN SWEDEN
Tele8 compensates Telia for terminating in Telia's network according to the
provisions stated in Appendix 1.
Billing and payment terms are specified in Appendix 4.
Price changes follow Appendix 2 to the main agreement.
27
<PAGE>
APPENDIX 3B.2 to the Interconnect Agreement between Telia & Tele8
TELE8 BETALSAMTAL
(toll calls)
0900 NUMBER SERIES
Information Service - 0900 88
0939 NUMBER SERIES
Other Services - 0939 8R
0944 NUMBER SERIES
Entertainment Service - 0944 88
AN INTERIM AGREEMENT
Telia intends, on commercial terms, to offer Nordiska Tele8 functions for
billing charged telephone services.
Estimated delivery time is 6 months after Telia has made an offer and an
agreement has been drawn up with the Interconnect operator. The parties intend
to promptly work out a permanent solution.
COMMERCIAL TERMS AND CONDITIONS
Nordiska Tele8 shall compensate Telia for terminating in Telia's network
according to the provisions stated in Appendix 1.
Tele8 is responsible for the Tele8 Betalsamtal service. The parties are
responsible for their own actions regarding their customers. Any costs to the
opposite party shall be compensated by the initiating party.
Billing and payment terms are specified in Appendix 4.
Price changes follow Appendix 1 to the main agreement.
APPENDIX 3B.3 to the Interconnect Agreement between Telia & Tele8
TELE8'S SERVICES FOR INTERNATIONAL TERMINATION
The service for transiting and terminating traffic to subscribers in countries
outside of Sweden is offered according to the below price list. Prices are
stated in SDR per minute for each destination.
VALIDITY AND CANCELLATION
Prices are valid from November 1, 1997 to December 31, 1998 and are extended
thereafter one month at a time provided neither party informs the other party,
in writing and no later than 15 days before the prices expires, about a change
or cancellation.
28
<PAGE>
The price list provides one price/minute for all destinations.
Value added tax is added in accordance with current legislation.
Billing and payment terms are specified in Appendix 4.
Price changes are negotiated between the parties in accordance with the
provisions stated in Section 18 of the main agreement.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
DESTINATION SDR/MIN. TRAFFIC VOLUME/MONTH
- --------------------------------------------------------------------------------
<S> <C> <C>
ALASKA 0,118
- --------------------------------------------------------------------------------
ALBANIA 0,241
- --------------------------------------------------------------------------------
ALGERIA 0,304
- --------------------------------------------------------------------------------
AMERICAN SAMOA 0,331
- --------------------------------------------------------------------------------
ANDORRA 0,201
- --------------------------------------------------------------------------------
ANGOLA 0,431
- --------------------------------------------------------------------------------
ANGUILLA 0,390
- --------------------------------------------------------------------------------
ANTIGUA & BARBUDA 0,310
- --------------------------------------------------------------------------------
ARGENTINA 0,336
- --------------------------------------------------------------------------------
ARMENIA 0,510
- --------------------------------------------------------------------------------
ARUBA 0,239
- --------------------------------------------------------------------------------
ASCENSION 0,482
- --------------------------------------------------------------------------------
AUSTRALIA 0,109
- --------------------------------------------------------------------------------
AUSTRALIA EXT. TERRITORIES 0,605
- --------------------------------------------------------------------------------
AUSTRIA 0,152
- --------------------------------------------------------------------------------
AZERBAIJAN 0,319
- --------------------------------------------------------------------------------
BAHAMAS 0,161
- --------------------------------------------------------------------------------
BAHRAIN 0,554
- --------------------------------------------------------------------------------
BANGLADESH 0,668
- --------------------------------------------------------------------------------
BARBADOS 0,435
APPENDIX 3B.3 to the Interconnect Agreement between Telia & Tele8 App. 3 B 3 (2)
- --------------------------------------------------------------------------------
BELARUS 0,247
- --------------------------------------------------------------------------------
BELGIUM 0,139
- --------------------------------------------------------------------------------
BELIZE 0,554
- --------------------------------------------------------------------------------
BENIN 0,434
- --------------------------------------------------------------------------------
BERMUDA 0,168
- --------------------------------------------------------------------------------
BHUTAN 0,587
- --------------------------------------------------------------------------------
BOLIVIA 0,503
- --------------------------------------------------------------------------------
BOSNIA HERZEGOVINA 0,269
- --------------------------------------------------------------------------------
BOTSWANA 0,447
- --------------------------------------------------------------------------------
BRAZIL 0,344
- --------------------------------------------------------------------------------
BRITISH VIRGIN ISLANDS 0,289
- --------------------------------------------------------------------------------
BRUNEI 0,306
- --------------------------------------------------------------------------------
BULGARIA 0,228
- --------------------------------------------------------------------------------
BURKINA FASO 0,436
- --------------------------------------------------------------------------------
</TABLE>
29
<PAGE>
<TABLE>
<S> <C>
- --------------------------------------------------------------------------------
BURUNDI 0,381
- --------------------------------------------------------------------------------
CAMBODIA 0,814
- --------------------------------------------------------------------------------
CAMEROON 0,579
- --------------------------------------------------------------------------------
CANADA 0,088
- --------------------------------------------------------------------------------
CAPE VERDE 0,383
- --------------------------------------------------------------------------------
CAYMAN ISLAND 0,319
- --------------------------------------------------------------------------------
CENTRAL AFRICAN REPUBLIC 0,552
- --------------------------------------------------------------------------------
CHAD REPUBLIC 0,711
- --------------------------------------------------------------------------------
CHILE 0,243
- --------------------------------------------------------------------------------
CHINA 0,587
- --------------------------------------------------------------------------------
CHRISTMAS ISLANDS 0,277
- --------------------------------------------------------------------------------
COCOS ISLANDS 0,277
- --------------------------------------------------------------------------------
COLOMBIA 0,319
- --------------------------------------------------------------------------------
COMOROS 0,472
- --------------------------------------------------------------------------------
CONGO 0,476
- --------------------------------------------------------------------------------
COOK ISLANDS 0,733
- --------------------------------------------------------------------------------
COSTA RICA 0,386
- --------------------------------------------------------------------------------
CROATIA 0,206
- --------------------------------------------------------------------------------
CUBA 0,453
- --------------------------------------------------------------------------------
CYPRUS 0,224
- --------------------------------------------------------------------------------
CZECH REPUBLIC 0,190
- --------------------------------------------------------------------------------
DENMARK 0,092
- --------------------------------------------------------------------------------
DIEGO GARCIA 0,516
- --------------------------------------------------------------------------------
DJIBOUTI 0,472
- --------------------------------------------------------------------------------
DOMINICA 0,439
- --------------------------------------------------------------------------------
DOMINICAN REPUBLIC 0,218
- --------------------------------------------------------------------------------
ECUADOR 0,445
- --------------------------------------------------------------------------------
EGYPT 0,545
- --------------------------------------------------------------------------------
EL SALVADOR 0,428
- --------------------------------------------------------------------------------
EQUATORIAL GUINEA 0,794
- --------------------------------------------------------------------------------
ERITREA 0,839
APPENDIX 3B.3 to the Interconnect Agreement between Telia & Tele8 App. 3 B 3 (3)
- --------------------------------------------------------------------------------
ESTONIA 0,152
- --------------------------------------------------------------------------------
ETHIOPIA 0,713
- --------------------------------------------------------------------------------
FALKLAND ISLAND 0,151
- --------------------------------------------------------------------------------
FEROE ISLANDS 0,112
- --------------------------------------------------------------------------------
FIJI ISLANDS 0,655
- --------------------------------------------------------------------------------
FINLAND 0,082
- --------------------------------------------------------------------------------
FRANCE 0,120
- --------------------------------------------------------------------------------
FRENCH GUYANA 0,411
- --------------------------------------------------------------------------------
FRENCH POLYNESIA 0,478
- --------------------------------------------------------------------------------
GABON REPUBLIC 0,569
- --------------------------------------------------------------------------------
GAMBIA 0,462
- --------------------------------------------------------------------------------
GEORGIA 0,440
- --------------------------------------------------------------------------------
GERMANY 0,087
- --------------------------------------------------------------------------------
GHANA 0,445
- --------------------------------------------------------------------------------
GIBRALTAR 0,253
- --------------------------------------------------------------------------------
</TABLE>
30
<PAGE>
<TABLE>
<S> <C>
- --------------------------------------------------------------------------------
GREECE 0,245
- --------------------------------------------------------------------------------
GREENLAND 0,338
- --------------------------------------------------------------------------------
GRENADA 0,428
- --------------------------------------------------------------------------------
GUADALOUPE 0,315
- --------------------------------------------------------------------------------
GUAM 0,131
- --------------------------------------------------------------------------------
GUATEMALA 0,386
- --------------------------------------------------------------------------------
GUINEA-BISSAU 0,869
- --------------------------------------------------------------------------------
GUINEA, REPUBLIC 0,535
- --------------------------------------------------------------------------------
GUYANA 0,596
- --------------------------------------------------------------------------------
HAITI 0,495
- --------------------------------------------------------------------------------
HAWAII 0,069
- --------------------------------------------------------------------------------
HONDURAS 0,369
- --------------------------------------------------------------------------------
HONG KONG 0,185
- --------------------------------------------------------------------------------
HUNGARY 0,135
- --------------------------------------------------------------------------------
ICELAND 0,185
- --------------------------------------------------------------------------------
INDIA 0,527
- --------------------------------------------------------------------------------
INDONESIA 0,506
- --------------------------------------------------------------------------------
INMARSAT A AOR/E 3,899
- --------------------------------------------------------------------------------
INMARSAT A AOR/W 3,899
- --------------------------------------------------------------------------------
INMARSAT A IOR 3,899
- --------------------------------------------------------------------------------
INMARSAT A POR 3,899
- --------------------------------------------------------------------------------
INMARSAT B AOR/E 2,294
- --------------------------------------------------------------------------------
INMARSAT B AOR/W 2,294
- --------------------------------------------------------------------------------
INMARSAT B IOR 2,294
- --------------------------------------------------------------------------------
INMARSAT B POR 2,294
- --------------------------------------------------------------------------------
INMARSAT M AOR/E 2,294
- --------------------------------------------------------------------------------
INMARSAT M AOR/W 2,294
- --------------------------------------------------------------------------------
INMARSAT M IOR 2,294
- --------------------------------------------------------------------------------
INMARSAT M POR 2,294
- --------------------------------------------------------------------------------
INMARSAT MINI M WORLDWIDE 1,016
- --------------------------------------------------------------------------------
APPENDIX 3B.3 to the Interconnect Agreement between Telia & Tele8 App. 3 B 3 (4)
- --------------------------------------------------------------------------------
INMARSAT MINI M AOR/E 1,016
- --------------------------------------------------------------------------------
INMARSAT MINI AOR/W 1,016
- --------------------------------------------------------------------------------
INMARSAT MINI IOR 1,016
- --------------------------------------------------------------------------------
INMARSAT MINI POR 1,016
- --------------------------------------------------------------------------------
IRAN 0,525
- --------------------------------------------------------------------------------
IRAQ 0,705
- --------------------------------------------------------------------------------
IRELAND 0,157
- --------------------------------------------------------------------------------
ISRAEL 0,327
- --------------------------------------------------------------------------------
ITALY 0,142
- --------------------------------------------------------------------------------
IVORY COAST 0,710
- --------------------------------------------------------------------------------
JAMAICA 0,428
- --------------------------------------------------------------------------------
JAPAN 0,168
- --------------------------------------------------------------------------------
JORDAN 0,531
- --------------------------------------------------------------------------------
KAZAKSTAN 0,453
- --------------------------------------------------------------------------------
KENYA 0,503
- --------------------------------------------------------------------------------
KIRIBATI 0,733
- --------------------------------------------------------------------------------
</TABLE>
31
<PAGE>
<TABLE>
<S> <C>
- --------------------------------------------------------------------------------
KUWAIT 0,52
- --------------------------------------------------------------------------------
KYRGYZ REPUBLIC/KIGHIZIA 0,458
- --------------------------------------------------------------------------------
LAOS 0,439
- --------------------------------------------------------------------------------
LATVIA 0,213
- --------------------------------------------------------------------------------
LEBANON 0,587
- --------------------------------------------------------------------------------
LESOTHO 0,4721
- --------------------------------------------------------------------------------
LIBERIA 0,252
- --------------------------------------------------------------------------------
LIBYA 0,364
- --------------------------------------------------------------------------------
LICHTENSTEIN 0,137
- --------------------------------------------------------------------------------
LITHUANIA 0,234
- --------------------------------------------------------------------------------
LUXEMBOURG 0,137
- --------------------------------------------------------------------------------
MACAO 0,390
- --------------------------------------------------------------------------------
MACEDONIA 0,252
- --------------------------------------------------------------------------------
MADAGASCAR 0,552
- --------------------------------------------------------------------------------
MALAWI 0,392
- --------------------------------------------------------------------------------
MALAYSIA 0,260
- --------------------------------------------------------------------------------
MALDIVES 0,464
- --------------------------------------------------------------------------------
MALI REPUBLIC 0,609
- --------------------------------------------------------------------------------
MALTA 0,162
- --------------------------------------------------------------------------------
MARSHALL ISLANDS 0,467
- --------------------------------------------------------------------------------
MARTINIQUE 0,316
- --------------------------------------------------------------------------------
MAURETANIA 0,528
- --------------------------------------------------------------------------------
MAURITIUS 0,482
- --------------------------------------------------------------------------------
MEXICO 0,294
- --------------------------------------------------------------------------------
MICRONESIA 0,462
- --------------------------------------------------------------------------------
MOLDOVA 0,299
- --------------------------------------------------------------------------------
MONACO 0,162
- --------------------------------------------------------------------------------
MONGOLIA 0,665
- --------------------------------------------------------------------------------
MONTSERRAT 0,439
APPENDIX 3B.3 to the Interconnect Agreement between Telia & Tele8 App. 3 B 3 (5)
MOROCCO 0,308
- --------------------------------------------------------------------------------
MOZAMBIQUE 0,506
- --------------------------------------------------------------------------------
MYANMAR/BURMA 0,780
- --------------------------------------------------------------------------------
NAMIBIA 0,490
- --------------------------------------------------------------------------------
NAURU 0,631
- --------------------------------------------------------------------------------
NEPAL 0,630
- --------------------------------------------------------------------------------
NETHERLANDS ANTILLES 0,285
- --------------------------------------------------------------------------------
NETHERLANDS 0,120
- --------------------------------------------------------------------------------
NEVIS ISLAND 0,453
- --------------------------------------------------------------------------------
NEW CALEDONIA 0,482
- --------------------------------------------------------------------------------
NEW ZEALAND 0,146
- --------------------------------------------------------------------------------
NICARAGUA 0,499
- --------------------------------------------------------------------------------
NIGER REPUBLIC 0,680
- --------------------------------------------------------------------------------
NIGERIA 0,495
- --------------------------------------------------------------------------------
NIUE ISLAND 0,631
- --------------------------------------------------------------------------------
NORFOLK ISLAND 0,438
- --------------------------------------------------------------------------------
NORTH KOREA 0,415
- --------------------------------------------------------------------------------
</TABLE>
32
<PAGE>
<TABLE>
<S> <C>
- --------------------------------------------------------------------------------
NORWAY 0,082
- --------------------------------------------------------------------------------
OMAN 0,677
- --------------------------------------------------------------------------------
PAKISTAN 0,688
- --------------------------------------------------------------------------------
PALAU 0,731
- --------------------------------------------------------------------------------
PANAMA 0,462
- --------------------------------------------------------------------------------
PAPUA/NEW GUINEA 0,406
- --------------------------------------------------------------------------------
PARAGUAY 0,505
- --------------------------------------------------------------------------------
PERU 0,462
- --------------------------------------------------------------------------------
PHILIPPINES 0,340
- --------------------------------------------------------------------------------
POLAND 0,189
- --------------------------------------------------------------------------------
PORTUGAL 0,247
- --------------------------------------------------------------------------------
PUERTO RICO 0,073
- --------------------------------------------------------------------------------
QATAR 0,619
- --------------------------------------------------------------------------------
REUNION ISLAND 0,572
- --------------------------------------------------------------------------------
ROMANIA 0,238
- --------------------------------------------------------------------------------
RUSSIAN FEDERATION 0,336
- --------------------------------------------------------------------------------
RUSSIA - ST PETERSBURG ONLY 0,310
- --------------------------------------------------------------------------------
RUSSIA - MOSCOW ONLY 0,310
- --------------------------------------------------------------------------------
RWANDA 0,498
- --------------------------------------------------------------------------------
SAIPAN 0,411
- --------------------------------------------------------------------------------
SAKHALIN 0,275
- --------------------------------------------------------------------------------
SAN MARINO 0,807
- --------------------------------------------------------------------------------
SAO TOME AND PRINCIPE 0,554
- --------------------------------------------------------------------------------
SAUDI ARABIA 0,822
- --------------------------------------------------------------------------------
SENEGAL REPUBLIC 0,249
- --------------------------------------------------------------------------------
SERBIA-MONTENEGRO 0,850
- --------------------------------------------------------------------------------
SEYCHELLES ISLANDS 0,669
- --------------------------------------------------------------------------------
SIERRA LEONE 0,172
- --------------------------------------------------------------------------------
APPENDIX 3B.3 to the Interconnect Agreement between Telia & Tele8 App. 3 B 3 (6)
- --------------------------------------------------------------------------------
SINGAPORE 0,172
- --------------------------------------------------------------------------------
SLOVAKIA 0,186
- --------------------------------------------------------------------------------
SLOVENIA 0,122
- --------------------------------------------------------------------------------
SOLOMON ISLANDS 0,638
- --------------------------------------------------------------------------------
SOMALIA 0,554
- --------------------------------------------------------------------------------
SOUTH AFRICA 0,338
- --------------------------------------------------------------------------------
SOUTH KOREA 0,338
- --------------------------------------------------------------------------------
SPAIN 0,210
- --------------------------------------------------------------------------------
SRI LANKA 0,596
- --------------------------------------------------------------------------------
ST HELENA 0,482
- --------------------------------------------------------------------------------
ST LUCIA 0,399
- --------------------------------------------------------------------------------
ST PIERRE & MIQUELON 0,248
- --------------------------------------------------------------------------------
ST VINCENT & THE GRENADINES 0,462
- --------------------------------------------------------------------------------
ST KITTS & NEVIS 0,391
- --------------------------------------------------------------------------------
SUDAN 0,395
- --------------------------------------------------------------------------------
SURINAME 0,761
- --------------------------------------------------------------------------------
SWAZILAND 0,378
- --------------------------------------------------------------------------------
SWITZERLAND 0,117
- --------------------------------------------------------------------------------
</TABLE>
33
<PAGE>
<TABLE>
<S> <C>
- --------------------------------------------------------------------------------
SYRIA 0,614
- --------------------------------------------------------------------------------
TAIWAN 0,304
- --------------------------------------------------------------------------------
TADJIKISTAN 0,393
- --------------------------------------------------------------------------------
TANZANIA 0,604
- --------------------------------------------------------------------------------
THAILAND 0,456
- --------------------------------------------------------------------------------
TOGO 0,600
- --------------------------------------------------------------------------------
TOKELAU 1,678
- --------------------------------------------------------------------------------
TONGA 0,671
- --------------------------------------------------------------------------------
TRINIDAD/TOBAGO 0,428
- --------------------------------------------------------------------------------
TUNISIA 0,294
- --------------------------------------------------------------------------------
TURKEY 0,301
- --------------------------------------------------------------------------------
TURKMENISTAN 0,529
- --------------------------------------------------------------------------------
TURKS & CAICOS IS. 0,405
- --------------------------------------------------------------------------------
TUVALU 0,660
- --------------------------------------------------------------------------------
UGANDA 0,447
- --------------------------------------------------------------------------------
UKRAINE 0,247
- --------------------------------------------------------------------------------
UNITED ARAB EMIRATES 0,436
- --------------------------------------------------------------------------------
UNITED KINGDOM 0,080
- --------------------------------------------------------------------------------
URUGUAY 0,453
- --------------------------------------------------------------------------------
US VIRGIN ISLANDS 0,073
- --------------------------------------------------------------------------------
USA 0,069
- --------------------------------------------------------------------------------
UZBEKISTAN 0,571
- --------------------------------------------------------------------------------
VANUATU 0,20
- --------------------------------------------------------------------------------
VENEZUELA 0,243
- --------------------------------------------------------------------------------
VIET NAM 0,688
- --------------------------------------------------------------------------------
WALLIS & FUTUNA 0,296
- --------------------------------------------------------------------------------
WESTERN SAMOA 0,490
APPENDIX 3B.3 to the Interconnect Agreement between Telia & Tele8 App. 3 B 3 (7)
- --------------------------------------------------------------------------------
YEMEN ARAB REPUBLIC 0,562
- --------------------------------------------------------------------------------
ZAIRE 0,445
- --------------------------------------------------------------------------------
ZAMBIA 0,516
- --------------------------------------------------------------------------------
</TABLE>
APPENDIX 3B.4 to the Interconnect Agreement between Telia & Tele8
077 NUMBERS - SERVICE WITH SHARED COST
ACCESS TO SPECIAL TELE8 SERVICES
Nordiska Tele8 AB can offer services with shared cost to subscribers in the
following number series:
077 031,
077 032 and
077 038
INTERIM SOLUTION:
34
<PAGE>
An interim agreement has been made between the parties regarding compensation
from Telia to Nordiska Tele8 AB for traffic from Telia's network to Nordiska
Tele8's 077 service. The agreement is effective January 1, 1998 until further
notice.
GENERAL TERMS AND CONDITIONS FOR 077 SERVICES
Nordiska Tele8 shall compensate Telia for terminating in Telia's network
according to the provisions stated in Appendix 1.
Tele8 is responsible for the Tele8 Betalsamtal service. The parties are
responsible for their own actions regarding their customers. Any costs to the
opposite party shall be compensated by the initiating party.
Billing and payment terms are according to the provisions stated in Appendix 4.
Price changes follow Appendix 1 to the main agreement.
APPENDIX 3B.5 to the Interconnect Agreement between Telia & Tele8
078 NUMBERS
NORDISKA TELE8'S SPECIFIC SERVICE
078 88XXXX
X = one number between O and 9
DESCRIPTION OF THE SERVICE
Nordiska Tele8's telephone operator service offers one specific calling number
for Tele8's customer service. The service is not charged to the calling
customer, similar to a toll free number.
Nordiska Tele8's customer service contains the number series 078 88.
There is no connection between the extension's geographic location and the 078
88 number.
GENERAL TERMS AND CONDITIONS FOR 078 SERVICES
Nordiska Tele8 shall compensate Telia for terminating in Telia's network
according to the provisions stated in Appendix 1.
Tele8 is responsible for the Tele8 Betalsamtal service. Each party is
responsible for their own actions regarding their customers. Any costs to the
opposite party shall be compensated by the initiating party.
Billing and payment terms are according to the provisions stated in Appendix 4.
Price changes follow Appendix 1 to the main agreement.
APPENDIX 3B.6 to the Interconnect Agreement between Telia & Tele8
35
<PAGE>
PERSONAL TELEPHONE NUMBER SERVICES, NUMBER SERIES: 0702>075
The service provides a personal number service with the possibility of directing
incoming telephone calls to an optional telephone number in a fixed or mobile
network.
Calling Number
- --------------
0702 80XXX-0702 89XXX
X = one number between 0 and 9
REDIRECTING
The user can redirect telephone numbers by calling a special telephone number.
INTERIM CONDITIONS
Tele8 shall compensate Telia for terminating in Telia's network according to the
provisions stated in Appendix 1.
Billing and payment terms are according to what is specified in Appendix 4.
Price changes follow Appendix 1 to the main agreement.
APPENDIX 3B.7 to the Interconnect Agreement between Telia & Tele8
INTERNATIONAL PREMIUM RATE SERVICE - IPRS
DESCRIPTION OF THE SERVICE
The service is an international service (short + PIN code) that shall not be
obtainable nationally. Telia directs through the internationally originated
service transparently through Telia's network to Tele8's network.
Number series
- -------------
0388 XXXXXX
COMPENSATION
Telia compensates Nordiska Tele8 AB, who has purchased termination, according to
Appendix 2.
GENERAL TERMS AND CONDITIONS
Billing and payment terms are according to the provisions in Appendix 4.
Price changes follow Appendix 2 to the main agreement.
APPENDIX 3B.8 to the Interconnect Agreement between Telia & Tele8
A-NUMBER PRESENTATION
TERMS AND CONDITIONS FOR PRESENTING NORDISKA TELE8'S SUBSCRIBERS' A-NUMBERS
36
<PAGE>
Nordiska Tele8's subscribers' A-numbers refer calls made by these subscribers
that are billed by Nordiska Tele8 AB.
Nordiska Tele8 AB gives Telia the right to present Nordiska Tele8's subscribers'
A-numbers to a receiving subscriber in Telia's network. The right is not valid
in those cases where the subscriber resists presenting its subscriber number.
Telia shall, as compensation for this right, pay 1 (one) ore to Nordiska Tele8
AB for every call that is put through from Nordiska Tele8's network.
APPENDIX 4 to the interconnect Agreement between Telia & Tele8
TRAFFIC REGISTRATION, BILLING ROUTINES, AND PAYMENT TERMS
A/ REGISTRATION
1. BASIC INTERCONNECT SERVICES
Traffic is registered by the sending party with the following division of basic
Interconnect services:
a) termination
b) access
c) transiting
For each service, wherever applicable, the type of network segment, peak and
off-peak traffic, respectively, as well as, for the transit service, the
operator to which traffic is destined, shall be registered (please see the
traffic matrix).
2. SPECIFIC INTERCONNECT SERVICES
Traffic shall be registered separately by the sending parting for each specific
Interconnect service and in accordance with what is specified in the traffic
matrix.
3. REGISTRATION DATA
The number of completed calls as well as the number of traffic minutes that
falls within "conversation time" shall be registered for each basic Interconnect
service and specific telephone service, respectively, according to Section 1.2.2
of CCITT, Recommendation D.150.
Registration data is enclosed with the bill and contains a report, per time
period, in accordance with the provisions stated in Appendices 1, 2, and 3. The
sending operator shall report transited traffic per third operator.
4. TRAFFIC REGISTRATION
Irrespective of what has been stated above in Sections 1 and 2, Telia may,
during a transition period, attend to the registration until Tele8 is able to
fulfill the obligation in Sections 1 and 2. The extent of and compensation for
this shall be agreed separately.
37
<PAGE>
B/ BILLING ROUTINES AND PAYMENT TERMS
1. BILLING ROUTINES
Billing of traffic compensation shall take place after each month for each
calendar month.
Fixed periodic compensation shall be billed in advance, quarterly.
Compensation for establishing points of Interconnect, connection capacity in an
Interconnect point, number capacity, etc., shall be billed once establishment
has been completed. Detailed provisions concerning this are agreed separately.
The parties shall attempt to send to the opposite party, no later than the 10th
of each month, support for traffic billing that has been exchanged during the
proceeding month. The support shall be based on the registration data that each
respective party is responsible for, according to A/ above, and shall, for each
identified traffic case in the traffic matrix, contain information about the
number of calls, the number of conversation minutes, as well as compensation
amounts. The support documentation shall be provided on diskette or via
electronic mail.
Bills are prepared by the party that has a net claim on the opposite party. The
bills shall be sent no later than the 15th of each month after the billing
month.
2. BILLING AMOUNTS
All billed amounts shall be stated in Swedish kronor and calculated according to
the provisions stated in Appendices 1, 2, 3, and 6, respectively.
Charges are added to certain services which can only be registered by the
providers. Such fees will be billed separately by the provider.
Value added tax is added in accordance with current legislation.
3. PAYMENT TERMS
Thirty days from the bill date.
Late payments will be charged with penalty interest according to the interest
rate law.
APPENDIX 5 to the Interconnect Agreement between Telia & Tele8
LIST OF INTERCONNECT AREAS (INTERCONNECT POINTS AND AREA CODES)
Telia offers two points of connection for Interconnect in each one of the 13
Interconnect areas, which are listed in Table 1 together with addresses for each
respective Interconnect point. Table 1 also specifies the signaling point number
for the Interconnect station that relates to each respective Interconnect point.
Each respective Interconnect area includes the area codes in Telia's numbering
plan that are specified in Table 2.
38
<PAGE>
Note. In addition to the specified Interconnect points in Table 1 through which
- -----
the operator is able to reach all subscribers connected to Telia's permanent
network, Telia offers Interconnect points at digital telephone stations through
which the operator is able to reach Telia subscribers connected to the station
in question.
For traffic distribution reasons, an operator shall always be connected to two
Interconnect points in each Interconnect area with half of the traffic to and
from each point. If Tele8 only requires one group of 30 (1 PCM system), then
connection is permitted to only one Interconnect point.
Table 1 lists locations where Interconnect points can be offered.
<TABLE>
<CAPTION>
TABLE 1
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Traffic area Locations for Inter- Addresses for Inter-connection FX FX Sign Signaling point no.
Connection Points Points 1) (N1=3)
- ---------------------------------------------------------------------------------------------------------------------------------
1. NORRA ALVSBYN Selholmsgatan 1 Alvsbyn/B Ab/B FX 3-15890
LYCKSELE Nybruksgatan 1 Lycksele 3 Lse3 FX 3-15891
- ---------------------------------------------------------------------------------------------------------------------------------
2. SUNDSVALL SUNDSVALL Bankgatan 13 Sundsvall/J Sv/J FX 3-15892
OSTERSUND Kyrkgatan 60 Ostersund/B Os/B FX 3-15893
- ---------------------------------------------------------------------------------------------------------------------------------
3. GAVLE GAVLE Johanneslotsvagen 7 Gavle/D G1/D FX 3-15894
BORLANGE Stationsgatan 16 Borlange 2 Blg2 FX 3-15895
- ---------------------------------------------------------------------------------------------------------------------------------
4. OREBRO OREBRO Nikolaigatan 1-3 Orebro 3 Or3 FX 3-15896
KRISTINEHAMN Kungsgatan 28 Kristinehamn 2 Ksn2 FX 3-15897
- ---------------------------------------------------------------------------------------------------------------------------------
5. UPPSALA UPPSALA Kv Bjorken, Hjalmar Uppsala 2 U2 FX 3-15898
Brantingsgatan 4
VASTERAS Vastra Kyrkogatan 5 Vasteras/B Vs/B FX 3-15890
- --------------------------------------------------------------------------------------------------------------------------------
6. STOCKHOLM STOCKHOLM Jakobsbergsgatan 24 Stockholm S FX 3-15885
STOCKHOLM Kalmagatan Hammarby/N Hy/N FX 3-15584
STOCKHOLM Hornsgatan 103 S/Hogalid S/H FX 3-15910
STOCKHOLM Falambsv 20-30 Fredhall2 Fre2 FX 3-15911
STOCKHOLM HY/N STX 3-15883
"Signaling"
- -------------------------------------------------------------------------------------------------------------------------------
7. NORRKOPING NORRKOPING Gamia Radstugegatan 19 Norrkoping C N/C FX 3-15900
NORRKOPING Hagebygatan 180 Norrkoping X N/X FX 3-15901
- -------------------------------------------------------------------------------------------------------------------------------
8. BORAS BORAS Holmsgatan 3-5 Boras 3 B3 FX 3-15903
TROLLHATTAN Polhemsgatan 4 Trollhattan Th FX 3-15902
- -------------------------------------------------------------------------------------------------------------------------------
9. GOTEBORG GOTEBORG Vidkarr, Attehogsgatan G/Rada G/Ra FX 3-15882
GOTEBORG Kasemiorget 11 Goteborg G FX 3-15880
GOTEBORG G/Kr STX 3-15881
"Signaling"
- ------------------------------------------------------------------------------------------------------------------------------
10. JONKOPING JONKOPING Jarnvagsgatan 3 Taberg Tag FX 3-15905
VAXJO Kronobergsgatan 12 Vaxjo 2 Vj2 FX 3-15904
- ------------------------------------------------------------------------------------------------------------------------------
11. KALMAR Ingeltorpsvagen (Smedby) Smedby 2 Smy2 FX 3-15906
KRISTIANSTAD HASSLEHOLM Andra avenyn 3 Hassleholm 2 Hlm2 FX 3-15907
- ------------------------------------------------------------------------------------------------------------------------------
12. HELSINGBORG HELSINGBORG Fyrverkaregatan 18 Helsingborg/D Hs/D FX 3-15908
HELSINGBORG Karlsgatan 2 Helsingborg/B Hs/S FX 3-15909
- ------------------------------------------------------------------------------------------------------------------------------
13. MALMO MALMO Sparven, Storgatan 15 Malmo/SM M/Sm FX 3-15886
MALMO Kirseberg, Vattenverksvagen 13 Lund/H Ld/H FX 3-15887
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Connection to these addresses assumes that the connection up to the Interconnect
point is rented by Telia.
APPENDIX 5 To The Interconnect Agreement Between Telia & Tele8
39
<PAGE>
TABLE 2 (INTERCONNECT AREAS)
INTERCONNECT AREA 1 (NORTHERN SWEDEN)
090 0910 0911 0912 0913 0914 0915 0916 0918 0920 0921 0922 0923 0924 0925 0926
0927 0928 0929 0930 0932 0933 0934 0935 0940 0941 0942 0942 9043 0950 0951
0952 0953 0960 0961 0970 0971 0973 0975 0976 0977 0978 980 981
INTERCONNECT AREA 2 (SUNDSVALL)
060 0611 0612 0613 0620 0621 0622 0623 0624 063 0640 0642 0643 0644 0645 0647
0650 0651 0652 0653 0660 0661 0662 0663 0670 0671 0672 0680 0682 0684 0687
0690 0691 0692 0693 0695 0696
INTERCONNECT AREA 3 (GAVLE)
0225 023 024 0241 0243 0246 0247 0248 0250 0251 0253 0258 026 0270 0271 0278
0280 0281 0290 0291 0294 0297
INTERCONNECT AREA 4 (OREBRO)
0151 019 0532 0533 054 0550 0551 0552 0553 0554 0555 0560 0563 0564 0565 0570
0571 0573 0580 0581 0582 0583 0584 0585 0586 0587 0589 0590 0591
INTERCONNECT AREA 5 (UPPSALA)
016 0171 0173 0174 0175 0176 018 021 0220 0221 0222 0223 0224 0226 0227 0293
0295
INTERCONNECT AREA 6 (STOCKHOLM)
0152 0156 0158 0159 08
INTERCONNECT AREA 7 (NORRKOPING)
011 0120 0121 0122 0123 0125 013 0141 0142 0143 0144 0150 0155 0157 0490 0492
0493 0494 0495 0498
INTERCONNECT AREA 8 (BORAS)
0320 0321 0325 033 0500 0501 0501 0502 0503 0504 0505 0506 0510 0511 0512 0513
0514 0520 0521 0522 0523 0524 0525 0526 0528 0530 0531 0534
INTERCONNECT AREA 9 (GOTHENBURG)
0300 0301 0302 0303 0304 031 0322 0340
INTERCONNECT AREA 10 (JONKOPING)
0140 036 0370 0371 0372 0380 0381 0382 0383 0390 0392 0393 0459 0470 0472 0474
0476 0477 0478 0496
INTERCONNECT AREA 11 (KRISTIANSTAD)
044 0431 0434 0455 0456 0457 0471 0479 0480 0481 0485 0486 0497 0499
INTERCONNECT AREA 12 (HELSINGBORG)
0345 0346 035 0418 042 0430 431 0433 0435
INTERCONNECT AREA 13 (MALMO)
040 0410 0411 0413 0414 0415 0416 0417 046
40
<PAGE>
Telia's network includes a total of 264 area codes.
APPENDIX 6 to the Interconnect Agreement between Telia & Tele8
COMPENSATION RELATED TO POINTS OF INTERCONNECT
Each party shall, on request, provide regional and local points of Interconnect
according to the same definitions and on the same (reciprocal) terms and
conditions. Directly assignable costs are charged to the connection itself in
accordance with the following:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
NON-RECURRING YEARLY MAXIMUM
SERVICE COMPENSATION COMPENSATION DELIVERY TIME
(SEK) (months)
<S> <C> <C> <C>
Regional inter- 100 000 per pair of 50 000 per pair of 4
connection point connecting stations connecting stations
(Two points are in an Interconnect in an Interconnect
provided per area area
Interconnect area)
Local inter- 40 000 per local 25 000 per local 4
connection point station within an station within an
area code, highest area code, highest
100 000 50 000
Group of 30 10 000 6 000 3
connections
- --------------------------------------------------------------------------------
</TABLE>
The parties shall jointly work out a plan for establishing Interconnect points,
connection capacity, and increasing the connection capacity. Delivery time is
calculated from the complete order, implying mutual approval of the order and
its details according to a specific document worked out by Telia that describes
delivery/connection process and testing regulations. Any changes to the order
will mean a delay in the delivery time.
Billing routines and payment terms are specified in Appendix 4.
APPENDIX 7 to the Interconnect Agreement between Telia & Tele8
TECHNICAL REQUIREMENTS AND NETWORK ARRANGEMENTS
1. INTERFACE FUNCTIONS
Interface functions shall agree with the regulations of The Swedish National
Post and Telecom Agency and those technical specifications referred to by The
Swedish National Post and Telecom Agency or which the parties have agreed to.
The following Telia issued specifications are presently valid:
FOR FIXED NETWORK OPERATORS:
41
<PAGE>
8211-A 312,rev. A: Transmission requirements for an independent public switched
telephone network connected to the Telia public switched telephone network.
8211-A 313,rev. A: Synchronization requirements for an independent public
switched telephone network connected to the Telia public switched telephone
network.
8211-A 314,rev. C: Signaling requirements for an independent public switched
telephone network connected to the Telia public switched telephone network.
CCITT signaling system no.7 Message Transfer Part (MTP).
8211-A 335,rev. A: ISDN-ISDN Signaling interface for Sweden.
8211-A 317,rev. A: Requirements on tone messages sent from an independent
public switched telephone network connected to the Telia switched telephone
network.
8211-A 308,rev. B: Sending of the called party address between a fixed
network operator in Sweden and the Telia network.
8211-A 318,rev. B: Sending of the calling party address between a fixed
network operator in Sweden and the Telia network.
Any additional supplements and specifications to the technical interface
functions shall be defined by the parties as soon as they deem it necessary.
2. NETWORK PLANNING AND TRAFFIC ROUTING
2.1 Network Planning
The parties shall jointly and continuously formulate plans (long-term and
short-term) for the following:
. establishing new Interconnect points
. changing connection capacity in an Interconnect point
. changing the routing of telephone traffic that is of importance to
Interconnect
. changing signaling network formation and the signaling traffic routing
2.2 Basic Principles for Traffic Routing
Telia directs traffic that is to be transferred to Tele8 according to the
following:
a) For the access service, Telia directs the traffic to an Interconnect point
in that Interconnect area where the Telia subscriber is located if an
Interconnect point is established in the area. If an Interconnect point is
not established in the area, then Telia directs the traffic to that
Interconnect point in another Interconnect area that is most appropriate
for Telia.
b) For traffic that is to be terminated in Tele8's network, Telia directs the
traffic to a Interconnect point in that Interconnect area where Tele8's
subscriber is located. This means that Tele8 must have an Interconnect
point in that Interconnect area where Tele8's subscriber is located.
42
<PAGE>
Tele8 directs traffic that is to be transferred to Telia to that Interconnect
point that is most appropriate for Tele8.
The parties shall report to each other how they intend to route the traffic in
each respective network so the opposite party can adapt dimensioning of its own
network accordingly. This means the parties shall jointly work out and agree to
routing plans for both normal and abnormal situations.
2.3 Traffic Management
In the event of a disruption or breakdown in the one of the party's networks,
the party shall manage the traffic to/from the opposite party's network in such
a way that calls between the parties' networks are not discriminated in a
negative way compared with other comparable traffic that uses the affected parts
of the party's network.
When establishing services in the network that can create synchronous calling
situations between the networks (for example, mass calling), the parties shall
inform each other so steps can be taken to ensure passage for other traffic
between the networks.
2.4 Technical Conditions for A-Number Transfer
Telia's interface functions 1/155 19-A 101 contains the technical conditions for
A-number transfer from Telia to Tele8.
Telia's interface functions 1/155 19-A 103 contains the technical conditions for
A-number transfer from Tele8 to Telia.
3. Information and On-Going Technical Issues
The parties shall continuously inform each other about plans and decisions that
affect technical issues relevant to Interconnect.
Detailed test planning, start-up, etc., shall take place according to the agreed
provisions between representatives for Telia and Tele8.
4. Test Numbers
Tele8 shall ensure that telephone numbers can be used as test numbers. A call
that is directed to this test number is given a verbal reply saying that the
caller has come to a desired operator's network.
APPENDIX 8 to the Interconnect Agreement between Telia & Tele8
IMPLEMENTATION OF NUMBER SERIES
Telia shall implement number series, including network prefixes, that have be
assigned to Tele8 by The Swedish National Post and Telecom Agency and ordered by
Tele8. Price and delivery time for implementing the various number series are
specified in Section 4 below.
43
<PAGE>
Calls to these number series shall be directed by Telia to Tele8's network,
whereupon Tele8 shall take responsibility for routing the call further. This
includes calls that originate in Telia's network, calls that originate in other
operators' networks and for which Telia is committed to put through to Tele8's
network, as well as calls from other countries. (Concerning calls from other
countries, certain number series can blocked for international traffic, for
example, 020 numbers.)
Numbering Plan Changes.
This agreement is not valid for essential numbering plan changes ordered by PTS.
Compensation for such changes shall be agreed to separately.
NUMBERS/NUMBER SERIES
The following numbers/number series can be ordered by Tele8:
1. Access numbers (network prefixes)
2. Service numbers
a. Toll free call number series (020)
b. Toll call number series (09XX)
c. Number series for personal numbers (0701, 0702, 075)
d. Number series for shared rate (077)
e. Numbers for operator specific services (078)
f. Numbers for International Premium Rate Services (0388)
g. Other service numbers
3. Local subscriber number series
PRICES AND DELIVERY TIMES
Price and delivery time for implementing various types of numbers/number series
is specified in the below table.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
SERVICE PRICE DELIVERY TIME
(SEK) months
<S> <C> <C>
Access Numbers (network prefixes) 406 000 4
Service Numbers 124 000 4
Local subscriber number series 69 000 per inter- 3
in Stockholm's connection area
and Gothenburg's Interconnect areas
Local subscriber number series in other 49 000 per inter- 3
Interconnect areas connection area
- --------------------------------------------------------------------------------
</TABLE>
44
<PAGE>
The above prices are per order and do not include value added tax. Ordering
several services from the above table can mean that certain work operations can
be coordinated, resulting in a reduction of the total cost.
APPENDIX 9 to the Interconnect Agreement between Telia & Tele8
SIGNALING NETWORK
1. FORMATION OF THE SIGNALING NETWORK
Signaling between Telia's and Tele8's networks takes place with CCITT's
signaling system no. 7 in accordance with the provisions specified in Appendix 7
to the main agreement. "Nonassociated signaling" is then applied, i.e.,
signaling via STPs (Signal Transfer Points). The typical case consists of two
STPs in each party's network. Each STP is connected to the opposite party's two
STPs (see Fig. 1). The STPs can be "stand alone" STPs or integrated in telephone
stations.
FIGURE 1
[GRAPHIC OMITTED]
If Tele8 only has one station, then the signaling network is formed according to
Figure 2.
FIGURE 2
[GRAPHIC OMITTED]
45
<PAGE>
Each set of links contains one signaling link. Signaling links are delivered in
16 time frame in one 2 Mbit/s PCM system where remaining time frames are used as
call connections.
Load division is applied between the sets of links. Bit 3 in the SLS (Signaling
Link Selection) is used for this.
A network indicator value of 3 (NI=3) is used when signaling between Telia's and
Tele8's network. NI=2 (is used by Telia) is recommended within each respective
operator's network.
2 POINTS OF INTERCONNECT
Telia's and Tele8's signaling links are joined at Interconnect points, which
Telia has established on behalf of the operator, in two Interconnect areas (see
Fig. 3).
FIGURE 3 [insert Figure 3]
[GRAPHIC OMITTED]
The parties shall agree as to which Interconnect areas are to be joined.
If Tele8 only has one station, then connection shall take place at Interconnect
points in one Interconnect area (see Fig. 4).
FIGURE 4
[GRAPHIC OMITTED]
46
<PAGE>
[GRAPHIC OMITTED]
3. SIGNALING NETWORK COSTS
Each party shall be responsible for incurred costs on that party's side of the
connection points.
4. SPECIAL ARRANGEMENTS
If a party wishes to deviate from the principles and guidelines that are stated
above, then the parties can enter into a separate agreement. The basic principle
is that costs for special arrangements are covered by the party requesting such
arrangements.
APPENDIX 10 to the Interconnect Agreement between Telia & Tele8
ADDRESSES AND CONTACTS POINTS BETWEEN TELIA AND TELE8
Agreement Parties
- -----------------
Nordiska Tele8 AB
Box 88
201 20 Malmo
Org. no. 556 452-3842
Telia AB
123 86 Farsta
Org. no. 556 103-4249
Questions concerning the agreement
- ----------------------------------
(questions concerning the agreement's applications, amendments, supplements,
etc.)
Nordiska Tele8 AB
Stefan Schreiter
Box 88
201 20 Malmo
tel: 040-660 01 59
fax: 040-620 00 89
Telia AB
Network Services, Operator Services
Hans Malmgren
Liljeholmsvagen 18
117 61 Stockholm
tel: 08-455 46 26
fax: 08-455 46 30
Orders, status reports, delivery decisions
- ------------------------------------------
(sending orders, receiving offers, order confirmation, status reports)
47
<PAGE>
Nordiska Tele8 AB
Preben Larsen
Box 88
201 20 Malmo
tel: 040-620 01 29
fax: 040-620 00 89
Telia AB
Hans Malmgren
Liljeholmsvagen 18
117 61 Stockholm
tel: 08-455 46 26
fax: 08-455 46 30
BILLING
Billing Addresses:
- ------------------
Nordiska Tele8 AB
Christina Thorncrantz
Box 88
201 20 Malmo
tel: 040-620 01 67
fax: 040-620 00 89
Telia AB
Tea Ankerman
Liljeholmsvagen 18
117 61 Stockholm
tel: 08-455 42 13
fax: 08-455 46 35
Billing Questions:
- ------------------
Nordiska Tele8 AB
Jonas Torstensson
Box 88
201 20 Malmo
tel: 040-620 01 56
fax: 040-620-00-89
Telia AB
Tea Ankerman
Liljeholmsvagen 18
117 61 Stockholm
tel: 08-455 42 13
fax: 08-455 46 35
Error and Interruptions in Operations:
- --------------------------------------
Nordiska Tele8 AB
Stefan Schreiter
Box 88
201 20 Malmo
tel: 040-660 01 59
fax: 040-620 00 89
Telia AB
Agneta Linstrom
Liljeholmsvagen 18
117 61 Stockholm
tel: 08-455 22 54
fax: 08-455 46 30
48
<PAGE>
See Operating Agreement.
49
<PAGE>
EXHIBIT 10.18
SERVICES AGREEMENT
THIS AGREEMENT dated as of the 1st day of July, 1997, by and between
ARMSTRONG HOLDINGS, INC., a Delaware corporation ("Armstrong") and FACILICOM
INTERNATIONAL, L.L.C. ("FaciliCom").
WHEREAS, Armstrong desires to provide FaciliCom and FaciliCom has agreed to
accept certain financial accounting services in accordance with the terms and
conditions set forth below.
NOW THEREFORE, in consideration of the mutual covenants contained herein
and intending to be legally bound hereby, the parties agree as follows:
1. Services. Armstrong, or any one or more of its affiliates, shall
provide to FaciliCom certain financial accounting services, such as payroll
processing, accounts payable processing, income tax return preparation and
paralegal services and any other services it is capable of providing based on
FaciliCom's needs.
2. Cost. Armstrong shall charge the following amount for the cost per
----
service:
Payroll Processing $2.75 per check
Accounts Payable Processing $2.75 per check
Income Tax Return Preparation $75.00 per hour
Paralegal Services $40.00 per hour
Armstrong shall have the right to increase the cost of its services after
giving FaciliCom at least thirty (30) days written notice.
3. Term. The term of this Agreement shall be for a period of five (5)
years. Either party shall have the right to terminate this Agreement during the
term upon giving one hundred eighty (180) days prior written notice to the other
party. In the event of breach of any provision of this Agreement by either
party, the non-defaulting party shall give the defaulting party written notice,
and the defaulting party shall cure the breach within one hundred eighty (180)
calendar days of such notice. If the defaulting party does not cure such breach,
the nondefaulting party may, at its sole option, terminate this Agreement and
shall be entitled to pursue all available remedies for such breach.
4. Billing for Services Rendered.
4.1 Armstrong shall bill FaciliCom for services rendered in accordance with
this Agreement on a monthly basis. Each invoice shall be for a period of
approximately thirty (30) calendar days, depending upon data processing cutoff
dates used by Armstrong in each state or Company.
<PAGE>
4.2 If FaciliCom fails to pay or file a claim for an amount by the
payment due date appearing on the Armstrong invoice, late payment charges will
accrue on the unpaid balance at the less of:
The highest interest rate (in decimal value) allowed
by state law or twelve percent (12%) per annum simple
interest for the number of calendar days from the day
following the payment due date up to and including the
date payment is actually made.
4.3 The payment due date for each service invoice shall be the first
business day that is not less then thirty (30) calendar days following the
invoice preparation date. Armstrong shall use its best efforts to mail the
invoice on the invoice preparation date.
4.4 Armstrong shall have the right to adjust the invoices sent to
FaciliCom up to one (1) year following FaciliCom's receipt of the invoices in
the event Armstrong determines that an error in the cost allocation has been
made.
5. Date Retention. All data associated with the provision and
receipt of service(s) pursuant to this Agreement shall be maintained for the
greater of (a) the retention time required by law or regulation for maintaining
information, or (b) two (2) years.
6. Limitation of Liability.
6.1 Each party's liability to the other for any loss, cost, claim,
injury, liability or expense, including reasonable attorney fees, relating to or
arising out of any negligent act or omission in its performance of obligations
arising out of this Agreement, shall be limited to the amount of direct damage
actually incurred. With respect to claims arising out of this Agreement, either
party's cumulative liability, whether in contract, tort or otherwise, shall not
exceed the total charges applicable to the billing and collection services
rendered under this Agreement.
6.2 In no event shall either party be liable to the other for any
indirect, special, or consequential damage of any kind whatsoever.
7. Force Majeure. Neither party shall be held liable for any delay
or failure in performance of any part of this Agreement from any cause beyond
its control and without its fault or negligence, such as acts of God, acts of
civil or military authority, government regulations, embargoes, epidemics, war,
terrorist acts, riots, insurrections, fires, explosions, earthquakes, nuclear
accidents, floods, strikes, power blackouts, unusually severe weather
conditions, failure to secure products or services of other persons or
transportation facilities, or acts or omissions of transportation on common
carriers.
8. Assignment. The parties agree not assign or transfer any
interest in this Agreement without the prior written approval of the other
party.
<PAGE>
9. Notices. All notices required under this Agreement shall be in writing
and shall be sent by facsimile and regular mail to Armstrong Holdings, Inc., One
Armstrong Place, Butler, Pennsylvania 16001 and to FaciliCom International,
L.L.C., 1401 New York Avenue, N.W., Suite 800, Washington, DC 20005 or to any
other address designated by such party.
10. Amendments. No change, modification or amendment of any of the terms,
provisions or conditions of this Agreement shall be effective unless made in
writing and executed by the parties hereto or their successors and assigns.
11. Binding Effect. This Agreement shall be binding upon and shall inure
to the benefit of the parties hereto and their respective successors, personal
representatives, heirs and assigns.
12. Governing Law. This Agreement is executed in and shall be construed
and enforced in accordance with the laws of the Commonwealth of Pennsylvania.
13. Entire Agreement. This Agreement constitutes the entire agreement
between the parties hereto and supersedes all negotiations, preliminary
agreements and all prior and contemporaneous discussions and understandings of
the parties in connection with the subject matter hereof.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement the day
and year first written above.
ATTEST: ARMSTRONG HOLDINGS, INC.
By: /s/ /s/ Brian Capiletti
----------------------- ---------------------------
ATTEST: FACILICOM INTERNATIONAL, L.L.C.
By: /s/ By: /s/
----------------------- ------------------------
<PAGE>
EXHIBIT 10.19
FACILICOM INTERNATIONAL, INC.
1998 STOCK OPTION PLAN
----------------------
1. Definitions.
-----------
The terms defined in this Section 1 shall, for all purposes of this
Plan, have the meanings herein specified:
(a) "Administrative Committee" shall mean such one or more persons who
shall have been appointed in accordance with Section 3.
(b) "Advisor" shall mean an advisor to the Board who is designated as an
`Advisor' (for purposes of the Plan) by the Board and who is not also a Director
or Employee.
(c) "Affiliate" shall mean, with respect to any shareholder of the
Corporation, any individual or entity directly or indirectly controlling,
controlled by or under common control with such shareholder, and such term shall
include any individual who is an officer, director or employee of such
shareholder or any Affiliate of such entity. As used in the immediately
preceding sentence, the term "control" means, with respect to an entity, the
right to exercise, directly or indirectly, a majority of the voting rights
attributable to such entity, and the term "majority" means more than fifty
percent (50%).
(d) "Board" shall mean the board of directors of the Corporation.
(e) "Change in Control" shall mean the events described in Section 10
hereof.
(f) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(g) "Common Stock" shall mean the Corporation's Common Stock of any
class as may be authorized from time to time, except as this definition may be
modified as provided in Section 8 hereof.
(h) "Corporation" shall mean FACILICOM INTERNATIONAL, INC., a Delaware
corporation.
(i) "Director" or "Directors" shall mean a member or members of the
Board.
(j) "Disabled Optionee" shall mean an Optionee who becomes disabled
within the meaning of Section 422(c)(6) of the Code.
<PAGE>
(k) "Effective Date" shall mean March 31, 1998.
(l) "Employee" or "Employees" shall mean key persons employed by the
Corporation, or a Subsidiary thereof, on a full-time basis and who are
compensated for such employment by a regular salary.
(m) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
(n) "Fair Market Value" shall have the meaning given that term in
Section 7(I) hereof.
(o) "Incentive Stock Option" shall mean a right granted by the
Corporation pursuant to the Plan to purchase shares of Non-Voting Common Stock
and which is an "incentive stock option" as defined in Section 422 of the Code.
(p) "Non-Statutory Stock Option" shall mean a right granted by the
Corporation pursuant to the Plan to purchase shares of Non-Voting Common Stock
and which does not qualify as an Incentive Stock Option.
(q) "Non-Voting Common Stock" shall mean the Corporation's Non-Voting
Common Stock as may be authorized from time to time, except as this definition
may be modified as provided in Section 8 hereof.
(r) "Option" shall mean an Incentive Stock Option, a Non-Statutory Stock
Option, and an Option Unit.
(s) "Option Unit" shall mean an Incentive Stock Option or a Non-
Statutory Stock Option granted in respect of one-one hundredth (1/100) of a
share of Non-Voting Common Stock.
(t) "Optionee" shall mean a person who accepts an Option granted under
the Plan.
(u) "Option Price" shall mean the price to be paid for the whole and/or
fractional shares of Non-Voting Common Stock being purchased pursuant to a Stock
Option Agreement.
(v) "Option Period" shall mean the period from the date of grant of an
Option to the date after which such Option may no longer be exercised. Nothing
in this Plan shall be construed to extend the termination date of the Option
Period beyond the date set forth in the Stock Option Agreement.
-2-
<PAGE>
(w) "Plan" shall mean this FaciliCom International, Inc. 1998 Stock
Option Plan.
(x) "Stock Appreciation Right" shall mean the right to receive cash or
Non-Voting Common Stock with respect to shares of Non-Voting Common Stock
subject to an Option in lieu of exercising such Option as described in Section
7(D) hereof.
(y) "Stock Option Agreement" shall mean the written agreement between
the Corporation and Optionee confirming the Option (and, if granted, the Stock
Appreciation Right) and setting forth the terms and conditions upon which it may
be exercised.
(z) "Subsidiary" shall mean any corporation, partnership, business
trust, joint venture or other business entity in which the Corporation owns,
directly or indirectly through Subsidiaries, at least 50% of the beneficial
interests or total combined voting power of all classes of equity.
2. Purposes.
--------
The purposes of the Plan are to promote the growth and profitability of the
Corporation and its Subsidiaries by enabling it to attract and retain the best
available personnel for positions of substantial responsibility, to provide
Directors, officers, key Employees and Advisors with an opportunity for
investment in the Corporation's Non-Voting Common Stock and to give them an
additional incentive to increase their efforts on behalf of the Corporation and
its Subsidiaries.
3. Administration.
--------------
The Plan shall be administered by the Administrative Committee. The
Administrative Committee shall be appointed by the Board and shall consist of
one or more, but not more than three, members of the Board.
The Administrative Committee shall act by majority vote and shall have
plenary authority in its discretion, subject to and not inconsistent with the
express provisions of the Plan, (i) to grant Options, to determine whether any
Option granted shall be an Incentive Stock Option or a Non-Statutory Stock
Option, to determine the purchase price of the whole and/or fractional shares of
Non-Voting Common Stock covered by each Option, the term of each Option, the
persons to whom, the time or times at which Options shall be granted, and the
number of whole and/or fractional shares of Non-Voting Common Stock to be
covered by each Option, and to grant Stock Appreciation Rights in respect of any
such Options; (ii) to interpret the Plan; (iii) to prescribe, amend and rescind
rules and regulations relating to the Plan; (iv) to determine the terms and
provisions of the Stock Option Agreements (which need not be identical) entered
into in connection with awards under the Plan; and (v) to make all other
determinations
-3-
<PAGE>
(including factual determinations) deemed necessary or advisable for the
administration of the Plan. The Administrative Committee may delegate to one or
more of its members or to one or more agents such administrative duties as it
may deem advisable, and the Administrative Committee or any person to whom it
has delegated duties as aforesaid may employ one or more persons to render
advice with respect to any responsibility or authority the Administrative
Committee or such person may have under the Plan. Notwithstanding the foregoing,
each grant of an Option and Stock Appreciation Rights, and the terms thereof, to
a member of the Administrative Committee shall be approved by the Board.
The Administrative Committee may employ attorneys, consultants,
accountants or other persons, and the Administrative Committee, the Corporation
and its officers and directors shall be entitled to rely upon the advice,
opinions or valuations of any such persons. All actions taken and all
interpretations and determinations made by the Administrative Committee in good
faith shall be final and binding upon all persons who have received Options, the
Corporation and all other interested persons. No member or agent of the
Administrative Committee shall be personally liable for any action,
determination or interpretation taken or made in good faith with respect to the
Plan or awards made thereunder, and all members and agents of the Administrative
Committee shall be fully indemnified and protected by the Corporation in respect
of any such action, determination or interpretation.
4. Eligibility.
-----------
Subject to the provisions of the Plan, the Administrative Committee shall
determine and designate from time to time those Directors, officers and key
Employees of, and Advisors to, the Corporation or its Subsidiaries to whom
Options are to be granted and the number of shares of Non-Voting Common Stock
covered by such grants (subject to the approval of the Board in the case of a
grant to a member of the Administrative Committee); provided, however, that
grants of Incentive Stock Options may be made only to individuals who are, at
such time, described in Section 422(a)(2) of the Code. In determining the
eligibility of a Director, officer, key Employee or Advisor to receive an
Option, as well as in determining the number of shares covered by such Option,
the Administrative Committee (or the Board, in the case of a member of the
Administrative Committee) shall consider the position and responsibilities of
such person, the nature and value to the Corporation or a Subsidiary of his or
her services and accomplishments, his or her present and potential contribution
to the success of the Corporation or its Subsidiaries and such other factors as
the Administrative Committee (or the Board) may deem relevant.
5. Shares Available under the Plan.
-------------------------------
The aggregate number of shares of Non-Voting Common Stock which may be
issued or delivered and as to which Options may be granted under the Plan is
22,574
-4-
<PAGE>
shares. All such shares are subject to adjustment and substitution as set forth
in Section 8. If any Option granted under the Plan is canceled by mutual consent
or terminates or expires for any reason without having been exercised in full,
the shares of Non-Voting Common Stock subject to such Option shall again be
available for purposes of the Plan, except that to the extent that Stock
Appreciation Rights granted in conjunction with an Option under the Plan are
exercised and the related Option surrendered, the number of shares of Non-Voting
Common Stock available for purposes of the Plan shall be reduced by the number
of shares, if any, of Non-Voting Common Stock which, but for the exercise of
such Stock Appreciation Rights, could have been issued or delivered upon
exercise of such Option.
The shares of Non-Voting Common Stock which may be issued or delivered
under the Plan may be either authorized but unissued shares or repurchased
shares or partly each, as shall be determined from time to time by the Board.
6. Grant of Options and Stock Appreciation Rights.
----------------------------------------------
The Administrative Committee shall have full and complete authority, in its
discretion subject to the provisions of the Plan, to grant Options containing
such terms and conditions as shall be requisite, in the judgment of the
Administrative Committee, to constitute Incentive Stock Options or Non-Statutory
Stock Options, as the case may be. The Administrative Committee also shall have
the authority, in its discretion subject to the provisions of the Plan, to grant
Stock Appreciation Rights in conjunction with Incentive Stock Options or,
Non-Statutory Stock Options, including Option Units, with the effect provided in
Section 7(D) hereof. Stock Appreciation Rights granted in conjunction with an
Incentive Stock Option may only be granted at the time such Incentive Stock
Option is granted. Stock Appreciation Rights granted in conjunction with a
Non-Statutory Stock Option may be granted either at the time such Non-Statutory
Stock Option is granted or at any time thereafter during the Option Period
applicable to such Option.
7. Terms and Conditions of Options and Stock Appreciation Rights.
-------------------------------------------------------------
Options and Stock Appreciation Rights granted under the Plan shall be
subject to the following terms and conditions:
(A) The Option Price at which each Option may be exercised shall be
such price as the Administrative Committee, in its discretion, shall
determine but, in the case of Incentive Stock Options, shall not be less
than one hundred percent (100%) of the Fair Market Value per share of
Non-Voting Common Stock covered by such Incentive Stock Option on the
date of its grant, except that in the case of an Incentive Stock Option
granted to an Optionee who, immediately prior to such grant, owns stock
possessing more than ten percent (10%) of the total combined voting
-5-
<PAGE>
power of all classes of stock of the Corporation or any Subsidiary (a
"Ten Percent Employee"), the option price shall be not less than 110% of
such Fair Market Value on the date of grant. For purposes of this
Section 7(A), the Fair Market Value of the Non-Voting Common Stock shall
be determined as provided in Section 7(I). Also, for purposes of this
Section 7(A), an individual (i) shall be considered as owning not only
voting shares owned individually, but also all shares that are at the
time owned, directly or indirectly, by or for his or her spouse,
ancestors, lineal descendants and brothers and sisters (whether by the
whole or half blood) and (ii) shall be considered as owning
proportionately any shares owned, directly or indirectly, by or for any
corporation, partnership, estate or trust in which such individual shall
be a stockholder, partner or beneficiary.
(B) The Option Price shall be payable in full in any one or more of
the following ways:
(i) in full in cash or in any combination of cash and
installment payments as may be determined by the Administrative
Committee (or the Board in the case of Options granted to a member
of the Administrative Committee); and/or
(ii) subject to the consent of the Administrative Committee, in
shares of any class of the Common Stock (which are owned by the
Optionee free and clear of all liens and other encumbrances and
which are not subject to the restrictions set forth in Section 9)
having a Fair Market Value on the date of exercise of the Option
which is equal to the Option Price for the shares being purchased.
If the Option Price is paid in whole or in part in shares of any
class of Common Stock, any portion of the Option Price representing a
fraction of a share shall be paid in cash. The date of exercise of an
Option shall be determined under procedures established by the
Administrative Committee, and the Option Price shall be payable at such
time or times as the Administrative Committee, in its discretion, shall
determine. No shares shall be issued or delivered upon exercise of an
Option until full payment of the Option Price has been made. When full
payment of the Option Price has been made and subject to the
restrictions set forth in Section 9, the Optionee shall be considered
for all purposes to be the owner of the shares with respect to which
payment has been made. Payment of the Option Price with shares shall not
increase the number of
-6-
<PAGE>
shares of Non-Voting Common Stock which may be issued or delivered under
the Plan as provided in Section 5.
(C) No Incentive Stock Option shall be exercisable after the
expiration of ten years (five years in the case of a Ten Percent
Employee) from the date of grant. No Non-Statutory Stock Option shall be
exercisable after the expiration of ten years and six months from the
date of grant. Subject to this Section 7(C) and Sections 7(G), 7(H) and
7(I), Options may be exercised at such times, in such amounts and
subject to such restrictions as shall be determined, in its discretion,
by the Administrative Committee.
(D) Stock Appreciation Rights shall be exercisable to the extent
that the related Option is exercisable and only by the same person or
persons who are entitled to exercise the related Option. Stock
Appreciation Rights shall entitle the Optionee to surrender the related
Option, or any portion thereof, and to receive from the Corporation in
exchange therefor that number of shares of Non-Voting Common Stock which
has an aggregate Fair Market Value equal to the product of (i) the
excess of the Fair Market Value of one share of Non-Voting Common Stock
on the date of surrender over the Option Price per share on such date,
multiplied by (ii) the number of shares covered by the Option, or
portion thereof, which is surrendered. Cash shall be paid in lieu of any
fractional shares. The Administrative Committee shall have the
authority, in its discretion, to determine that the obligation of the
Corporation shall be paid in cash or part in cash and part in shares.
The date of exercise of Stock Appreciation Rights shall be determined
under procedures established by the Administrative Committee, and
payment under this Section 7(D) shall be made by the Corporation as soon
as practicable after the date of exercise. To the extent that an Option
as to which Stock Appreciation Rights have been granted in conjunction
therewith is exercised, such Stock Appreciation Rights shall be
canceled.
(E) Upon the exercise of an Option Unit, cash shall be paid in lieu
of issuing any fractional shares of Non-Voting Common Stock.
(F) No Incentive Stock Option or related Stock Appreciation Rights
shall be transferable by an Optionee other than by will, or if an
Optionee dies intestate, by the laws of descent and distribution, and
all Incentive Stock Options and related Stock Appreciation Rights shall
be exercisable during the lifetime of an Optionee only by the Optionee.
An Optionee may transfer a Non-Statutory Stock Option, or any portion
thereof, and its related Stock Appreciation Rights (if any) only to his
or her spouse, issue, siblings, the issue of such siblings and/or one or
more
-7-
<PAGE>
trusts established principally for the benefit of such Optionee, his or
her spouse, issue, siblings and/or the issue of such siblings. No other
or further transfers of Non-Statutory Stock Options, or any portion
thereof, and their related Stock Appreciation Rights (if any) may be
made without the prior, written consent of the Administrative Committee.
(G) Unless otherwise determined by the Administrative Committee and
set forth in the Stock Option Agreement:
(i) If the employment of an Optionee (other than an Advisor)
who is not also a Director or officer (whether or not a Disabled
Optionee) is voluntarily terminated with the written consent of the
Corporation or a Subsidiary, or if an Optionee retires under any
retirement plan of the Corporation or a Subsidiary, or if an
Optionee who is a Director or officer ceases to be such at a time
when such Optionee is not also an Employee, any then-outstanding
Non- Statutory Stock Option or Incentive Stock Option held by such
Optionee shall be exercisable (to the extent exercisable on the date
of such event) by such Optionee (or, if applicable, by such
Optionee's permitted transferee) at any time prior to the expiration
date of such Option or within three months after the date of such
event, whichever is the shorter period;
(ii) Following the death of an Optionee during employment or
while serving as a non-employee Director or officer, and following
the death of an Optionee who is an Advisor, any outstanding Option
held by such Optionee at the time of death shall be exercisable in
full (whether or not so exercisable on the date of the death of such
Optionee) by the person or persons entitled to do so under the will
of the Optionee (or, if applicable, by such Optionee's permitted
transferee), or, if the Optionee shall fail to make testamentary
disposition of such Option or shall die intestate, by the legal
representative of the estate of such Optionee, at any time prior to
the expiration date of such Option or within nine months after the
date of death, whichever is the shorter period. Following the death
of an Optionee after termination of employment or of the status of
non-employee Director or officer during a period when an Option is
exercisable as provided in clause (i) above, any outstanding Option
held by the Optionee (or, if applicable, by such Optionee's
permitted transferee) at the time of death shall be exercisable by
such person or persons entitled to do so under the Will of the
Optionee or by such Optionee's legal representative (or by such
transferee) to the extent that such Option was exercisable by the
Optionee (or, if applicable, by such
-8-
<PAGE>
Optionee's permitted transferee) at the time of death at any time
prior to the expiration date of such Option or within nine months
after the date of death, whichever is the shorter period;
(iii) If the employment, or the status as a non-employee
Director or officer, of an Optionee (other than an Advisor) is
terminated by the Corporation or a Subsidiary without cause, any
then-outstanding Non-Statutory Stock Option or Incentive Stock
Option held by such Optionee (or, if applicable, by such Optionee's
permitted transferee) shall be exercisable (to the extent
exercisable on the date of termination of employment or such status)
by such Optionee (or, if applicable, by such Optionee's permitted
transferee) at any time prior to the expiration date of such Option
or within 30 days after the date of termination of employment or
such status, whichever is the shorter period; and
(iv) If the employment, or the status as a non-employee
Director or officer, of an Optionee (other than an Advisor) is
terminated by the Corporation or a Subsidiary with cause, the rights
of such Optionee (or, if applicable, by such Optionee's permitted
transferee) under any then-outstanding Option shall terminate at the
time of such termination of employment or status. In addition, if an
Optionee (other than an Advisor) engages in the operation or
management of a business, whether as owner, partner, officer,
director, employee or otherwise and whether during or after
termination of employment or status as a non-employee Director or
officer, which is in competition with the Corporation or any of its
Subsidiaries, the Administrative Committee may in its discretion
immediately terminate all Options held by the Optionee (or, if
applicable, by such Optionee's permitted transferee). For purposes of
this subsection (G), the following events or circumstances shall
constitute "cause", to wit: perpetration of defalcations; willful,
reckless or grossly negligent conduct entailing a substantial
violation of any material laws or governmental regulations or orders
applicable to the Corporation or a Subsidiary; or repeated and
deliberate failure, after written notice, to comply with policies or
directives of the Chief Executive Officer of the Corporation or a
Subsidiary or of the Board.
Whether termination of employment or status as a non-employee Director
or officer, is a voluntary termination with the written consent of, or
an involuntary termination for cause from, the Corporation or a
Subsidiary, whether an Optionee is a Disabled Optionee and whether an
Optionee has engaged in the operation or management of a business which
is in
-9-
<PAGE>
competition with the Corporation or any of its Subsidiaries shall be
determined in each case by the Administrative Committee (or in the case
of a member of the Administrative Committee, by the Board), and any such
determination by the Administrative Committee (or the Board) shall be
final and binding.
(H) All Options and Stock Appreciation Rights granted hereunder
shall be effective solely upon the delivery of a Stock Option Agreement,
or an amendment thereto, duly executed by the Chief Executive Officer of
the Corporation (or if the Optionee is the Chief Executive Officer, by
another officer of the Corporation) on behalf of the Corporation and by
the Director, officer, key Employee or Advisor to whom such Options and
Stock Appreciation Rights are granted.
(I) Fair Market Value of the Non-Voting Common Stock shall be
determined (as of a date not more than 12 months preceding the date as
of which such determination is required to be made hereunder) in good
faith by the Board. The Board shall take into consideration such factors
as it deems relevant, which factors may include but are not limited to
(i) the Corporation's past, current and expected profitability, (ii) the
Corporation's past, present and expected revenues and net cash flow,
(iii) the Corporation's book value, and (iv) the absence of an organized
tracking market for shares of the Non-Voting Common Stock.
The date of the determination of the Administrative Committee to grant
an Option shall deemed to be the date on which an Option is granted,
provided that the Director, officer, key Employee or Advisor to whom the
Option is granted is promptly notified of the grant and an Option
Agreement is duly executed as of the date of the resolution.
(J) The obligation of the Corporation to issue or deliver shares of
the Non-Voting Common Stock under the Plan shall be subject to (i) the
effectiveness of a registration statement under the Securities Act of
1933, as amended, with respect to such shares, if deemed necessary or
appropriate by counsel for the Corporation and (ii) all other applicable
securities laws, regulations, rules and orders which may then be in
effect.
Subject to the foregoing provisions of this Section 7 and the other
provisions of the Plan, any Option or Stock Appreciation Rights granted under
the Plan shall be subject to such other terms and conditions as the
Administrative Committee shall deem advisable.
8. Adjustment and Substitution of Shares.
-------------------------------------
-10-
<PAGE>
If a dividend or other distribution shall be declared upon the Non-Voting
Common Stock payable in shares of Non-Voting Common Stock, the number of shares
of Non-Voting Common Stock then subject to any outstanding Option and the number
of shares which may be issued or delivered under the Plan but are not then
subject to an outstanding Option shall be adjusted by adding thereto the number
of shares which would have been distributable thereon if such shares had been
outstanding on the date fixed for determining the stockholders entitled to
receive such stock dividend or distribution.
If the outstanding shares of Non-Voting Common Stock shall be changed into
or exchangeable for a different number or kind of shares of stock or other
securities of the Corporation or another corporation, whether through
reorganization, reclassification, recapitalization, stock split-up, combination
of shares, merger or consolidation, then there shall be substituted for each
share of Non-Voting Common Stock subject to any then-outstanding Option and for
each share of Non-Voting Common Stock which may be issued or delivered under the
Plan but is not then subject to an outstanding Option, the number and kind of
shares of stock or other securities into which each outstanding share of
Non-Voting Common Stock shall be so changed or for which each such share shall
be exchangeable.
In the case of any adjustment or substitution as provided for in this
Section 8, the aggregate Option Price for all shares subject to each
then-outstanding Option prior to such adjustment or substitution shall be the
aggregate Option Price for all shares of stock or other securities (including
any fraction) to which such shares shall have been adjusted or which shall have
been substituted for such shares. Any new Option Price per share shall be
carried to at least three decimal places with the last decimal place rounded
upwards to the nearest whole number.
No adjustment or substitution provided for in this Section 8 shall require
the Corporation to issue or sell a fraction of a share or other security.
Accordingly, all fractional shares or other securities which result from any
such adjustment or substitution shall be eliminated and not carried forward to
any subsequent adjustment or substitution.
If any such adjustment or substitution provided for in this Section 8
requires the approval of stockholders in order to enable the Corporation to
grant Incentive Stock Options, then no such adjustment or substitution shall be
made without prior stockholder approval. Notwithstanding the foregoing, in the
case of Incentive Stock Options, if the effect of any such adjustment or
substitution would be to cause such Incentive Stock Option to fail to continue
to qualify as an Incentive Stock Option or to cause a modification, extension or
renewal of such Incentive Stock Option within the meaning of Section 424 of the
Code, the Administrative Committee may determine that such adjustment or
substitution shall not be made but rather shall use reasonable efforts to effect
such other adjustment of each then-outstanding Option as the Administrative
-11-
<PAGE>
Committee in its sole discretion shall deem equitable and which will not result
in any disqualification, modification, extension or renewal (within the meaning
of Section 424 of the Code) of such Incentive Stock Option.
9. Restrictions on Transfer of Certain Shares.
------------------------------------------
The Corporation is authorized to (i) retain the certificate(s) representing
such shares or place such certificates in the custody of its transfer agent,
(ii) place a restrictive legend on such shares, and/or (iii) issue a stop
transfer order to the transfer agent with respect to such shares in order to
enforce the transfer restrictions of this Section and Section 7(J) hereof.
10. Acceleration of the Exercise Date of Options and Related Stock Appreciation
---------------------------------------------------------------------------
Rights.
- ------
Notwithstanding any other provisions of this Plan, all Options and Stock
Appreciation Rights shall become exercisable upon the occurrence of a Change in
Control of the Corporation whether or not such Options are then exercisable
under the provisions of the Stock Option Agreements relating thereto. A Change
in Control of the Corporation is any of the following: (i) a merger,
consolidation or other reorganization in which the Corporation (x) is not the
surviving entity or (y) survives only as a subsidiary of any entity (other than
an entity which is under the control (as defined in Section 1(b)) of any one or
more of the shareholders of the Corporation as of the Effective Date, and their
respective Affiliates or other than a previously wholly-owned Subsidiary of the
Corporation), (ii) the acquisition by any person, entity or affiliated group of
persons and entities (other than any one or more of the shareholders of the
Corporation as of the Effective Date, and their respective Affiliates) of 50% or
more of the combined voting power of the Corporation's then outstanding
securities (including securities exercisable for or convertible into voting
securities), or (iii) the consummation of a transaction requiring shareholder
approval and involving the sale, lease or exchange of all or substantially all
the assets of the Corporation.
11. Effect of the Plan on the Rights of Employees and Employer.
----------------------------------------------------------
Neither the adoption of the Plan nor any action of the Board or the
Administrative Committee pursuant to the Plan shall be deemed to give any
Employee any right to be granted an Option (with or without Stock Appreciation
Rights) under the Plan, and nothing in the Plan, in any Option or any Stock
Appreciation Rights granted under the Plan or in any Stock Option Agreement
shall confer any right to any Employee to continue in the employment of the
Corporation or any Subsidiary or interfere in any way with the rights of the
Corporation or any Subsidiary to terminate the employment of any Employee at any
time.
12. Interpretation, Amendment, and Termination.
------------------------------------------
-12-
<PAGE>
Except as provided elsewhere in this Plan, in the event of any dispute or
disagreement as to the interpretation of this Plan or of any rule, regulation or
procedure, or as to any question, right or obligation arising from or related to
the Plan, the decision of the Board shall be final and binding upon all persons.
The Board may, in its discretion, amend or terminate this Plan at any time. The
Board may not, without further approval of the shareholders of the Corporation,
(a) increase the total number of shares which may be issued or delivered under
the Plan, (b) increase the total number of shares which may be covered by any
Option granted to any one Optionee, (c) make any changes in the class of
Employees or description of other persons to whom Options and Stock Appreciation
Rights may be granted or modify the eligibility requirements applicable to the
granting of Options and Stock Appreciation Rights, (d) extend the period during
which Options (with or without Stock Appreciation Rights) may be granted or (e)
otherwise materially increase the benefits accruing to Directors, officers,
Employees or Advisors under the Plan. Termination of the Plan shall not affect
the rights of Optionees or their successors under any Options outstanding and
not exercised in full on the date of termination.
-13-
<PAGE>
13. Withholding Taxes.
-----------------
The Corporation unilaterally or by arrangement with the Optionee shall make
appropriate provision for satisfaction of any obligation to withhold taxes in
the case of any grant, award, exercise or other transaction which gives rise to
a withholding requirement. An Optionee or other person receiving shares issued
upon exercise of a Non-Statutory Option shall be required to pay the Corporation
or any Subsidiary in cash the amount of any taxes which the Corporation or
Subsidiary is required to withhold.
Notwithstanding the preceding sentence and subject to such rules as the
Administrative Committee may adopt, Optionees who are subject to Section 16(b)
of the Exchange Act, and, if determined by the Administrative Committee, other
Optionees, may satisfy the obligation, in whole or in part, by election on or
before the date that the amount of tax required to be withheld is determined, to
have the number of shares received upon exercise of the Non-Statutory Option
reduced by a number of shares.
14. Effective Date and Duration of Plan.
-----------------------------------
The effective date and date of adoption of the Plan shall be the Effective
Date, provided that such adoption of the Plan by the Board is approved by the
affirmative vote of the Corporation's shareholders at a meeting of such
shareholders duly called, convened and held within one year of the Effective
Date. No Option or Stock Appreciation Rights granted under the Plan prior to
such shareholder approval may be exercised until after such approval. No Option
or Stock Appreciation Rights may be granted under the Plan subsequent to the
date which is ten (10) years following the Effective Date.
-14-
<PAGE>
EXHIBIT 10.20
BILLING AND MIS SERVICES AGREEMENT
THIS AGREEMENT dated as of the 1st day of July, 1997, by and between
ARMSTRONG HOLDINGS, INC., a Delaware corporation ("Armstrong") and FACILICOM
INTERNATIONAL, L.L.C. ("FaciliCom").
WHEREAS, FaciliCom believes that billing customers timely and accurately
and monitoring and managing network traffic profitability, accurate operation of
a management information system ("MIS") is vital and contracting with Armstrong
for its pre-established customized systems will give FaciliCom a strategic
advantage over its competitors; and
WHEREAS, Armstrong desires to accommodate FaciliCom with its billing and
MIS services by means of a developed customized system to provide various
services.
NOW THEREFORE, in consideration of the mutual covenants contained herein
and intending to be legally bound hereby, the parties agree as follows:
1. Services. Armstrong, or any one or more of its affiliates, shall
provide to FaciliCom such services, including, but not limited to, call
collection, processing, rating and reporting. In addition, Armstrong will also
provide FaciliCom with access to experienced MIS professionals and programmers
on an as-needed basis to further customize and support FaciliCom's growing and
changing needs together with data center services which include daily back-ups,
provision for disaster recovery, maintenance of hardware, operations support,
etc.
2. Cost. Armstrong shall charge for these services as follows:
Professional Services - Services provided by Armstrong's IT
programmers, specialists or other professionals will be billed at the following
hourly rates:
Programmers/Specialists $50.00 per hour
IT Management $75.00 per hour
Data Center Management, Operations & Hardware - A monthly charge based
upon FaciliCom's actual processing activity. Processing activity is measured in
milliseconds, and the charge is $40.00 per megasecond. The charge includes
costs for the AS/400 hardware and operating system software, operations support
personnel and management, data center facilities (office space, utilities,
insurance and the like), off-site storage and back-up facilities, and other
normal data center costs.
AS/400 Disk Storage - A monthly charge of $25.00 per gigabyte will be
assessed based upon FaciliCom's disk capacity requirements. Actual disk usage
will be measured each month. This actual usage will be multiplied by 1.4 to
compute the total disk capacity requirement.
<PAGE>
Software Applications - Direct purchases of software by FaciliCom will be
billed directly to FaciliCom based upon actual cost. Joint use applications
will be billed on a monthly basis using a predetermined schedule of charges.
Direct Hardware - Direct purchases of hardware by FaciliCom for use outside
Armstrong's data center will be billed directly to FaciliCom based upon actual
cost.
Telecommunication Facilities - Use of telecommunication facilities will be
billed to FaciliCom based on the actual facilities used by FaciliCom. Any joint
use of the facilities will be allocated to the user company.
Armstrong shall have the right to increase the cost of its services after
giving FaciliCom at least thirty (30) days written notice.
3. Term. The term of this Agreement shall expire on September 30, 2002.
Either party shall have the right to terminate this Agreement during the term
upon giving one hundred eighty (180) days prior written notice to the other
party. In the event of breach of any provision of this Agreement by either
party, the non-defaulting party shall give the defaulting party written notice,
and the defaulting party shall cure the breach within one hundred eighty (180)
calendar days of such notice. If the defaulting party does not cure such breach,
the non-defaulting party may, at its sole option, terminate this Agreement and
shall be entitled to pursue all available remedies for such breach.
4. Billing for Services Rendered.
4.1 Armstrong shall bill FaciliCom for services rendered in accordance
with this Agreement on a monthly basis. Each invoice shall be for a period of
approximately thirty (30) calender days, depending upon data processing cutoff
dates used by Armstrong.
4.2 If FaciliCom fails to pay or file a claim for an amount by the payment
due date appearing on the Armstrong invoice, late payment charges will accrue on
the unpaid balance at the less of:
The highest interest rate (in decimal value) allowed by state law or
twelve percent (12%) per annum simple interest for the number of
calendar days form the day following the payment due date up to and
including the date payment is actually made.
4.3 The payment due date for each service invoice shall be the first
business day that is not less than thirty (30) calendar days following the
invoice preparation date. Armstrong shall use its best efforts to mail the
invoice on the invoice preparation date.
<PAGE>
4.4 Armstrong shall have the right to adjust the invoices sent to
FaciliCom up to one (1) year following FaciliCom's receipt of the invoices in
the event Armstrong determines that an error in the cost allocation has been
made.
5. Data Retention. All data associated with the provision and receipt
of service(s) pursuant to this Agreement shall be maintained for the greater of
(a) the retention time required by law or regulation for maintaining
information, or (b) two (2) years.
6. Limitation of Liability.
6.1 Each party's liability to the other for any loss, cost, claim,
injury, liability or expense, including reasonable attorney fees, relating to or
arising out of any negligent act or omission in its performance of obligations
arising out of this Agreement, shall be limited to the amount of direct damage
actually incurred. With respect to claims arising out of this Agreement, either
party's cumulative liability, whether in contract, tort or otherwise, shall not
exceed the total charges applicable to the billing and collection services
rendered under this Agreement.
6.2 In no event shall either party be liable to the other for any
indirect, special, or consequential damage of any kind whatsoever.
7. Force Majeure. Neither party shall be held liable for any delay or
failure in performance of any part of this Agreement from any cause beyond its
control and without its fault or negligence, such as acts of God, acts of civil
or military authority, government regulations, embargoes, epidemics, war,
terrorist acts, riots, insurrections, fires, explosions, earthquakes, nuclear
accidents, floods, strikes, power blackouts, unusually severe weather
conditions, failure to secure products or services of other persons or
transportation facilities, or acts or omissions of transportation on common
carriers.
8. Assignment. The parties agree not assign or transfer any interest in
this Agreement without the prior written approval of the other party.
9. Notices. All notices required under this Agreement shall be in
writing and shall be sent by facsimile and regular mail to Armstrong Holdings,
Inc., One Armstrong Place, Butler, Pennsylvania 16001 and to FaciliCom
International, L.L.C., 1401 New York Avenue, N.W., Suite 800, Washington, DC
20005 or to any other address designated by such party.
10. Amendments. No change, modification or amendment of any of the
terms, provisions or conditions of this Agreement shall be effective unless made
in writing and executed by the parties hereto or their successors and assigns.
11. Binding Effect. This Agreement shall be binding upon and shall inure
to the benefit of the parties hereto and their respective successors, personal
representatives, heirs and assigns.
<PAGE>
12. Governing Law. This Agreement is executed in and shall be
construed and enforced in accordance with the laws of the Commonwealth of
Pennsylvania.
13. Entire Agreement. This Agreement constitutes the entire agreement
between the parties hereto and supersedes all negotiations, preliminary
agreements and all prior and contemporaneous discussions and understandings of
the parties in connection with the subject matter hereof.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement the day
and year first written above.
ATTEST: ARMSTRONG HOLDINGS, INC.
By:/s/ By: /s/Brian Capiletti
--------------------------- ---------------------
ATTEST: FACILICOM INTERNATIONAL, L.L.C.
By: /s/Chris King By:/s/
--------------------------- --------------------
<PAGE>
EXHIBIT 12.1
SCHEDULE OF EARNINGS TO FIXED CHARGES
(IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD FROM
PERIOD FROM JANUARY 1,
THREE MONTHS YEAR ENDED MAY 5, 1995 1995
ENDED SEPTEMBER 30, TO TO JUNE 30,
DECEMBER 31, ----------------- SEPTEMBER 30, 1995
1997 1997 1996 1995 (PREDECESSOR)
------------ -------- ------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Actual:
Loss before income taxes...................................... $(4,956) $(14,031) $(9,662) $(1,725) $(1,341)
Consolidated fixed charges.................................... 610 1,532 390 94 67
------- -------- ------- ------- -------
Earnings...................................................... $(4,346) $(12,499) $(9,272) $(1,631) $(1,274)
======= ======== ======= ======= =======
Consolidated Fixed Charges:
Interest expense.............................................. $ 535 $ 1,336 $ 312 $ 80 44
Rental expenses............................................... 75 196 78 14 23
------- -------- ------- ------- -------
Consolidated Fixed Charges.................................... $ 610 $ 1,532 $ 390 $ 94 67
======= ======== ======= ======= =======
Deficiency of Earnings to Fixed Charges......................... $(4,956) $(14,031) $(9,662) $(1,725) $(1,341)
======= ======== ======= ======= =======
</TABLE>
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
% OF JURISDICTION OF
NAME OWNERSHIP INCORPORATION
---- --------- ---------------
<S> <C> <C>
1.FaciliCom International, L.L.C. .............. 100% Delaware
2.FCI (GP), L.L.C. ............................. 100% Delaware
3.Nordiska Tele8 AB ............................ 99%* Sweden
4.Cruisetel AB.................................. 100%+ Sweden
5.Tele8-Denmark A/S............................. 100%+ Denmark
6.FaciliCom International (UK) Limited.......... 100%* UK
7.FaciliCom International (Hong Kong Limited)... 100%* Hong Kong
8.FaciliCom Telekcommunikation GmbH............. 100%* Germany
9.Oy Teleykkanen AB............................. 100%* Finland
</TABLE>
- --------
* Denotes subsidiary of FaciliCom International, L.L.C.
+ Denotes subsidiary of Nordiska Tele8 AB
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Pre-Effective Amendment No. 2 to Registration
Statement No. 333-48371 of FaciliCom International, Inc. on Form S-4 of our
report dated March 19, 1998 (April 27, 1998 as to Note 13) appearing in the
Prospectus, which is part of this Registration Statement, and to the reference
to us under the headings "Summary Financial and Other Data", "Selected
Consolidated Financial and Other Data" and "Experts" in such Prospectus.
DELOITTE & TOUCHE LLP
Pittsburgh, Pennsylvania
April 30, 1998
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the use in this Pre-Effective Amendment No. 2 to Registration
Statement No. 333-48371 of FaciliCom International, Inc. on Form S-4 of our
report dated March 19, 1998, on the financial statements of Tele8 for the
period January 1, 1995 to June 30, 1995, appearing in the Prospectus, which is
part of this Registration Statement, and to the reference to us under the
headings "Selected Consolidated Financial and Other Data" and "Experts" in
such Prospectus.
DELOITTE & TOUCHE
Malmo, Sweden
April 30, 1998
<PAGE>
Exhibit 25.1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM T-1
_________
STATEMENT OF ELIGIBILITY UNDER THE
TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
Check if an Application to Determine Eligibility
of a Trustee Pursuant to Section 305(b)(2)
STATE STREET BANK AND TRUST COMPANY
(Exact name of trustee as specified in its charter)
Massachusetts 04-1867445
(Jurisdiction of incorporation or (I.R.S. Employer
organization if not a U.S. national bank) Identification No.)
225 Franklin Street, Boston, Massachusetts 02110
(Address of principal executive offices) (Zip Code)
Maureen Scannell Bateman, Esq. Executive Vice President and General Counsel
225 Franklin Street, Boston, Massachusetts 02110
(617) 654-3253
(Name, address and telephone number of agent for service)
FACILICOM INTERNATIONAL, INC.
(Exact name of obligor as specified in its charter)
DELAWARE 52-1926328
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1401 NEW YORK AVENUE, N.W.
EIGHTH FLOOR
WASHINGTON, D.C. 20005
(Address of principal executive offices) (Zip Code)
10 1/2% SENIOR NOTES DUE 2008
(Title of indenture securities)
GENERAL
<PAGE>
ITEM 1. GENERAL INFORMATION.
FURNISH THE FOLLOWING INFORMATION AS TO THE TRUSTEE:
(a) NAME AND ADDRESS OF EACH EXAMINING OR SUPERVISORY AUTHORITY TO
WHICH IT IS SUBJECT.
Department of Banking and Insurance of The Commonwealth of
Massachusetts, 100 Cambridge Street, Boston, Massachusetts.
Board of Governors of the Federal Reserve System, Washington,
D.C., Federal Deposit Insurance Corporation, Washington, D.C.
(b) WHETHER IT IS AUTHORIZED TO EXERCISE CORPORATE TRUST POWERS.
Trustee is authorized to exercise corporate trust powers.
ITEM 2. AFFILIATIONS WITH OBLIGOR.
IF THE OBLIGOR IS AN AFFILIATE OF THE TRUSTEE, DESCRIBE EACH SUCH
AFFILIATION.
The obligor is not an affiliate of the trustee or of its parent, State
Street Corporation.
(See note on page 2.)
ITEM 3. THROUGH ITEM 15. NOT APPLICABLE.
ITEM 16. LIST OF EXHIBITS.
LIST BELOW ALL EXHIBITS FILED AS PART OF THIS STATEMENT OF
ELIGIBILITY.
1. A COPY OF THE ARTICLES OF ASSOCIATION OF THE TRUSTEE AS NOW IN
EFFECT.
A copy of the Articles of Association of the trustee, as now in
effect, is on file with the Securities and Exchange Commission
as Exhibit 1 to Amendment No. 1 to the Statement of Eligibility
and Qualification of Trustee (Form T-1) filed with the
Registration Statement of Morse Shoe, Inc. (File No. 22-17940)
and is incorporated herein by reference thereto.
2. A COPY OF THE CERTIFICATE OF AUTHORITY OF THE TRUSTEE TO COMMENCE
BUSINESS, IF NOT CONTAINED IN THE ARTICLES OF ASSOCIATION.
A copy of a Statement from the Commissioner of Banks of
Massachusetts that no certificate of authority for the trustee
to commence business was necessary or issued is on file with the
Securities and Exchange Commission as Exhibit 2 to Amendment No.
1 to the Statement of Eligibility and Qualification of Trustee
(Form T-1) filed with the Registration Statement of Morse Shoe,
Inc. (File No. 22-17940) and is incorporated herein by reference
thereto.
3. A COPY OF THE AUTHORIZATION OF THE TRUSTEE TO EXERCISE CORPORATE
TRUST POWERS, IF SUCH AUTHORIZATION IS NOT CONTAINED IN THE DOCUMENTS
SPECIFIED IN PARAGRAPH (1) OR (2), ABOVE.
A copy of the authorization of the trustee to exercise corporate
trust powers is on file with the Securities and Exchange
Commission as Exhibit 3 to Amendment No. 1 to the Statement of
Eligibility and Qualification of Trustee (Form T-1) filed with
the Registration Statement of Morse Shoe, Inc. (File No. 22-
17940) and is incorporated herein by reference thereto.
4. A COPY OF THE EXISTING BY-LAWS OF THE TRUSTEE, OR INSTRUMENTS
CORRESPONDING THERETO.
A copy of the by-laws of the trustee, as now in effect, is on
file with the Securities and Exchange Commission as Exhibit 4 to
the Statement of Eligibility and Qualification of Trustee (Form
T-1) filed with the Registration Statement of Eastern Edison
Company (File No. 33-37823) and is incorporated herein by
reference thereto.
1
<PAGE>
5. A COPY OF EACH INDENTURE REFERRED TO IN ITEM 4. IF THE OBLIGOR IS
IN DEFAULT.
Not applicable.
6. THE CONSENTS OF UNITED STATES INSTITUTIONAL TRUSTEES REQUIRED BY
SECTION 321(b) OF THE ACT.
The consent of the trustee required by Section 321(b) of the Act
is annexed hereto as Exhibit 6 and made a part hereof.
7. A COPY OF THE LATEST REPORT OF CONDITION OF THE TRUSTEE PUBLISHED
PURSUANT TO LAW OR THE REQUIREMENTS OF ITS SUPERVISING OR EXAMINING
AUTHORITY.
A copy of the latest report of condition of the trustee
published pursuant to law or the requirements of its supervising
or examining authority is annexed hereto as Exhibit 7 and made a
part hereof.
NOTES
In answering any item of this Statement of Eligibility which relates to
matters peculiarly within the knowledge of the obligor or any underwriter for
the obligor, the trustee has relied upon information furnished to it by the
obligor and the underwriters, and the trustee disclaims responsibility for the
accuracy or completeness of such information.
The answer furnished to Item 2. of this statement will be amended, if
necessary, to reflect any facts which differ from those stated and which would
have been required to be stated if known at the date hereof.
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, as
amended, the trustee, State Street Bank and Trust Company, a corporation
organized and existing under the laws of The Commonwealth of Massachusetts, has
duly caused this statement of eligibility to be signed on its behalf by the
undersigned, thereunto duly authorized, all in the City of Boston and The
Commonwealth of Massachusetts, on the ____ day of __________, 1998.
STATE STREET BANK AND TRUST COMPANY
/s/ JILL OLSON
By: ______________________________________
Jill Olson
Assistant Vice President
2
<PAGE>
EXHIBIT 6
CONSENT OF THE TRUSTEE
Pursuant to the requirements of Section 321(b) of the Trust Indenture Act
of 1939, as amended, in connection with the proposed issuance by FACILICOM
INTERNATIONAL, INC. of its 10 1/2% SENIOR NOTES DUE 2008, we hereby consent that
reports of examination by Federal, State, Territorial or District authorities
may be furnished by such authorities to the Securities and Exchange Commission
upon request therefor.
STATE STREET BANK AND TRUST COMPANY
/s/ JILL OLSON
By: _____________________________________
Jill Olson
Assistant Vice President
DATED:
3
<PAGE>
EXHIBIT 7
Consolidated Report of Condition of State Street Bank and Trust Company,
Massachusetts and foreign and domestic subsidiaries, a state banking institution
organized and operating under the banking laws of this commonwealth and a member
of the Federal Reserve System, at the close of business December 31, 1997,
-----------------
published in accordance with a call made by the Federal Reserve Bank of this
District pursuant to the provisions of the Federal Reserve Act and in accordance
with a call made by the Commissioner of Banks under General Laws, Chapter 172,
Section 22(a).
<TABLE>
<CAPTION>
Thousands of
ASSETS Dollars
Cash and balances due from depository institutions:
<S> <C>
Noninterest-bearing balances and currency and coin...................................................... 2,220,829
Interest-bearing balances............................................................................... 10,076,045
Securities................................................................................................... 10,373,821
Federal funds sold and securities purchased
under agreements to resell in domestic offices
of the bank and its Edge subsidiary..................................................................... 5,124,310
Loans and lease financing receivables:
Loans and leases, net of unearned income ............................. 6,270,348
Allowance for loan and lease losses................................... 82,820
Allocated transfer risk reserve....................................... 0
Loans and leases, net of unearned income and allowances................................................. 6,187,528
Assets held in trading accounts.............................................................................. 1, 241,555
Premises and fixed assets.................................................................................... 410,029
Other real estate owned...................................................................................... 100
Investments in unconsolidated subsidiaries................................................................... 38,831
Customers' liability to this bank on acceptances outstanding................................................. 44,962
Intangible assets............................................................................................ 224,049
Other assets................................................................................................. 1,507,650
----------
Total assets................................................................................................. 37,449,709
==========
LIABILITIES
Deposits:
In domestic offices..................................................................................... 10,115,205
Noninterest-bearing.................................................. 7,739,136
Interest-bearing..................................................... 2,376,069
In foreign offices and Edge subsidiary.................................................................. 14,791,134
Noninterest-bearing.................................................. 71,889
Interest-bearing..................................................... 14,719,245
Federal funds purchased and securities sold under
agreements to repurchase in domestic offices of
the bank and of its Edge subsidiary..................................................................... 7,603,920
Demand notes issued to the U.S. Treasury and Trading Liabilities............................................. 194,059
Trading liabilities........................................................................................ 1,036,905
Other borrowed money......................................................................................... 459,252
Subordinated notes and debentures............................................................................ 0
Bank's liability on acceptances executed and outstanding..................................................... 44,962
Other liabilities............................................................................................ 972,782
Total liabilities............................................................................................ 35,218,219
----------
EQUITY CAPITAL
Perpetual preferred stock and related
surplus...................................................................................................... 0
Common stock................................................................................................. 29,931
Surplus...................................................................................................... 444,620
Undivided profits and capital reserves/Net unrealized holding gains (losses)................................. 1,763,076
Cumulative foreign currency translation adjustments.......................................................... (6,137)
Total equity capital......................................................................................... 2,231,490
----------
Total liabilities and equity capital......................................................................... 37,449,709
----------
</TABLE>
4
<PAGE>
I, Rex S. Schuette, Senior Vice President and Comptroller of the above named
bank do hereby declare that this Report of Condition has been prepared in
conformance with the instructions issued by the Board of Governors of the
Federal Reserve System and is true to the best of my knowledge and belief.
Rex S. Schuette
We, the undersigned directors, attest to the correctness of this Report of
Condition and declare that it has been examined by us and to the best of our
knowledge and belief has been prepared in conformance with the instructions
issued by the Board of Governors of the Federal Reserve System and is true and
correct.
David A. Spina
Marshall N. Carter
Truman S. Casner
5
