<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 20, 1998
REGISTRATION NUMBER 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
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>
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
</TABLE>
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- -------------------------------------------------------------------------------
(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) Calculated pursuant to Rule 457(f) based on the book value, calculated as
of March 20, 1998, of the outstanding 10 1/2% Senior Notes Due 2008 of
FaciliCom International, Inc., to be canceled in the exchange transaction
hereunder.
----------------
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. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion, dated March 20, 1998
PROSPECTUS
[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" 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 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. 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.
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 in its entirety
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 (as such term is
defined in the Private Securities Litigation Reform Act of 1995) 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 EBITDA (as defined) of ($3.0) million and ($9.0) 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 12 additional switches in Australia, Belgium, France,
Germany, Italy, Japan, the Netherlands, New Zealand, Norway, 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 $130.0 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 while
achieving profitability.
MANAGEMENT
The seven members of the Company's senior management have over 160 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. Matz Olsson, the President of Tele8, has over 15 years of experience in
the industry, including positions with Telia AB, MFS Communications AB and a
number of management positions with British Telecom plc.
RECENT DEVELOPMENTS
As part of a reorganization, the Company's shareholders, Armstrong
International Telecommunications, Inc. ("AIT"), a subsidiary of Armstrong
Holdings, Inc. ("Armstrong"), and FCI Management Group, a Pennsylvania general
partnership ("FMG"), formed FaciliCom International, Inc. On December 22,
1997, AIT and FMG exchanged their membership interests in FaciliCom
International, L.L.C. ("FCI LLC") 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.
On December 22, 1997, 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. 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.
----------------
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."
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 $130.0 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 $ 10,031 $ 66,422 $ 11,664
Retail......................... 2,047 1,223 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) 125 (8,128) (4,483)
Cash flows from investing
activities.................... (3,575) (752) (1,897) (2,004)
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 and restricted cash....... $ 7,353 $280,489
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 net
proceeds thereof.
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
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. 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 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 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 10
largest customers accounted for 49.4% of the Company's 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.
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. 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
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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."
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 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.
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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 Hong Kong, Japan, Australia and certain countries in
Europe 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 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."
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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 owns a majority 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.
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
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("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."
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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.
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.
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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.
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
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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.
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
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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
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.
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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.
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.
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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) the holder acknowledges and agrees that any person who
is a broker-dealer registered under the Exchange Act or is participating in
the Exchange Offer for the purpose of distributing the Exchange Notes must
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with a secondary resale transaction of the
Exchange Notes acquired by such person and cannot rely on the position of the
staff of the Commission set forth in certain no-action letters, (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. 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.
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
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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 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.
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<PAGE>
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.
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
35
<PAGE>
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. See "Use of
Proceeds." 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 and restricted cash(/2/) ...................... $ 7,353 $280,489
======== ========
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 net
proceeds thereof. 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 as described
in "Use of Proceeds," including amounts which have been invested in
Pledged Securities to fund the first six scheduled interest payments on
the Notes.
(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 $10,031 $ 66,422 $11,664 $ 547 $ 367
Retail revenues........ 2,047 1,223 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) 125 (8,128) (4,483) (1,683) 530
Cash flows from
investing activities... (3,575) (752) (1,897) (2,004) (996) (512)
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 on-net service. 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
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. In July 1995, FCI LLC acquired
66.5% of Tele8, an established competitive carrier based in Sweden. FCI, LLC
acquired additional equity from a minority shareholder in Tele8 in October
1997, thereby increasing its total ownership interest in Tele8 to
approximately 98.9%. 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 in
the Company, thereby increasing AIT's equity ownership in the Company to
approximately 84.0% and reducing FMG's equity ownership in the Company to
approximately 16.0%. See "Prospectus Summary--Recent Developments" and
"Certain Relationships and Related Transactions."
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.
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 12
additional switches in Australia, Belgium, France, Germany, Italy, Japan, the
Netherlands, New Zealand, Norway, 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
40
<PAGE>
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 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 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.
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.
41
<PAGE>
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 % $10,031 89.1 % $ 66,422 94.6 % $ 11,664 98.1 % $ 547 100.0 %
Retail................. 2,047 5.7 1,223 10.9 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 31.3 15,829 22.6 8,725 73.4 1,085 198.4
------- ----- ------- ----- --------- ------ -------- ------ ------- ------
Loss from operations.... (3,964) (11.1) (2,798) (24.9) (11,360) (16.2) (9,576) (80.5) (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) (30.1) (14,031) (20.0) (9,662) (81.3) (1,725) (315.4)
Income taxes............ (393) (1.1) -- -- -- -- -- -- -- --
------- ----- ------- ----- --------- ------ -------- ------ ------- ------
Net loss................ $(5,349) (14.9)% $(3,386) (30.1)% $ (14,031) (20.0)% $ (9,662) (81.3)% $(1,725) (315.4)%
======= ===== ======= ===== ========= ====== ======== ====== ======= ======
</TABLE>
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
42
<PAGE>
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. 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, and an increase in customer service, billing,
collections and accounting staff required to support revenue growth. 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.
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
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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. 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.
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
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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.
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.
Net cash provided by (used in) operating activities was ($3.8) million for
the three months ended December 31, 1997, $125,000 for the three months ended
December 31, 1996, ($8.1) million in the fiscal year ended September 30, 1997,
($4.5) million in the fiscal year ended September 30, 1996 and ($1.7) million
for the period from May 5, 1995 (inception) to September 30, 1995. The ($4.0)
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
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receivable. In the fiscal year ended September 30, 1996, net cash provided by
(used in) operating activities of ($4.5) 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 ($1.7) 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, ($752,000) for the three months
ended December 31, 1996, ($1.9) million in the fiscal year ended September 30,
1997, ($2.0) million in the fiscal year ended September 30, 1996 and ($1.0)
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 $6.3
million of loans made by AIT to the Company that were converted into
additional equity. 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 $130.0 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 for new and
existing routes and other support systems. During 1998, the Company plans to
install 12 additional switches in Australia, Belgium, France, Germany, Italy,
Japan, the Netherlands, New Zealand, Norway, 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.
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
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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.
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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 12 additional switches in Australia,
Belgium, France, Germany, Italy, Japan, the Netherlands, New Zealand, Norway,
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 $130.0 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
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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. 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 recent FCC 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.
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. 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, 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.
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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:
LOGO
lp10
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 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.
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
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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 12 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 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.
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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 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 while
achieving profitability.
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.
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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.
LOGO
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."
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<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 owners 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 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.
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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.
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.
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<PAGE>
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.
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.
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<PAGE>
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. 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 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
58
<PAGE>
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."
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
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<PAGE>
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 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
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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 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
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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. AT&T has recently filed applications for ISR authority to France,
Germany, Belgium, Norway, Denmark, Finland and Luxembourg. These applications
will likely be granted in the near future.
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. 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
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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 Company's ability to provide voice telephony
services is restricted in some of the countries (e.g., Japan, China) where the
Company plans to provide service. In Australia and New Zealand, regulation of
the Company's proposed provision of telecommunications services is relatively
permissive, although enrollment (in Australia) or registration (in New
Zealand) with the regulator is required for ISR.
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 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 in El Salvador as a facilities-based provider of international
telecommunications services.
The Company has pending applications for various authorizations in Belgium,
France, Germany and Hong Kong. The Company also anticipates filing requests
for authorization to provide services open to competition in Australia, Italy,
Japan, New Zealand, Norway 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 to provide intrastate
interexchange telecommunications services in 19 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.
Matz Olsson............... 38 President--Tele8
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.
MATZ OLSSON has served as President of Tele8 since April 1997. Prior to
joining Tele8, Mr. Olsson served as Vice President of Start Up Operations for
Telia AB, the dominant telecommunications company in Sweden, from 1995 to
1997. Mr. Olsson served as President of MFS Communications AB, a competitive
provider of telecommunications services in Sweden, from 1994 to 1995. Before
working at MFS Communications AB, Mr. Olsson served in a number of management
positions with BT plc from 1989 to 1994.
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.
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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.
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.
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.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
FCI LLC's Management Committee did not have a Compensation Committee during
the fiscal year ended September 30, 1997. Messrs. Burmeister, Campbell and Dru
Sedwick, all executive officers and members of the Management Committee in
1997, reviewed executive officer compensation matters, including Mr.
Burmeister's compensation. 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.
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 Facilicom International, Inc. 1997
Phantom Stock Rights Plan (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
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
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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 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............... $149,308 $54,000 $949,981(/2/)(/6/)
Chief Executive Officer, President
Anand Kumar........................ 139,539 52,628 237,495(/3/)(/6/)
Executive Vice President--Business
Development
Jeffrey J. Guzy.................... 100,154 66,845 189,996(/4/)(/6/)
Executive Vice President--
Marketing,
Sales & Product Development
Christopher S. King................ 96,962 41,836 90,060(/5/)(/6/)
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.
(2) Represents the fair market value (as determined by the Board of Directors)
of 190,000 phantom units granted pursuant to FCI LLC's Amended and
Restated Performance Unit Plan (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. Mr. Burmeister beneficially
owns 12,033 additional shares of the Company's common stock.
(3) Represents the fair market value (as determined by the Board of Directors)
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.
(4) Represents the fair market value (as determined by the Board of Directors)
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.
(5) Represents the fair market value (as determined by the Board of Directors)
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.
(6) 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 March 1, 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
COMMON STOCK PERCENT AS OF
BENEFICIAL OWNER BENEFICIALLY OWNED MARCH 1, 1998
- ---------------- ------------------- -------------
<S> <C> <C>
Armstrong International Telecommunications,
Inc.(/1/).................................. 189,641 84.0%
Walter J. Burmeister(/2/)................... 12,033 5.3
Juan Carlos Valls(/3/)...................... 12,033 5.3
Anand Kumar................................. 0 0
Jeffrey J. Guzy............................. 0 0
Christopher S. King......................... 0 0
Robert L. Reed(/4/)......................... 7,833 3.5
Bryan Cipoletti............................. 0 0
Kirby J. Campbell........................... 0 0
Dru A. Sedwick.............................. 0 0
Jay L. Sedwick.............................. 0 0
William C. Stewart.......................... 0 0
All directors and executive officers as a
group (17 persons)......................... 31,899 14.1%
</TABLE>
- --------
(1) The address for Armstrong International Telecommunications, Inc. is: One
Armstrong Place, Butler, PA 16001.
(2) Represents shares of common stock owned beneficially by Mr. Burmeister
through FCI Management Group, of which Mr. Burmeister has a 33.3%
ownership interest. The address for Mr. Burmeister is c/o FaciliCom
International, 1401 New York Avenue, NW, Washington, D.C. 20005.
(3) Represents shares of common stock owned beneficially by Mr. Valls through
FCI Management Group, of 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.
(4) Represents shares of common stock owned beneficially by Mr. Reed through
FCI Management Group, of which Mr. Reed has a 21.6% ownership interest.
The address for Mr. Reed 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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<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
RELATIONSHIP WITH ARMSTRONG
Financing Transactions. As the Company's majority shareholder, AIT has
supplied substantially all of the Company's capital. AIT, a wholly owned
subsidiary of Armstrong, provided FCI LLC with $10.4 million of capital
through September 30, 1996. In October 1996, AIT provided FCI LLC with a $5.0
million convertible line of credit agreement due October 31, 1999, at a rate
of 10.0% per annum (the "Convertible Debenture"). Pursuant to the terms of the
Convertible Debenture, AIT also guaranteed a $10.0 million letter of credit
facility to which FCI LLC is a party.
Pursuant to the terms of FCI LLC's amended and restated limited liability
company agreement dated September 30, 1997, AIT converted the Convertible
Debenture to permanent equity capital of FCI LLC in September 1997.
On December 22, 1997, as part of a reorganization, AIT and FMG exchanged
their membership interests in FCI LLC for all of the outstanding shares of the
Company's common stock on a pro rata basis. As a result, FCI LLC is a wholly
owned subsidiary of the Company.
On December 22, 1997, AIT invested an additional $20.0 million in the
Company by contributing cash and canceling indebtedness that FCI LLC owed to
AIT on that date.
MIS Services Agreement. The Company has entered into a contract with
Armstrong pursuant to which Armstrong will 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, through September
30, 2002. The contract may be terminated by the Company or Armstrong upon 180
days' notice to the other party.
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 at prices which
approximate the cost of providing these services. The Company believes the
prices charged by Armstrong for these services are competitive with prices
charged for similar services throughout the industry.
TELECOMMUNICATIONS MANAGEMENT GROUP
During 1997, the Company utilized the consulting services of TMG, of which
Mr. Burmeister and Mr. Valls are shareholders. Pursuant to its arrangements
with TMG, the Company paid TMG a fee 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 a fee 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.
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<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 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.
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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<PAGE>
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 in its entirety 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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<PAGE>
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, 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. 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)
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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. 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
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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 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
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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 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
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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 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.
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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 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
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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 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
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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 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
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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)
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
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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.
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
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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."
"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
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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 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
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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 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
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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.
"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
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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.
"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.,
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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 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
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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.
"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
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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.
"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.
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"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 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
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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 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.
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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 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
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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 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-18
</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
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
Long-term obligations due within one year...... 2,400 1,616 601
------- ------- -------
Total current liabilities..................... 41,374 32,465 13,529
------- ------- -------
LONG-TERM OBLIGATIONS........................... 18,779 14,723 7,165
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)
Intangible assets.... -- 193 233 930 (59) (33)
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) 125 (8,128) (4,483) (1,683) 530
------- ------- -------- ------- -------- -------
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)
------- ------- -------- ------- -------- -------
Net cash used in in-
vesting activities.... (3,575) (752) (1,897) (2,004) (996) (512)
------- ------- -------- ------- -------- -------
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
debt.................. (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.
(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"). Subsequently, FCI
acquired up to 99% of Tele8 and sold all of its interest in FGC (see Notes
8 and 13). 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, 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.
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 10 years
Transmission and communications equipment--leased............ 5 to 25 years
Furniture, fixtures and other................................ 5 to 7 years
</TABLE>
The costs of software and software upgrades purchased for internal use
are expensed based upon the capitalization policy of the Company.
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.
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.
d. Revenues--Revenues from long distance telecommunications services, which
are based upon minutes of traffic processed at contracted fees, are
recognized in the period the services are provided.
e. 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.
f. 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 Limited Liability Company 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. In connection with the capital
contributions, the owners were deemed to have been issued 19,000,000
membership interest units.
g. 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."
h. 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.
i. Accounting for International Long Distance Traffic--The Company records
revenues from the sale of telecommunications services at the time of
customer usage. 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. Although the Company can reasonably
estimate the revenue it will receive under the FCC's proportional share
policy, there is not a guarantee that there will be traffic delivered
back to the United States or what impact changes in future settlement
rates will have on net payments made and revenue received.
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--The Company has elected to account for its
stock-based employee compensation plans using the intrinsic value method
prescribed by Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees."
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. 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.
F-10
<PAGE>
FACILICOM INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 have 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 included obtaining
additional financing through an offering of debentures (see Note 13) for
continued growth in new markets and existing markets and to increase sales
volume to achieve profitable operations.
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 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
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 undersea fiber optic cables 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 the right of use of the undersea fiber optic cables. 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 undersea fiber optic cables from Teleglobe Cantat-3 Inc. and
Telecom A/S. Interest is calculated based upon LIBOR plus 4.5%. Quarterly
interest and principal payments began March 31, 1996. The loan is secured
by the right of use of the undersea cables. The outstanding balance at
December 31, 1997, September 30, 1997 and 1996 was $562,800 (Unaudited),
$613,965 and $818,625, respectively.
F-11
<PAGE>
FACILICOM INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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%.
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 TOTAL
--------- ------- -------
<S> <C> <C> <C>
1998............................................... $ 1,043 $ 573 $ 1,616
1999............................................... 2,442 573 3,015
2000............................................... 3,284 568 3,852
2001............................................... 2,938 486 3,424
2002............................................... 2,938 96 3,034
Thereafter......................................... 1,398 -- 1,398
------- ------ -------
$14,043 $2,296 $16,339
======= ====== =======
</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 has debt payable to Armstrong and its owners that accrues interest
with rates ranging from 0% to 11%.
5.INCOME TAXES
A deferred tax asset of approximately $3,130,000 and $1,120,000 at
September 30, 1997 and 1996, respectively, is principally related to the
cumulative net operating loss carryforwards of Tele8 and FCI-UK totaling
approximately $11,100,000 and $4,000,000 at September 30, 1997 and 1996,
respectively, which do not expire under Swedish and United Kingdom tax
laws. A valuation allowance has been established for the entire deferred
tax asset.
Also, on December 22, 1997, the Company adopted a tax sharing agreement
with AHI and FCI joins in the filing of 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
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.
F-12
<PAGE>
FACILICOM INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The components of the income tax provision for the periods ended September
30, 1997, 1996 and 1995 are as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- ----
<S> <C> <C> <C>
Deferred tax asset..................................... $ 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.
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.
F-13
<PAGE>
FACILICOM INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
7.BORROWINGS FROM OWNERS
At September 30, 1996, the Company had outstanding interest-bearing
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 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 1995, 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.
F-14
<PAGE>
FACILICOM INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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. 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 fair market 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 market 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 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.
F-15
<PAGE>
FACILICOM INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 to a service company. In the event any amounts are remitted by the
billing and collection agent, 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 billing and collection agent.
13.SIGNIFICANT EVENTS AFTER SEPTEMBER 30, 1997
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' interest in Tele8 for $750,000 and sold all of
its interest in FGC to the Minority Stockholder. As of October 23, 1997,
FCI owns 99% of Tele8.
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).
Phantom Stock and Stock Option Plans
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
F-16
<PAGE>
FACILICOM INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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
10 1/2% Senior Notes due 2008 (the "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.
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.
F-17
<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-18
<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 Rights 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.................................................................. 48
Management................................................................ 65
Principal Stockholders.................................................... 71
Certain Relationships and Related Transactions............................ 72
Description of Capital Stock.............................................. 73
Summary of Other Indebtedness............................................. 74
Description of Notes...................................................... 76
Certain United States Federal Income Tax Considerations................... 107
Plan of Distribution...................................................... 108
Legal Matters............................................................. 108
Experts................................................................... 108
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
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.
12.1 Schedule of Earnings to Fixed Charges
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
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)
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>
- --------
*To be filed by amendment
(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.
(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.
II-3
<PAGE>
(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) The undersigned Registrant hereby undertakes to file an application for
the purpose of determining the eligibility of the Trustee to act under
subsection (a) of Section 310 of the Trust Indenture Act in accordance with
the rules and regulations prescribed by the Commission under Section 305(b)(2)
of the Act.
(f) 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 MARCH
20, 1998.
Facilicom International, Inc.
/s/ Walter J. Burmeister
By: _________________________________
WALTER J. BURMEISTER PRESIDENT AND
CHIEF EXECUTIVE OFFICER
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints Walter J. Burmeister and Christopher S.
King, and each of them acting individually, as his attorneys-in-fact and
agents, each with full power of substitution and resubstitution, for him in
his name, place and stead, in any and all capacities, to sign any and all
amendments (including post-effective amendments) to this Registration
Statement, and to file the same, with exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents, and each of them, full power and
authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming
all that said attorneys-in-fact and agents, or any of them, or their or his
substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES INDICATED ON MARCH 20, 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)
/s/ Kirby J. Campbell Treasurer, Vice
- ------------------------------------- President and Director
KIRBY J. CAMPBELL
/s/ Dru A. Sedwick Secretary, Vice
- ------------------------------------- President and Director
DRU A. SEDWICK
II-5
<PAGE>
SIGNATURE TITLE
/s/ Bryan Cipoletti Director
- ------------------------------------
BRYAN CIPOLETTI
Director
- ------------------------------------
ROBERT REED
Director
- ------------------------------------
JAY SEDWICK
/s/ William Stewart Director
- ------------------------------------
WILLIAM STEWART
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
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>
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)
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>
- --------
*To be filed by amendment
(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 1.1
EXECUTION COPY
$300,000,000
FACILICOM INTERNATIONAL, INC.
10 1/2% Senior Notes due 2008
PURCHASE AGREEMENT
January 23, 1998
Lehman Brothers Inc.,
As Representative of the Initial
Purchasers named in Schedule I,
Three World Financial Center
New York, New York 10285
Ladies and Gentlemen:
FaciliCom International, Inc., a Delaware corporation (the "Company"),
-------
proposes to sell to you (the "Representative") and the other purchaser named in
--------------
Schedule I hereto (collectively, the "Initial Purchasers") $300,000,000
------------------
aggregate principal amount of the Company's 10 1/2% Senior Notes due 2008 (the
"Notes"). The Notes will be issued pursuant to an Indenture to be dated as of
-----
January 28, 1998 (the "Indenture"), between the Company and State Street Bank
---------
and Trust Company, as trustee (the "Trustee"). This is to confirm the agreement
-------
concerning the purchase of the Notes from the Company by the Initial Purchasers.
Capitalized terms used but not defined in this Agreement shall have the meaning
given to such terms in the Indenture.
The Notes will be offered without being registered under the
Securities Act of 1933, as amended (the "Securities Act"), in reliance on
--------------
exemptions therefrom.
The Initial Purchasers and their direct and indirect transferees will
be entitled to the benefits of a Registration Rights Agreement, to be dated the
Closing Date (the "Registration Rights Agreement") among the Company and the
-----------------------------
Initial Purchasers, to be substantially in the form attached hereto as Exhibit
E.
The holders of the Notes and their direct and indirect transferees
will be entitled to the benefits of a Collateral Pledge and Security Agreement,
to be dated the Closing Date (the "Pledge Agreement"), from the Company to the
----------------
Trustee, whereby the
<PAGE>
2
Company will deposit with the Trustee an amount equal to the required payment of
the first six scheduled interest payments on the Notes.
In connection with the sale of the Notes, the Company has prepared a
preliminary offering memorandum (the "Preliminary Memorandum") and will prepare
----------------------
a final offering memorandum (the "Memorandum") setting forth or including a
----------
description of the terms of the Notes, the terms of the offering, a description
of the Company and any material developments relating to the Company occurring
after the date of the most recent financial statements included therein.
1. Representations, Warranties and Agreements of the Company. The
Company represents and warrants to, and agrees with the Initial Purchasers that,
as of the date hereof:
(a) The Memorandum at the date hereof, does not, and at the Closing
Date, will not, contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements therein, in the
light of the circumstances under which they were made, not misleading,
except that the representations and warranties set forth in this Section
l(a) do not apply to statements or omissions in the Memorandum based upon
information furnished to the Company in writing by or on behalf of the
Initial Purchasers expressly for use therein.
(b) It is not required by applicable law or regulation in connection
with the offer, sale and delivery of the Notes to you in the manner
contemplated by this Agreement and the Memorandum to register the Notes
under the Securities Act or to qualify the Indenture in respect of the
Notes under the Trust Indenture Act of 1939, as amended (the "Trust
-----
Indenture Act").
-------------
(c) The Company, and each of the subsidiaries of the Company has been
duly organized and is validly existing and in good standing under the laws
of their respective jurisdictions of organization, is duly qualified to do
business and is in good standing in each jurisdiction in which their
respective ownership or lease of property or the conduct of their
respective businesses requires such qualification, except where the failure
to be so qualified would not reasonably be expected to have a material
adverse effect on the business or property of the Company and the
subsidiaries of the Company taken as a whole, and each has all power and
authority necessary to own or hold its respective properties and to conduct
the business in which it is engaged.
(d) The Company has an authorized capitalization as set forth in the
Memorandum, and all of the issued shares of capital stock of the Company
have been duly and validly authorized and issued, are fully paid and non-
assessable and conform to the description thereof contained in the
Memorandum; all of the issued shares of
<PAGE>
3
capital stock, partnership interests or limited liability membership
interests, as the case may be, of each subsidiary of the Company (the
"Equity Interests") have been duly and validly authorized and issued and
(except for partnership interests of general partners and except to the
extent the limited liability company agreements governing the respective
limited liability companies provide otherwise) are fully paid and non-
assessable and the Equity Interests (except for directors' qualifying
shares) are owned directly or indirectly by the Company, free and clear of
all liens, encumbrances, equities or claims (except for those described in
the Memorandum).
(e) The Indenture has been duly authorized and, when duly executed and
delivered by the proper officers of the Company (assuming due execution and
delivery by the Trustee) and delivered by the Company, will constitute a
valid and legally binding agreement of the Company enforceable against the
Company in accordance with its terms, except (i) where the enforceability
thereof may be limited by bankruptcy, insolvency, reorganization,
fraudulent conveyance, moratorium or other similar laws now or hereafter in
effect relating to rights of creditors and other obligees generally, (ii)
where the remedy of specific performance and other forms of equitable
relief may be subject to certain equitable defenses and principles and to
the discretion of the court before which the proceedings may be brought and
(iii) for the waiver of rights and defenses contained in Sections 111 and
514 of the Indenture.
(f) This Agreement has been duly authorized, executed and delivered by
the Company.
(g) The Registration Rights Agreement has been duly authorized by the
Company, and when duly executed and delivered by the Company, will
constitute a valid and legally binding agreement of the Company enforceable
against the Company in accordance with its terms, except (i) where the
enforceability thereof may be limited by bankruptcy, insolvency,
reorganization, fraudulent conveyance, moratorium or other similar laws now
or hereafter in effect relating to rights of creditors and other obligees
generally, (ii) where the remedy of specific performance and other forms of
equitable relief may be subject to certain equitable defenses and
principles and to the discretion of the court before which the proceedings
may be brought and (iii) where rights to indemnity and contribution
thereunder may be limited by applicable law and public policy.
(h) The Pledge Agreement has been duly authorized by the Company and,
when duly executed and delivered by the Company, will constitute a valid
and legally binding agreement of the Company enforceable against the
Company in accordance with its terms, except (i) where the enforceability
thereof may be limited by bankruptcy, insolvency, reorganization,
fraudulent conveyance, moratorium or other similar laws now or hereafter in
effect relating to rights of creditors and other
<PAGE>
4
obligees generally, (ii) where the remedy of specific performance and other
forms of equitable relief may be subject to certain equitable defenses and
principles and to the discretion of the court before which the proceedings
may be brought and (iii) where rights to indemnity and contribution
thereunder may be limited by applicable law and public policy; and upon the
Closing Date, the pledge of Collateral (as defined in the Pledge Agreement)
securing the payment of the Obligations (as defined in the Pledge
Agreement) for the benefit of the Trustee and the holders of the Notes will
constitute a first priority perfected security interest in such Collateral,
enforceable against all creditors of the Company and any persons purporting
to purchase any of the Collateral from the Company.
(i) The Notes have been duly authorized and, when executed,
authenticated and delivered to and paid for by the Initial Purchasers in
accordance with the terms of this Agreement, will be (x) valid and binding
obligations of the Company enforceable in accordance with their terms,
except (i) where the enforceability thereof may be limited by bankruptcy,
insolvency, reorganization, fraudulent conveyance, moratorium or other
similar laws now or hereafter in effect relating to rights of creditors and
other obligees generally, (ii) where the remedy of specific performance and
other forms of equitable relief may be subject to certain equitable
defenses and principles and to the discretion of the court before which the
proceedings may be brought, and (iii) for the waiver of rights and defenses
contained in Sections 111 and 514 of the Indenture and (y) entitled to the
benefits of the Indenture and the Registration Rights Agreement.
(j) The execution, delivery and performance by the Company of this
Agreement, the Registration Rights Agreement, the Indenture, the Pledge
Agreement and the Notes, and the consummation by the Company of the
transactions contemplated herein (the "Transactions"), (i) will not
------------
conflict with or result in a breach or violation of any of the terms or
provisions of, or constitute a default under, any indenture, mortgage, deed
of trust, loan agreement or other agreement or instrument to which the
Company or any of the subsidiaries of the Company is a party or by which
the Company or any of the subsidiaries of the Company is bound or to which
any of the properties or assets of the Company or any of the subsidiaries
of the Company is subject, (ii) will not result in any violation of the
provisions of the charter or by-laws or its limited liability company
agreement, as the case may be, of the Company or any of the subsidiaries of
the Company, (iii) will not result in any violation of any statute or
order, rule or regulation of any court or governmental agency or body
having jurisdiction over the Company, any of the subsidiaries of the
Company or any of their properties or assets and (iv) except for such
consents, approvals, authorizations, registrations or qualifications as may
be required under applicable state securities laws in connection with the
purchase and distribution of the Notes by the Initial Purchasers, will not
require any consent, approval, authorization
<PAGE>
5
or order of, or filing or registration with, any court or governmental
agency or body; provided, however, that the Company shall not be in breach
of this representation where, with respect to clauses (i), (iii) and (iv)
of this paragraph, such conflicts, breaches, violations, defaults or
failures to obtain any consent, approval, authorization or order to make
such filing or registration would not have a material adverse effect on the
consolidated financial position, stockholders' equity, results of
operations, or the business of the Company and the subsidiaries of the
Company taken as a whole (a "Material Adverse Effect").
-----------------------
(k) None of the Company or any of the subsidiaries of the Company has
sustained, since the date of the latest quarterly financial statements
included in the Memorandum, any material loss or interference with its
business from fire, explosion, flood or other calamity, whether or not
covered by insurance, or from any labor dispute or court or governmental
action, order or decree, otherwise than as set forth or contemplated in the
Memorandum; and, since such date, there has not been any change in the
capital stock or long-term debt of the Company or any of the subsidiaries
of the Company, or any Material Adverse Effect, or any development
involving a prospective Material Adverse Effect, otherwise than as set
forth or contemplated in the Memorandum.
(l) The financial statements (including the related notes and
supporting schedules) included in the Memorandum present fairly the
financial condition and results of operations of the entities purported to
be shown thereby, at the dates and for the periods indicated, and have been
prepared in conformity with generally accepted accounting principles
applied on a consistent basis throughout the periods involved (except that
the unaudited financial statements may exclude supporting schedules and are
subject to normal year-end adjustments).
(m) Deloitte & Touche LLP, who have certified certain financial
statements of the Company, whose report is included in the Memorandum and
who have delivered the initial letter referred to in Section 8(g) hereof,
are independent public accountants as required by the Securities Act and
the rules and regulations promulgated thereunder (the "Rules and
---------
Regulations") during the periods covered by the financial statements on
-----------
which they reported contained in the Memorandum.
(n) The Company and each of the subsidiaries of the Company owns or
possesses adequate rights to use all material patents, patent applications,
trademarks, service marks, trade names, trademark registrations, service
mark registrations, copyrights, license applications and licenses
("Intellectual Property") which are necessary for the conduct of their
---------------------
respective businesses and has no reason to believe that the conduct of
their respective businesses will conflict with, and have not received any
notice of any claim of conflict with, any Intellectual Property or related
<PAGE>
6
rights of others, except where (i) the failure to own or possess adequate
rights to use such Intellectual Property or (ii) such conflicts, if any,
would not have a Material Adverse Effect.
(o) The Company and each of the subsidiaries of the Company has good
and marketable title in fee simple to all real property and good and
marketable title to all personal property owned by it, in each case free
and clear of all liens, encumbrances and defects, except such as are
described in the Memorandum or such as do not materially affect the value
of such property and do not materially interfere with the use made and
proposed to be made of such property by the Company and each of the
subsidiaries of the Company, and all real property and buildings held under
lease by the Company and each of the subsidiaries of the Company are held
by it under valid, subsisting and enforceable leases, with such exceptions
as are not material and do not interfere with the use made and proposed to
be made of such property and buildings by the Company and each of the
subsidiaries of the Company.
(p) There are no legal or governmental proceedings pending to which
the Company or any of the subsidiaries of the Company is a party or of
which any property or asset of the Company or any of the subsidiaries of
the Company is the subject which, if determined adversely to the Company or
any of the subsidiaries of the Company, could reasonably be expected to
have a Material Adverse Effect; and to the best of the Company's knowledge,
no such proceedings are threatened or contemplated by governmental
authorities or threatened by others that are required to be disclosed in
the Memorandum which are not so disclosed.
(q) No relationship, direct or indirect, exists between or among the
Company, on the one hand, and the directors, officers, stockholders,
customers or suppliers of the Company, on the other hand, which is required
to be disclosed in the Memorandum which is not so disclosed.
(r) Since the date as of which information is given in the Memorandum
through the date hereof, and except as may otherwise be disclosed in the
Memorandum, the Company has not (i) issued or granted any securities, other
than in connection with any employment contract, benefit plan or other
similar arrangement with or for the benefit of any one or more employees,
officers, directors or consultants, or in connection with a dividend
reinvestment or stock purchase plan, (ii) incurred any liability or
obligation, direct or contingent, other than liabilities and obligations
which were incurred in the ordinary course of business, (iii) entered into
any transaction not in the ordinary course of business or (iv) declared or
paid any dividend on capital stock.
<PAGE>
7
(s) Except as described in the Memorandum, the Company has not sold or
issued any shares of common stock during the six-month period preceding the
date of the Memorandum, including any sales pursuant to Rule 144A under, or
Regulation D or S of, the Securities Act.
(t) None of the Company or any of the subsidiaries of the Company (i)
is in violation of its charter or by-laws or its limited liability company
agreement, as the case may be, (ii) is in default in any material respect,
and no event has occurred which, with notice or lapse of time or both,
would constitute such a default, in the due performance or observance of
any time period, covenant or condition contained in any material indenture,
mortgage, deed of trust, loan agreement or other agreement or instrument to
which it is a party or by which it is bound or to which any of its
properties or assets is subject, including, without limitation, operating
agreements, except where it would not reasonably be expected to have a
Material Adverse Effect, or (iii) is in violation in any material respect
of any law, ordinance, governmental rule, regulation or court decree to
which it or its properties or assets may be subject or has failed to obtain
any material license, permit, certificate, franchise or other governmental
authorization or permit necessary to the ownership of its properties or
assets or to the conduct of its business, except where it would not
reasonably be expected to have a Material Adverse Effect.
(u) None of the Company or any of the subsidiaries of the Company, or,
to the best knowledge of the Company, any director, officer, agent,
employee or other person associated with or acting on behalf of the Company
or any of the subsidiaries of the Company, has used any corporate funds for
any unlawful contribution, gift, entertainment or other unlawful expense
relating to political activity; made any direct or indirect unlawful
payment to any foreign or domestic government official or employee from
corporate funds; violated or is in violation of any provision of the
Foreign Corrupt Practices Act of 1977; or made any bribe, rebate, payoff,
influence payment, kickback or other unlawful payment.
(v) None of the Company or any subsidiary of the Company is an
"investment company" within the meaning of such term under the Investment
Company Act of 1940, as amended, and the rules and regulations of the
Securities and Exchange Commission (the "Commission") thereunder (the
----------
"Investment Company Act").
-----------------------
(w) None of the Company or any of the affiliates of the Company (each,
as defined in Rule 501(b) of Regulation D under the Securities Act, an
"Affiliate") has directly, or through any agent (other than the Initial
----------
Purchasers in connection with this Agreement), (i) sold, offered for sale,
solicited offers to buy or otherwise negotiated in respect of, any security
(as defined in the Securities Act) which is or
<PAGE>
8
will be integrated with the sale of the Notes in a manner that would
require the registration under the Securities Act of the Notes or (ii)
engaged or will engage in any form of general solicitation or general
advertising in connection with the offering of the Notes (as those terms
are used in Regulation D under the Securities Act), or in any manner
involving a public offering within the meaning of Section 4(2) of the
Securities Act.
(x) None of the Company, the Affiliates or any person acting on its or
their behalf (other than the Initial Purchasers in connection with this
Agreement) has engaged or will engage in any directed selling efforts (as
that term is defined in Regulation S under the Securities Act ("Regulation
----------
S")) with respect to the Notes and each of the Company and its Affiliates
-
and any person acting on its or their behalf (other than the Initial
Purchasers in connection with this Agreement) has complied and will comply
with the offering restrictions requirement of Regulation S.
2. Purchase of the Notes by the Initial Purchasers. (a) On the
basis of the representations and warranties herein contained, and subject to the
terms and conditions hereinafter set forth, the Company agrees to sell to the
Initial Purchasers and the Initial Purchasers agree, severally and not jointly,
to purchase from the Company, the respective principal amount of the Notes set
forth in Schedule I hereto opposite their names at a purchase price of 10 1/2%
of the principal amount of such Notes.
(b) The Company shall not be obligated to deliver any of the Notes,
except upon payment for all of the Notes to be purchased as hereinafter
provided.
3. Sale and Resale of the Notes by the Initial Purchasers. (a) You
have advised the Company that you propose to offer the Notes for resale upon the
terms and conditions set forth in this Agreement and in the Memorandum. You
hereby represent and warrant to, and agree with, the Company that you (i) are
purchasing the Notes pursuant to a private sale exempt from registration under
the Securities Act, (ii) will not solicit offers for, or offer or sell, the
Notes by means of any form of general solicitation or general advertising or in
any manner involving a public offering within the meaning of Section 4(2) of the
Securities Act and (iii) will solicit offers for the Notes only from, and will
offer, sell or deliver the Notes, as part of their initial offering, only to (A)
in the case of offers inside the United States, persons whom you reasonably
believe to be qualified institutional buyers ("Qualified Institutional Buyers")
------------------------------
as defined in Rule 144A under the Securities Act, as such rule may be amended
from time to time ("Rule 144A") or, if any such person is buying for one or more
---------
institutional accounts for which such person is acting as fiduciary or agent,
only when such person has represented to you that each such account is a
Qualified Institutional Buyer, to whom notice has been given that such sale or
delivery is being made in reliance on Rule 144A, in each case, in transactions
under Rule 144A, and (B) in the case of offers
<PAGE>
9
outside the United States, to persons other than U.S. persons (as defined in
Regulation S) in accordance with Rule 903 of Regulation S.
(b) In connection with the transactions described in subsection
(a)(iii)(B) of this Section 3, you have offered and sold the Notes, and will
offer and sell the Notes, (i) as part of your distribution at any time and (ii)
otherwise until 40 days after the later of the commencement of the offering and
the Closing Date (the "Restricted Period"), only in accordance with Rule 903 of
-----------------
Regulation S. Accordingly, the Initial Purchasers represent and agree that,
with respect to the transactions described in subsection (a)(iii)(B) of this
Section 3, neither they, nor any of their Affiliates, nor any person acting on
their behalf has engaged or will engage in any directed selling efforts with
respect to the Notes, and that they have complied and will comply with the
offering restrictions of Regulation S. They agree that, at or prior to the
confirmation of sale of the Notes pursuant to subsection (a)(iii)(B) of this
Section 3, they shall have sent to each distributor, dealer or person receiving
a selling concession, fee or other remuneration that purchases Notes from the
Initial Purchasers during the Restricted Period, a confirmation or notice to
substantially the following effect:
The Notes covered hereby have not been registered under the U.S. Securities
Act of 1933 (the "Securities Act") and may not be offered or sold within
--------------
the United States or to, or for the account or benefit of U.S. Persons (i)
as part of their distribution at any time or (ii) otherwise until 40 days
after the later of the commencement of the offering and the time of
delivery of the Notes, except in either case in accordance with Regulation
S or Rule 144A under the Securities Act. The terms used above have the
meaning given to them by Regulation S.
(c) (i) You have not offered or sold and will not offer or sell any
Notes to persons in the United Kingdom except to persons whose ordinary
activities involve them in acquiring, holding, managing or disposing of
investments (as principal or agent) for purposes of their businesses or
otherwise in circumstances which have not resulted and will not result in an
offer to the public in the United Kingdom within the meaning of the Public
Offers or Securities Regulations 1995 (the "Regulations"); (ii) you have
-----------
complied and will comply with all applicable provisions of the Financial
Services Act 1986 with respect to anything done by you in relation to the Notes
in, from or otherwise involving the United Kingdom; and (iii) you have only
issued or passed on and will only issue or pass on in the United Kingdom any
document received by you in connection with the issuance of the Notes to a
person who is of a kind described in Section 11(3) of the Financial Services Act
1986 (Investment Advertisements) (Exemptions) Order 1996 or is a person to whom
such document may otherwise lawfully be issued or passed on.
4. Delivery of and Payment for the Notes. (a) Payment of the
purchase price for, and delivery of, the Notes shall be made at the offices of
Shearman & Sterling,
<PAGE>
10
New York, New York or at such other place as shall be agreed upon by the Company
and you, at 9:30 a.m. (New York time), on January 28, 1998 or at such other time
or date as you and the Company shall determine (such date and time of payment
and delivery being herein called the "Closing Date").
------------
(b) On the Closing Date, payment for the Notes shall be made in
immediately available funds by wire transfer to such account as the Company
shall specify prior to the Closing Date or by such means as the parties hereto
shall agree prior to the Closing Date against delivery to you of the
certificates evidencing the Notes. Upon delivery, the Notes shall be in
definitive form and registered in such names and in such denominations as you
shall request in writing not less than two full business days prior to the
Closing Date. The certificates evidencing the Notes shall be delivered to you
on the Closing Date for the respective accounts of the Initial Purchasers, with
any transfer taxes payable in connection with the transfer of the Notes to the
Initial Purchasers duly paid, against payment of the purchase price therefor.
For the purpose of expediting the checking and packaging of certificates
evidencing the Notes, the Company agrees to make such certificates available for
inspection not later than 2:00 P.M. on the business day prior to the Closing
Date.
5. Further Agreements of the Company. The Company further agrees:
(a) To furnish to you, without charge, during the period referred to
in paragraph (c) below, as many copies of the Memorandum and any
supplements and amendments thereto as you may reasonably request.
(b) Prior to making any amendment or supplement to the Memorandum, the
Company shall furnish a copy thereof to the Initial Purchasers and counsel
to the Initial Purchasers and will not effect any such amendment or
supplement to which the Initial Purchasers shall reasonably object by
notice to the Company after a reasonable period of review, which shall not
in any case be longer than five business days after receipt of such copy.
(c) If, at any time prior to completion of the distribution of the
Notes by you to purchasers, any event shall occur or condition exist as a
result of which it is necessary, in the opinion of counsel for you or
counsel for the Company, to amend or supplement the Memorandum in order
that the Memorandum will not include an untrue statement of a material fact
or omit to state a material fact necessary in order to make the statements
therein not misleading in light of the circumstances existing at the time
it is delivered to a purchaser, or if it is necessary to amend or
supplement the Memorandum to comply with applicable law, to promptly
prepare such amendment or supplement as may be necessary to correct such
untrue statement or omission or so that the Memorandum, as so amended or
supplemented, will comply
<PAGE>
11
with applicable law and to furnish you such number of copies as you may
reasonably request.
(d) So long as the Notes are outstanding and are "restricted
securities" within the meaning of Rule 144(a)(3) under the Securities Act
during any period in which it is not subject to and in compliance with
Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), to furnish to holders of the Notes and prospective
------------
purchasers of Notes designated by such holders, upon request of such
holders or such prospective purchasers, the information required to be
delivered pursuant to Rule 144A(d)(4) under the Securities Act.
(e) For a period of five years following the date of the Memorandum to
furnish to the Initial Purchasers copies of all public reports and all
reports and financial statements furnished by the Company to the principal
national securities exchange upon which the Notes may be listed pursuant to
requirements of or agreements with such exchange or to the Commission
pursuant to the Exchange Act or any rule or regulation of the Commission
thereunder.
(f) Promptly from time to time to take such action as the Initial
Purchasers may reasonably request to qualify the Notes for offering and
sale under the securities laws of such jurisdictions as the Initial
Purchasers may request and to comply with such laws so as to permit the
continuance of sales and dealings therein in such jurisdictions for as long
as may be necessary to complete the distribution of the Notes; provided,
however, that in no event shall the Company be obligated to qualify to do
business in any jurisdiction where it is not now so qualified or to take
any action which would subject it to service of process in suits, other
than those arising out of the offering or sale of the Notes, in any
jurisdiction where it is not now so subject. In each jurisdiction in which
the Notes have been so qualified, the Company will file such statements and
reports as may be required by the laws of such jurisdiction to continue
such qualification in effect for a period of not less than one year from
the effective date of the Registration Statement. The Company will also
supply the Initial Purchasers with such information as is necessary for the
determination of the legality of the Notes for investment under the laws of
such jurisdictions as the Initial Purchasers may reasonably request.
(g) Not to offer, sell, contract to sell or otherwise dispose of any
additional securities of the Company substantially similar to the Notes
(but not including the Exchange Notes (as defined in the Registration
Rights Agreement)) or any securities convertible into or exchangeable for
or that represent the right to receive any such similar securities, other
than either the Notes to be sold hereunder or securities issued upon
conversion, exchange or exercise of securities outstanding on the date of
this Agreement, without the consent (which consent shall not be
<PAGE>
12
unreasonably withheld) of the Initial Purchasers during the period
beginning from the date of this Agreement and continuing for 180 days
following the Closing Date.
(h) To use its best efforts to permit the Notes to be designated
Private Offerings, Resales and Trading through Automated Linkages Market
("PORTAL") securities in accordance with the rules and regulations adopted
------
by the National Association of Securities Dealers, Inc. relating to trading
in the PORTAL Market and to permit the Notes to be eligible for clearance
and settlement through The Depository Trust Company ("DTC").
---
(i) Except following the effectiveness of the Registration Statement
(as defined in the Registration Rights Agreement), not to, and will cause
its respective Affiliates not to, solicit any offer to buy or offer to sell
the Notes by means of any form of general solicitation or general
advertising (as those terms are used in Regulation D under the Securities
Act) or in any manner involving a public offering within the meaning of
Section 4(2) of the Securities Act.
(j) Not to, and will cause its respective Affiliates not to, sell,
offer for sale or solicit offers to buy or otherwise negotiate in respect
of any security (as defined in the Securities Act) in a transaction that
could be integrated with the sale of the Notes in a manner that would
require the registration under the Securities Act of the Notes.
(k) To use reasonable best efforts to ensure that none of the Company
or any subsidiary of the Company shall become an "investment company"
within the meaning of such term under the Investment Company Act.
(l) None of the Company, the Affiliates of the Company or any person
acting on its or their behalf (other than the Initial Purchasers in
connection with this Agreement) will engage in any directed selling efforts
(as that term is defined in Regulation S) with respect to the Notes, and
each of the Company and the Affiliates of the Company and each person
acting on its or their behalf (other than the Initial Purchasers in
connection with this Agreement) will comply with the offering restrictions
of Regulation S.
6. Offering of Securities; Restrictions on Transfer. (a) Each
Initial Purchaser, severally and not jointly, represents and warrants that such
Initial Purchaser is a Qualified Institutional Buyer. Each Initial Purchaser,
severally and not jointly, agrees with the Company that (i) it will not solicit
offers for, or offer to sell, such Notes by any form of general solicitation or
general advertising (as those terms are used in Regulation D under the
Securities Act) or in any manner involving a public offering within the meaning
of Section 4(2) of the Securities Act and (ii) it will solicit offers for such
Notes only from, and will offer such Notes only to, persons that it reasonably
believes to be (A) in the case of offers
<PAGE>
13
inside the United States, Qualified Institutional Buyers and (B) in the case of
offers outside the United States, persons other than U.S. persons ("foreign
-------
purchasers," which term shall include dealers or other professional fiduciaries
- ----------
in the United States acting on a discretionary basis for foreign beneficial
owners (other than an estate or trust)) that, in each case, in purchasing such
Notes are deemed to have represented and agreed as provided in the Memorandum in
the section entitled "Notice to Investors."
(b) Each Initial Purchaser, severally and not jointly, represents,
warrants and agrees with respect to offers and sales outside the United States
that:
(i) it understands that no action has been or will be taken in any
jurisdiction by the Company that would permit a public offering of the
Notes, or possession or distribution of either the Preliminary Memorandum
or the Memorandum or any other offering or publicity material relating to
the Notes, in any country or jurisdiction where action for that purpose is
required;
(ii) such Initial Purchaser will comply with all applicable laws and
regulations in each jurisdiction in which it acquires, offers, sells or
delivers Notes or has in its possession or distributes either the
Preliminary Memorandum or the Memorandum or any such other material, in all
cases at its own expense;
(iii) the Notes have not been and will not be registered under the
Securities Act and may not be offered or sold within the United States or
to, or for the account or benefit of, U.S. persons except in accordance
with Regulation S under the Securities Act or pursuant to an exemption from
the registration requirements of the Securities Act;
(iv) such Initial Purchaser has offered the Notes and will offer and
sell the Notes (A) as part of their distribution at any time and (B)
otherwise until 40 days after the later of the commencement of the offering
of the Notes and the Closing Date, only in accordance with Rule 903 of
Regulation S or another exemption from the registration requirements of the
Securities Act. Accordingly, neither such Initial Purchaser, its
Affiliates nor any persons acting on its or their behalf has engaged or
will engage in any directed selling efforts (within the meaning of
Regulation S) with respect to the Notes, and any such Initial Purchaser,
its Affiliates and any such persons has complied and will comply with the
requirements of Regulation S; and
(v) such Initial Purchaser has (A) not offered or sold and will not
offer or sell any Notes to persons in the United Kingdom except to persons
whose ordinary activities involve them in acquiring, holding, managing or
disposing of investments (as principal or agent) for the purposes of their
businesses or otherwise in circumstances which have not resulted and will
not result in an offer to the public in
<PAGE>
14
the United Kingdom within the meaning of the Regulations; (B) complied and
will comply with all applicable provisions of the Financial Services Act
1986 with respect to anything done by it in relation to the Notes in, from
or otherwise involving the United Kingdom; and (C) only issued or passed on
and will only issue or pass on in the United Kingdom any document received
by it in connection with the issuance of the Notes to a person who is of a
kind described in Section 11(3) of the Financial Services Act 1986
(Investment Advertisements) (Exemptions) Order 1996 or is a person to whom
such document may otherwise lawfully be issued or passed on.
Terms used in this Section 6 have the meanings given to them by Regulation S.
7. Expenses. The Company agrees to pay all expenses incident to the
performance of its obligations under this Agreement, including: (i) the costs
incident to the authorization, issuance, sale and delivery of the Notes and any
taxes payable in that connection; (ii) the costs incident to the preparation of
the Memorandum and any amendments or supplements thereto; (iii) the fees and
disbursements of the Company's counsel and accountants and the Trustee and its
counsel; (iv) the qualification of such Notes under securities or Blue Sky laws,
including filing fees and the reasonable fees and disbursements of counsel for
the Initial Purchasers in connection therewith and in connection with the
preparation of any Blue Sky or legal investment memoranda; (v) the printing and
delivery to the Initial Purchasers in quantities as hereinabove stated of copies
of the Memorandum and any amendments or supplements thereto; (vi) the fees and
expenses, if any, incurred in connection with the admission of such Notes for
trading in PORTAL or any other appropriate market system; (vii) the costs and
expenses of the Company relating to investor presentations on any "road show"
undertaken in connection with the marketing of the Notes, including, without
limitation, fees and expenses of any consultants (other than the Initial
Purchasers) engaged in connection with the road show presentations with the
prior approval of the Company, travel and lodging expense of the representatives
and officers of the Company and any such consultants (other than the Initial
Purchasers) and its proportionate share of the cost of any aircraft chartered in
connection with the road show; and (viii) all other costs and expenses incident
to the performance of the obligations of the Company hereunder for which
provision is not otherwise made in this Section 7; provided, however, that,
except as provided in this Section 7 and Section 12, the Initial Purchasers
shall pay their own costs and expenses, including without limitation the costs
and expenses of their counsel, any travel and lodging expenses (including their
proportionate share of the cost of any aircraft chartered in connection with the
road show), and any costs incident to the performance of their obligations
hereunder for which provision is not otherwise made, and any transfer taxes on
the Notes which they may sell.
8. Conditions to the Initial Purchasers' Obligations. The
obligations of the Initial Purchasers hereunder are subject to the accuracy,
when made and on the Closing Date, of the representations and warranties of the
Company contained herein, to the
<PAGE>
15
performance by the Company of its respective obligations hereunder, and to each
of the following additional terms and conditions:
(a) The Initial Purchasers shall not have discovered and disclosed to
the Company on or prior to the Closing Date that the Memorandum or any
amendment or supplement thereto contains any untrue statement of a fact
which, in the opinion of Shearman & Sterling, counsel for the Initial
Purchasers, is material or omits to state any fact which, in the opinion of
such counsel, is material and is required to be stated therein or is
necessary to make the statements therein not misleading.
(b) All corporate proceedings and other legal matters incident to the
authorization, form and validity of this Agreement, the Registration Rights
Agreement, the Pledge Agreement, the Indenture, the Notes, the Memorandum
and all other legal matters relating to this Agreement and the transactions
contemplated hereby shall be satisfactory in all respects to counsel for
the Initial Purchasers, and the Company shall have furnished to such
counsel all documents and information that they may reasonably request to
enable them to pass upon such matters.
(c) Swidler & Berlin, Chartered shall have furnished to the Initial
Purchasers its written opinion, as counsel to the Company, addressed to the
Initial Purchasers and dated the Closing Date, in form and substance
reasonably satisfactory to the Initial Purchasers, to the effect set forth
in Exhibit A hereto and to such further effect as counsel to the Initial
Purchasers may reasonably request.
(d) Swidler & Berlin, Chartered shall have furnished to the Initial
Purchasers its written opinion, as special U.S. telecommunications counsel
to the Company, addressed to the Initial Purchasers and dated the Closing
Date, to the effect set forth in Exhibit B hereto and to such further
effect as counsel to the Initial Purchasers may reasonably request.
(e) DJ Freeman shall have furnished to the Initial Purchasers its
written opinion, as British regulatory counsel to the Company, addressed to
the Initial Purchasers and dated the Closing Date, to the effect set forth
in Exhibit C hereto and to such further effect as counsel to the Initial
Purchasers may reasonably request.
(f) Styrbjorn Garde Advokatbyra shall have furnished to the Initial
Purchasers its written opinion, as Swedish regulatory counsel to the
Company, addressed to the Initial Purchasers and dated the Closing Date, to
the effect set forth in Exhibit D hereto and to such further effect as
counsel to the Initial Purchasers may reasonably request.
<PAGE>
16
(g) You shall have received on the date hereof and the Closing Date a
letter, dated the date hereof and the Closing Date, as the case may be, in
form and substance reasonably satisfactory to you, from Deloitte & Touche
LLP, independent public accountants, containing statements and information
of the type ordinarily included in accountants' "comfort letters" to
underwriters with respect to the financial statements and certain financial
information, including the financial information contained or incorporated
by reference in the Memorandum as identified by you.
(h) The Company shall have furnished to the Initial Purchasers a
certificate, dated the Closing Date, of the President or a Vice President
of the Company and the Treasurer or Chief Financial Officer stating that:
(i) The representations, warranties and agreements of the Company
in Section 1 are true and correct as of the Closing Date and the
Company has complied with all its agreements contained herein;
(ii) (A) None of the Company or any of the subsidiaries of the
Company has sustained, since the date of the latest quarterly
financial statements included in the Memorandum, any material loss or
interference with its business from fire, explosion, flood or other
calamity, whether or not covered by insurance, or from any labor
dispute or court or governmental action, order or decree, otherwise
than as set forth or contemplated in the Memorandum or (B) since such
date there has not been any change in the capital stock or long-term
debt of the Company or any of the subsidiaries of the Company or any
Material Adverse Effect, or any development involving a prospective
Material Adverse Effect, otherwise than as set forth or contemplated
in the Memorandum; and
(iii) They have carefully examined the Memorandum and, in their
opinion (A) the Memorandum, as of its date, did not include any untrue
statement of a material fact and did not omit to state any material
fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, and (B)
since the date of the Memorandum, no event has occurred which was
required under the Securities Act to have been set forth in a
supplement or amendment to the Memorandum.
(i) (i) None of the Company or any of the subsidiaries of the Company
shall have sustained, since the date of the latest audited financial
statements included in the Memorandum, any loss or interference with its
business from fire, explosion, flood or other calamity, whether or not
covered by insurance, or from any labor dispute or court or governmental
action, order or decree, otherwise than as set forth or contemplated in the
Memorandum or (ii) since such date there shall not have been
<PAGE>
17
any change in the capital stock or long-term debt of the Company or any of
the subsidiaries of the Company or any change, or any development involving
a prospective change, in or affecting the general affairs, management,
financial position, stockholders' equity or results of operations of the
Company and the subsidiaries of the Company taken as a whole, otherwise
than as set forth or contemplated in the Memorandum, the effect of which,
in any such case described in clause (i) or (ii), is, in the judgment of
the Initial Purchasers, so material and adverse as to make it impracticable
or inadvisable to proceed with the offering or the delivery of the Notes on
the terms and in the manner contemplated in the Memorandum.
(j) The Initial Purchasers shall have received on the Closing Date the
Registration Rights Agreement executed by the Company.
(k) Each of the Company and the Trustee shall have executed and
delivered the Pledge Agreement on or prior to the Closing Date.
(l) The Initial Purchasers shall have received from Shearman &
Sterling, counsel to the Initial Purchasers, such opinion or opinions,
dated the Closing Date, with respect to such matters as the Initial
Purchasers may reasonably require, and the Company shall have furnished to
such counsel such documents and information as they may reasonably request
for the purpose of enabling them to pass upon such matters.
All opinions, letters, evidence and certificates mentioned above or
elsewhere in this Agreement shall be deemed to be in compliance with the
provisions hereof only if they are in form and substance reasonably satisfactory
to counsel for the Initial Purchasers.
9. Indemnification and Contribution. (a) The Company shall
indemnify and hold harmless each Initial Purchaser, its officers and directors
and each person, if any, who controls any Initial Purchaser within the meaning
of Section 15 of the Securities Act, from and against any loss, claim, damage or
liability, joint or several, or any action in respect thereof (including, but
not limited to, any loss, claim, damage, liability or action relating to
purchases and sales of Notes), to which such Initial Purchaser, officer,
director or controlling person may become subject, under the Securities Act or
otherwise, insofar as such loss, claim, damage, liability or action arises out
of, or is based upon, (i) any untrue statement or alleged untrue statement of a
material fact contained in (A) the Preliminary Memorandum, the Memorandum or in
any amendment or supplement thereto or (B) any blue sky application or other
document prepared or executed by the Company (or based upon any written
information furnished by the Company) specifically for the purpose of qualifying
any or all of the Notes under the securities laws of any state or other
jurisdiction (any such application, document or information being hereinafter
called a "Blue Sky Application"), (ii) the omission or alleged omission to state
--------------------
in the Preliminary Memorandum, the
<PAGE>
18
Memorandum or in any amendment or supplement thereto, or in any Blue Sky
Application any material fact required to be stated therein or necessary to make
the statements therein not misleading or (iii) any act or failure to act, or any
alleged act or failure to act, by any Initial Purchaser in connection with, or
relating in any manner to, the Notes or the offering contemplated hereby, and
which is included as part of or referred to in any loss, claim, damage,
liability or action arising out of or based upon matters covered by clause (i)
or (ii) above (provided that the Company shall not be liable in the case of any
matter covered by this clause (iii) to the extent that it is determined in a
final judgment by a court of competent jurisdiction that such loss, claim,
damage, liability or action resulted directly from any such act or failure to
act undertaken or omitted to be taken by such Initial Purchaser through its
gross negligence or wilful misconduct), and shall reimburse each Initial
Purchaser and each such officer, director or controlling person promptly upon
demand for any legal or other expenses reasonably incurred by that Initial
Purchaser, officer, director or controlling person in connection with
investigating or defending or preparing to defend against any such loss, claim,
damage, liability or action as such expenses are incurred upon written
submission to the Company of documentation evidencing such incurrence; provided,
however, that the Company shall not be liable in any such case to the extent
that any such loss, claim, damage, liability or action arises out of, or is
based upon, any untrue statement or alleged untrue statement or omission or
alleged omission made in the Preliminary Memorandum, the Memorandum or in any
such amendment or supplement, or in any Blue Sky Application in reliance upon
and in conformity with the written information concerning such Initial Purchaser
furnished to the Company by or on behalf of any Initial Purchaser specifically
for inclusion therein; provided further that as to the Preliminary Memorandum,
this indemnity agreement shall not inure to the benefit of any Initial Purchaser
or any officer, director or controlling person of that Initial Purchaser on
account of any loss, claim, damage, liability or action arising from the sale of
Notes to any person by such Initial Purchaser if (i) such Initial Purchaser
failed to send or give a copy of the Memorandum, as the same may be amended or
supplemented, to that person within the time required by the Securities Act and
(ii) the untrue statement or alleged untrue statement of a material fact or
omission or alleged omission to state a material fact in the Preliminary
Memorandum was corrected in the Memorandum or a supplement or amendment thereto,
as the case may be, unless in each case, such failure resulted from
noncompliance by the Company with Section 5(c). The foregoing indemnity
agreement is in addition to any liability which the Company may otherwise have
to any Initial Purchaser or to any officer, director or controlling person of
that Initial Purchaser.
(b) Each Initial Purchaser, severally and not jointly, shall indemnify
and hold harmless the Company, its directors and officers, and each person, if
any, who controls the Company within the meaning of Section 15 of the Securities
Act, from and against any loss, claim, damage or liability, joint or several, or
any action in respect thereof, to which the Company or any such director,
officer or controlling person may become subject, under the Securities Act or
otherwise, insofar as such loss, claim, damage, liability or action arises
<PAGE>
19
out of, or is based upon, (i) any untrue statement or alleged untrue statement
of a material fact contained in (A) the Preliminary Memorandum, the Memorandum
or in any amendment or supplement thereto or (B) any Blue Sky Application or
(ii) the omission or alleged omission to state in the Preliminary Memorandum,
the Memorandum or in any amendment or supplement thereto, or in any Blue Sky
Application any material fact required to be stated therein or necessary to make
the statements therein not misleading, but in the case of clauses (i) and (ii)
only to the extent that the untrue statement or alleged untrue statement or
omission or alleged omission was made in reliance upon and in conformity with
the written information concerning such Initial Purchaser furnished to the
Company or the Trustee by or on behalf of that Initial Purchaser specifically
for inclusion therein, and shall reimburse the Company and any such director,
officer or controlling person for any legal or other expenses reasonably
incurred by the Company or any such director, officer or controlling person in
connection with investigating or defending or preparing to defend against any
such loss, claim, damage, liability or action as such expenses are incurred.
The foregoing indemnity agreement is in addition to any liability which any
Initial Purchaser may otherwise have to the Company or any such director,
officer or controlling person.
(c) Promptly after receipt by an indemnified party under this Section
9 of notice of any claim or the commencement of any action, the indemnified
party shall, if a claim in respect thereof is to be made against the
indemnifying party under this Section 9, notify the indemnifying party in
writing of the claim or the commencement of that action; provided, however, that
the failure to notify the indemnifying party shall not relieve it from any
liability which it may have under this Section 9 except to the extent the
indemnifying party has been materially prejudiced by such failure and provided
further that the failure to notify the indemnifying party shall not relieve it
from any liability which it may have to an indemnified party otherwise than
under this Section 9. If any such claim or action shall be brought against an
indemnified party, and it shall notify the indemnifying party thereof, the
indemnifying party shall be entitled to participate therein and, to the extent
that it wishes, jointly with any other similarly notified indemnifying party, to
assume the defense thereof with counsel reasonably satisfactory to the
indemnified party. After notice from the indemnifying party to the indemnified
party of its election to assume the defense of such claim or action, the
indemnifying party shall not be liable to the indemnified party under this
Section 9 for any legal or other expenses subsequently incurred by the
indemnified party in connection with the defense thereof other than reasonable
costs of investigation; provided, however, that the indemnified party shall have
the right to employ separate counsel to represent jointly the indemnified party
and its respective directors, officers and controlling persons who may be
subject to liability arising out of any claim in respect of which indemnity may
be sought by the indemnified party against the indemnifying party under this
Section 9 if such indemnified party shall have been advised in writing that the
representation of such indemnified party and those directors, officers, and
controlling persons by the same counsel would be inappropriate under applicable
standards of professional conduct due to actual or potential differing interests
between them, and in that event the fees and expenses
<PAGE>
20
of such separate counsel shall be paid by the indemnifying party. It is
understood that the indemnifying party shall not be liable for the fees and
expenses of more than one separate firm (in addition to local counsel in each
jurisdiction) for all indemnified parties in connection with any proceeding or
related proceedings. Each indemnified party, as a condition of the indemnity
agreements contained in Sections 9(a) and 9(b), shall use its best efforts to
cooperate with the indemnifying party in the defense of any such action or
claim. No indemnifying party shall (i) without the prior written consent of the
indemnified parties (which consent shall not be unreasonably withheld), settle
or compromise or consent to the entry of any judgment with respect to any
pending or threatened claim, action, suit or proceeding in respect of which
indemnification or contribution may be sought hereunder (whether or not the
indemnified parties are actual or potential parties to such claim or action)
unless such settlement, compromise or consent includes an unconditional release
of each indemnified party from all liability arising out of such claim, action,
suit or proceeding, or (ii) be liable for any settlement of any such action
effected without its written consent (which consent shall not be unreasonably
withheld), but if settled with its written consent or if there be a final
judgment in favor of the plaintiff in any such action, the indemnifying party
agrees to indemnify and hold harmless any indemnified party from and against any
loss of liability by reason of such settlement or judgment in accordance with
this Section 9.
(d) If the indemnification provided for in this Section 9 shall for
any reason be unavailable to or insufficient to hold harmless an indemnified
party under Section 9(a) or 9(b) in respect of any loss, claim, damage or
liability, or any action in respect thereof, referred to therein, then each
indemnifying party shall, in lieu of indemnifying such indemnified party,
contribute to the amount paid or payable by such indemnified party as a result
of such loss, claim, damage or liability, or action in respect thereof, (i) in
such proportion as shall be appropriate to reflect the relative benefits
received by the Company, on the one hand, and the Initial Purchasers, on the
other hand, from the offering of the Notes or (ii) if the allocation provided by
clause (i) above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i)
above but also the relative fault of the Company, on the one hand, and the
Initial Purchasers, on the other hand, with respect to the statements or
omissions which resulted in such loss, claim, damage or liability, or action in
respect thereof, as well as any other relevant equitable considerations. The
relative benefits received by the Company, on the one hand, and the Initial
Purchasers, on the other hand, with respect to such offering shall be deemed to
be in the same proportion as the total net proceeds from the offering of the
Notes purchased under this Agreement (before deducting expenses) received by the
Company, on the one hand, and the total underwriting commissions and discounts
received by the Initial Purchasers with respect to the Notes purchased under
this Agreement, on the other hand, bear to the total gross proceeds from the
offering of the Notes under this Agreement, in each case as set forth in the
table on the cover page of the Memorandum. The relative fault shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or omission or alleged omission to state a
material fact relates to
<PAGE>
21
information supplied by the Company, on the one hand, or the Initial Purchasers,
on the other hand, the intent of the parties and their relative knowledge,
access to information and opportunity to correct or prevent such statement or
omission. Each of the Company and the Initial Purchasers agrees that it would
not be just and equitable if contribution pursuant to this Section 9(d) were to
be determined by pro rata allocation (even if either the Initial Purchasers or
the Company, as the case may be, were treated as one entity for such purpose) or
by any other method of allocation which does not take into account the equitable
considerations referred to herein. The amount paid or payable by an indemnified
party as a result of the loss, claim, damage or liability, or action in respect
thereof, referred to above in this Section 9(d) shall be deemed to include,
subject to limitations set forth above, any legal or other expenses reasonably
incurred by such indemnified party in connection with investigating or defending
any such action or claim. Notwithstanding the provisions of this Section 9(d),
no Initial Purchaser shall be required to indemnify or contribute any amount in
excess of the amount by which the proceeds received by the Initial Purchasers
from an offering of the Notes exceeds the amount of any damages which such
Initial Purchaser has otherwise paid or become liable to pay by reason of any
untrue or alleged untrue statement or omission or alleged omission. No person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any person who was
not guilty of such fraudulent misrepresentation. The remedies provided for in
this Section 9 are not exclusive and shall not limit any rights or remedies
which may otherwise be available to any indemnified party at law or in equity.
The Initial Purchasers' obligations to contribute as provided in this Section
9(d) are several in proportion to their respective underwriting obligations and
not joint.
(e) Each of the Initial Purchasers confirms and the Company
acknowledges that (i) the last paragraph on the cover page, (ii) the
stabilization legend on page (iv) and (iii) the fifth paragraph, the sixth
paragraph and the first two sentences of the eleventh paragraph under the
caption "Plan of Distribution" constitute the only information concerning the
Initial Purchasers furnished in writing to the Company by or on behalf of the
Initial Purchasers specifically for inclusion in the Memorandum.
10. Default by Any Initial Purchaser. If, on the Closing Date, any
Initial Purchaser or Initial Purchasers shall fail or refuse to purchase Notes
which it or they have agreed to purchase hereunder on such date and the
aggregate principal amount of Notes with respect to which such default occurs is
more than one-tenth of the aggregate principal amount of Notes to be purchased
on such date and arrangements satisfactory to the Initial Purchasers and the
Company for the purchase of such Notes are not made within 36 hours after such
default, this Agreement shall terminate without liability on the part of any
non-defaulting Initial Purchaser or of the Company. In any such case, either
you, on the one hand, or the Company, on the other hand, shall have the right to
postpone the Closing Date, but in no event for longer than seven days, in order
that the required changes, if any, in the Memorandum or in any other documents
or arrangements may be effected. Any action taken
<PAGE>
22
under this paragraph shall not relieve any defaulting Initial Purchaser from
liability in respect of any default of such Initial Purchaser under this
Agreement.
11. Termination. The obligations of the Initial Purchasers hereunder
may be terminated by them by notice given to and received by the Company prior
to delivery of and payment for the Notes if, prior to that time, (i) trading in
securities generally on the New York Stock Exchange or the American Stock
Exchange or in the over-the-counter market shall have been suspended or minimum
prices shall have been established on any such exchange or such market by the
Commission, by such exchange or by any other regulatory body or governmental
authority having jurisdiction, (ii) a banking moratorium shall have been
declared by federal or New York State authorities, (iii) the United States shall
have become engaged in hostilities, there shall have been an escalation in
hostilities involving the United States or there shall have been a declaration
of a national emergency or war by the United States or (iv) there shall have
occurred such a material adverse change in general economic, political or
financial conditions (or the effect of international conditions on the financial
markets in the United States shall be such) as to make it, in the judgment of
the Initial Purchasers, impracticable or inadvisable to proceed with the
offering or delivery of the Notes on the terms and in the manner contemplated in
the Memorandum.
12. Reimbursement of Initial Purchaser's Expenses. If the sale of
Notes provided for herein is not consummated because any condition to the
obligations of the Initial Purchasers set forth in Section 8 hereof is not
satisfied, because of any refusal, inability or failure on the part of the
Company to perform any agreement herein or comply with any provision hereof
other than by reason of a default by the Initial Purchasers, the Company shall
reimburse the Initial Purchasers for the reasonable fees and expenses of its
counsel and for such other out-of-pocket expenses as shall have been incurred by
them in connection with this Agreement and the proposed purchase of the Notes,
and upon demand the Company shall pay the full amount thereof to the Initial
Purchasers. If this Agreement is terminated pursuant to Section 10 by reason of
the default of any of the Initial Purchasers, the Company shall not be obligated
to reimburse any Initial Purchaser on account of those expenses.
13. Notices, Etc. All statements, requests, notices and agreements
hereunder shall be in writing, and:
(a) if to the Initial Purchasers, shall be delivered or sent by mail
or facsimile transmission to:
Lehman Brothers Inc.
Three World Financial Center
New York, New York 10285
Attention: Syndicate Department
(Fax: 212-528-6395); and
<PAGE>
23
BT Alex. Brown Incorporated
130 Liberty Street
New York, New York 10006
Attention: Syndicate Department
(Fax: 212-669-5492); and
(b) if to the Company, shall be delivered or sent by mail or facsimile
transmission to the address of the Company set forth in the Memorandum,
Attention: Chief Financial Officer (Fax: 202-496-1109).
Any such statements, requests, notices or agreements shall take effect at the
time of receipt thereof.
14. Persons Entitled to Benefit of Agreement. This Agreement shall
inure to the benefit of and be binding upon the Initial Purchasers, the Company,
and their respective successors. This Agreement and the terms and provisions
hereof are for the sole benefit of only those persons, except that (x) the
representations, warranties, indemnities and agreements of the Company contained
in this Agreement shall also be deemed to be for the benefit of the officers and
directors of the Initial Purchasers and the person or persons, if any, who
control the Initial Purchasers within the meaning of Section 15 of the
Securities Act and (y) the representations, warranties, indemnities and
agreements of the Initial Purchasers contained in this Agreement shall be deemed
to be for the benefit of directors and officers of the Company and any person
controlling the Company within the meaning of Section 15 of the Securities Act.
Nothing in this Agreement is intended or shall be construed to give any person,
other than the persons referred to in this Section 14, any legal or equitable
right, remedy or claim under or in respect of this Agreement or any provision
contained herein.
15. Survival. The respective indemnities, representations,
warranties and agreements of the Company, on the one hand, and the Initial
Purchasers, on the other hand, contained in this Agreement or made by or on
behalf of them, respectively, pursuant to this Agreement, shall survive the
delivery of and payment for the Notes and shall remain in full force and effect,
regardless of any investigation made by or on behalf of any of them or any
person controlling any of them.
16. Definition of the Term "Business Day." For purposes of this
Agreement, "business day" means any day on which the New York Stock Exchange,
------------
Inc. is open for trading.
17. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
<PAGE>
24
18. Counterparts. This Agreement may be executed in one or more
counterparts and, if executed in more than one counterpart, the executed
counterparts shall each be deemed to be an original but all such counterparts
shall together constitute one and the same instrument.
19. Headings. The headings herein are inserted for convenience of
reference only and are not intended to be part of, or to affect the meaning or
interpretation of, this Agreement.
<PAGE>
25
If the foregoing correctly sets forth the agreement between the
Company and the Initial Purchasers, please indicate your acceptance in the space
provided for that purpose below.
Very truly yours,
FACILICOM INTERNATIONAL, INC.
By: /s/ Christopher S. King
-----------------------------
Name: Christopher S. King
Title: CFO
Accepted, January 23, 1998
LEHMAN BROTHERS INC.
Acting severally on behalf of itself
and the other Initial Purchaser
named in Schedule I hereto.
By: Lehman Brothers Inc.
By:
----------------------------------
Name:
Title:
<PAGE>
If the foregoing correctly sets forth the agreement between the
Company and the Initial Purchasers, please indicate your acceptance in the space
provided for that purpose below.
Very truly yours,
FACILICOM INTERNATIONAL, INC.
By:
---------------------------------
Name:
Title:
Accepted, January 23, 1998
LEHMAN BROTHERS INC.
Acting severally on behalf of itself
and the other Initial Purchaser
named in Schedule I hereto.
By: Lehman Brothers Inc.
By: /s/ Paul Zuidic
------------------------------------
Name: Paul Zuidic
Title: Managing Director
<PAGE>
SCHEDULE I
Principal Amount
of Notes
Initial Purchaser To Be Purchased
----------------- ----------------
Lehman Brothers Inc............................. $195,000,000
BT Alex. Brown Incorporated..................... 105,000,000
------------
Total.................................... $300,000,000
============
<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 3.1
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATION
FILED 09:00 AM 11/20/1997
971396556 - 2823417
CERTIFICATE OF INCORPORATION
OF
FACILICOM INTERNATIONAL FINANCE, INC.
--------------------------------
FIRST. The name of this corporation shall be:
FACILICOM INTERNATIONAL FINANCE, INC.
SECOND. Its registered office in the State of Delaware is to be located
at 1013 Centre Road, in the City of Wilmington, County of New Castle and its
registered agent at such address is CORPORATION SERVICE COMPANY.
THIRD. The purpose or purposes of the corporation shall be:
To engage in any lawful act or activity for which corporations may be
organized under the General Corporation Law of Delaware.
FOURTH. The total number of shares of stock which this corporation is
authorized to issue is:
One Thousand (1000) shares with a par value of One Cent (0.01) per share,
amounting to One Hundred Dollars ($100.00).
FIFTH: The name and address of the incorporator is as follows:
Kathleen Crowley
Corporation Service Company
1013 Centre Road
Wilmington, DE 19805
SIXTH: The Board of Directors shall have the power to adopt, amend or
repeal the by-laws.
<PAGE>
SEVENTH. 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. Notwithstanding the foregoing sentence, a director shall
be liable to the extent provided by applicable law, (i) for breach of the
director's duty of loyalty to 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 Seventh
shall apply to or have any effect on the liability or alleged liability of any
director of the Corporation for or with respect to any acts or omissions of such
director occurring prior to such amendment.
IN WITNESS WHEREOF, the undersigned, being the incorporator hereinbefore
named, has executed, signed and acknowledged this certificate of incorporation
this twentieth day of November, A.D., 1997.
/s/ Kathleen Crowley
-----------------------------
Kathleen Crowley
Incorporator
<PAGE>
PAGE 1
State of Delaware
Office of the Secretary of State
---------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
AMENDMENT OF "FACILICOM INTERNATIONAL FINANCE, INC.", CHANGING ITS NAME FROM
"FACILICOM INTERNATIONAL FINANCE, INC." TO "FACILICOM INTERNATIONAL, INC.",
FILED IN THIS OFFICE ON THE ELEVENTH DAY OF DECEMBER, A.D. 1997, AT 4:30 O'CLOCK
P.M.
[SEAL APPEARS HERE] /s/ Edward J. Freel
---------------------------------------
Edward J. Freel, Secretary of State
AUTHENTICATION: 8872152
DATE: 01-20-98
<PAGE>
Exhibit 3.2
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 04:30 PM 12/11/1997
971427395 - 2823417
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
* * * * *
FACILICOM INTERNATIONAL FINANCE, INC., a corporation organized and existing
under and by virtue of the General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
FIRST: That the Board of Directors of said corporation, by unanimous
written consent of its members filed with the minutes of the board, adopted a
resolution proposing and declaring advisable the following amendments to the
Certificate of Incorporation of said corporation:
RESOLVED, that the Certificate of Incorporation of FACILICOM
INTERNATIONAL FINANCE, INC. be amended by changing ARTICLE FIRST and
ARTICLE FOURTH thereof so that, as amended, said ARTICLE FIRST and ARTICLE
FOURTH shall be and read as follows:
"FIRST. The name of the corporation shall be:
FACILICOM INTERNATIONAL, INC.
FOURTH: The total number of shares of stock which the
Corporation has authority to issue is 300,000 consisting of Common
Stock with a par value of $.01 per share."
SECOND: That the aforesaid amendment was duly adopted in accordance with
the applicable provisions of section 241 of the General Corporation Law of the
State of Delaware.
THIRD: This Corporation has not received payment for any of its stock.
IN WITNESS WHEREOF, said FACILICOM INTERNATIONAL FINANCE, INC. has caused
this certificate to be signed by its Assistant Secretary this 11th day of
December, 1997.
FACILICOM INTERNATIONAL FINANCE, INC.
By: /s/ Henry C. Cohen
-----------------------------------------
Title: Assistant Secretary
<PAGE>
State of Delaware
Office of the Secretary of State
--------------------------------
I EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THAT ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
INCORPORATION OF "FACILICOM INTERNATIONAL FINANCE, INC.", FILED IN THIS OFFICE
ON THE TWENTIETH DAY OF NOVEMBER, A.D. 1997, AT 9 O'CLOCK A.M.
A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW CASTLE
COUNTY RECORDER OF DEEDS FOR RECORDING.
[SEAL /s/ Edward J. Freel
APPEARS -----------------------------------------
HERE] Edward J. Freel, Secretary of State
2823417 8100 AUTHENTICATION: 8769076
971396556 DATE: 11-20-97
<PAGE>
Exhibit 3.3
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
-8-
<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
-9-
<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
-10-
<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.
-11-
<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 -
-12-
<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.
-14-
<PAGE>
Exhibit 4.1
EXECUTION COPY
================================================================================
FACILICOM INTERNATIONAL, INC.,
Issuer
TO
STATE STREET BANK AND TRUST COMPANY,
Trustee
--------------------
Indenture
Dated as of January 28, 1998
---------------------
$300,000,000
10 1/2% Senior Notes due 2008
10 1/2% Series B Senior Notes due 2008
================================================================================
<PAGE>
FACILICOM INTERNATIONAL, INC.
Reconciliation and tie between Trust Indenture Act
of 1939 and Indenture, dated as of January 28, 1998
Trust Indenture
Act Section Indenture Section
(S) 310(a)(1) ..................................... 607
(a)(2) ..................................... 607
(b) ..................................... 608
(S) 312(c) ..................................... 701
(S) 314(a) ..................................... 703
(a)(4) ..................................... 1008(a)
(c)(1) ..................................... 102
(c)(2) ..................................... 102
(e) ..................................... 102
(S) 315(b) ..................................... 601
(S) 316(a)(last
sentence) ..................................... 101 ("Outstanding")
(a)(1)(A) ..................................... 502, 512
(a)(1)(B) ..................................... 513
(b) ..................................... 508
(c) ..................................... 104(d)
(S) 317(a)(1) ..................................... 503
(a)(2) ..................................... 504
(b) ..................................... 1003
(S) 318(a) ..................................... 111
- -------------------
Note: This reconciliation and tie shall not, for any purpose, be deemed to
be a part of the Indenture.
<PAGE>
TABLE OF CONTENTS
Page
PARTIES .................................................................... 1
RECITALS OF THE COMPANY .................................................... 1
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS
OF GENERAL APPLICATION
SECTION 101. Definitions .............................................. 1
Acquired Indebtedness ................................................. 2
Act ................................................................... 2
Affiliate ............................................................. 2
Armstrong ............................................................. 2
Asset Acquisition ..................................................... 2
Asset Disposition ..................................................... 3
Asset Sale ............................................................ 3
Attributable Value .................................................... 3
Average Life .......................................................... 4
Board of Directors .................................................... 4
Board Resolution ...................................................... 4
Business Day .......................................................... 4
Capital Stock ......................................................... 4
Capitalized Lease Obligation .......................................... 4
Certificated Notes .................................................... 4
Change of Control ..................................................... 4
Change of Control Offer ............................................... 5
Change of Control Payment ............................................. 5
Change of Control Payment Date ........................................ 5
Closing Date .......................................................... 5
Commission ............................................................ 5
Common Stock .......................................................... 5
Company ............................................................... 5
Company Request or Company Order .................................... 5
Consolidated Cash Flow ................................................ 5
Consolidated Fixed Charges ............................................ 6
Consolidated Interest Expense ......................................... 6
Consolidated Net Income ............................................... 6
Consolidated Net Worth ................................................ 7
Corporate Trust Office ................................................ 7
corporation ........................................................... 7
<PAGE>
ii
Page
Covenant defeasance ....................................................... 7
Credit Facilities ......................................................... 7
Cumulative Consolidated Cash Flow ......................................... 7
Cumulative Consolidated Fixed Charges ..................................... 7
Cumulative Consolidated Interest Expense .................................. 8
Currency Agreement ........................................................ 8
Default ................................................................... 8
Defaulted Interest ........................................................ 8
Defeasance ................................................................ 8
Depositary ................................................................ 8
Eligible Accounts Receivable .............................................. 8
Eligible Institution ...................................................... 8
Event of Default .......................................................... 8
Excess Proceeds ........................................................... 8
Excess Proceeds Offer ..................................................... 8
Excess Proceeds Payment ................................................... 8
Excess Proceeds Payment Date .............................................. 9
Exchange Act .............................................................. 9
Exchange Notes ............................................................ 9
Exchange Offer ............................................................ 9
Exchange Offer Registration Statement ..................................... 9
Existing Indebtedness ..................................................... 9
Fair Market Value ......................................................... 9
FMG ....................................................................... 9
GAAP ...................................................................... 9
Global Notes .............................................................. 9
Guarantee ................................................................. 9
Holder .................................................................... 10
Incur or Incurrence ....................................................... 10
Indebtedness .............................................................. 10
Indenture ................................................................. 11
Indirect Participant ...................................................... 11
Initial Notes ............................................................. 11
Initial Purchasers ........................................................ 11
Interest Payment Date ..................................................... 11
Interest Rate Agreements .................................................. 11
Interest Rate Protection Obligations ...................................... 11
Investment ................................................................ 11
IRU ....................................................................... 12
Issue Date ................................................................ 12
<PAGE>
iii
Page
Lien ...................................................................... 12
Liquidated Damages ........................................................ 12
MAOU ...................................................................... 12
Marketable Securities ..................................................... 12
Maturity .................................................................. 13
Maturity Date ............................................................. 13
Net Cash Proceeds ......................................................... 13
Notes ..................................................................... 14
Officer's Certificate ..................................................... 14
Opinion of Counsel ........................................................ 14
Outstanding ............................................................... 14
Participant ............................................................... 15
Paying Agent .............................................................. 15
Payment Account ........................................................... 15
Permitted Business ........................................................ 15
Permitted Indebtedness .................................................... 15
Permitted Investment ...................................................... 15
Permitted Liens ........................................................... 16
Person .................................................................... 17
Pledge Account ............................................................ 17
Pledge Agreement .......................................................... 18
Pledged Securities ........................................................ 18
Predecessor Note .......................................................... 18
Preferred Stock ........................................................... 18
Private Placement Legend .................................................. 18
Pro Forma Consolidated Cash Flow .......................................... 18
Public Equity Offering .................................................... 18
Purchase Money Indebtedness ............................................... 18
Purchase Price ............................................................ 18
Qualified Institutional Buyers or QIBs .................................... 19
Redeemable Stock .......................................................... 19
Redemption Date ........................................................... 19
Redemption Price .......................................................... 19
Register and Registrar .................................................... 19
Registration Rights Agreement ............................................. 19
Registration Statement .................................................... 19
Regular Record Date ....................................................... 19
Regulation S .............................................................. 20
Regulation S Certificated Notes ........................................... 20
Regulation S Global Note .................................................. 20
<PAGE>
iv
Page
Regulation S Permanent Global Note ........................................ 20
Regulation S Temporary Global Note ........................................ 20
Responsible Officer ....................................................... 20
Restricted Payments ....................................................... 20
Restricted Period ......................................................... 20
Restricted Subsidiary ..................................................... 20
Rule 144A Certificated Notes .............................................. 20
Rule 144A Global Notes .................................................... 20
Sale-Leaseback Transaction ................................................ 20
Securities Act ............................................................ 20
Shelf Registration Statement .............................................. 20
Significant Subsidiary .................................................... 21
Special Record Date ....................................................... 21
Stated Maturity ........................................................... 21
Subsidiary ................................................................ 21
Telecommunications Assets ................................................. 21
Tested Transaction ........................................................ 21
TMG ....................................................................... 21
Trade Payables ............................................................ 21
Transaction Date .......................................................... 21
Trust Indenture Act or TIA ................................................ 22
Trustee ................................................................... 22
Uniform Commercial Code ................................................... 22
United States Dollar Equivalent ........................................... 22
Unrestricted Subsidiary ................................................... 22
Unrestricted Subsidiary Indebtedness ...................................... 23
U.S. Government Obligations ............................................... 23
U.S. Person ............................................................... 23
Vice President ............................................................ 23
Voting Stock .............................................................. 23
Wholly Owned .............................................................. 23
SECTION 102. Compliance Certificates and Opinions ......................... 23
SECTION 103. Form of Documents Delivered to Trustee ....................... 24
SECTION 104. Acts of Holders .............................................. 25
SECTION 105. Notices, Etc., to Trustee, Company ........................... 26
SECTION 106. Notice to Holders; Waiver .................................... 26
SECTION 107. Effect of Headings and Table of Contents ..................... 27
SECTION 108. Successors and Assigns ....................................... 27
SECTION 109. Separability Clause .......................................... 27
SECTION 110. Benefits of Indenture ........................................ 27
<PAGE>
v
Page
SECTION 111. Governing Law ................................................ 27
SECTION 112. Legal Holidays ............................................... 28
ARTICLE TWO
NOTE FORMS
SECTION 201. Forms Generally .............................................. 28
SECTION 202. Restrictive Legends .......................................... 29
ARTICLE THREE
THE NOTES
SECTION 301. Title and Terms .............................................. 32
SECTION 302. Denominations ................................................ 32
SECTION 303. Execution, Authentication, Delivery and Dating ............... 32
SECTION 304. Temporary Notes .............................................. 34
SECTION 305. Registration, Registration of Transfer and Exchange .......... 34
SECTION 306. Mutilated, Destroyed, Lost and Stolen Notes .................. 36
SECTION 307. Payment of Interest; Interest Rights Preserved ............... 36
SECTION 308. Persons Deemed Owners ........................................ 38
SECTION 309. Cancellation ................................................. 38
SECTION 310. Computation of Interest ...................................... 38
SECTION 311. Book-Entry Provisions for Global Notes ....................... 38
SECTION 312. Transfer Provisions .......................................... 40
ARTICLE FOUR
SATISFACTION AND DISCHARGE
SECTION 401. Satisfaction and Discharge of Indenture ...................... 44
SECTION 402. Application of Trust Money ................................... 45
ARTICLE FIVE
REMEDIES
SECTION 501. Events of Default ............................................ 45
SECTION 502. Acceleration of Maturity; Rescission and Annulment ........... 47
<PAGE>
vi
Page
SECTION 503. Collection of Indebtedness and Suits for Enforcement by
Trustee ...................................................... 48
SECTION 504. Trustee May File Proofs of Claim ............................. 49
SECTION 505. Trustee May Enforce Claims Without Possession of Notes ....... 50
SECTION 506. Application of Money Collected ............................... 50
SECTION 507. Limitation on Suits .......................................... 50
SECTION 508. Unconditional Right of Holders to Receive Principal,
Premium and Interest.......................................... 51
SECTION 509. Restoration of Rights and Remedies ........................... 51
SECTION 510. Rights and Remedies Cumulative ............................... 52
SECTION 511. Delay or Omission Not Waiver ................................. 52
SECTION 512. Control by Holders ........................................... 52
SECTION 513. Waiver of Past Defaults ...................................... 53
SECTION 514. Waiver of Stay or Extension Laws ............................. 53
ARTICLE SIX
THE TRUSTEE
SECTION 601. Notice of Defaults ........................................... 53
SECTION 602. Certain Rights of Trustee .................................... 54
SECTION 603. Trustee Not Responsible for Recitals or Issuance of Notes .... 56
SECTION 604. May Hold Notes ............................................... 56
SECTION 605. Money Held in Trust .......................................... 56
SECTION 606. Compensation and Reimbursement ............................... 56
SECTION 607. Corporate Trustee Required; Eligibility ...................... 57
SECTION 608. Resignation and Removal; Appointment of Successor ............ 57
SECTION 609. Acceptance of Appointment by Successor ....................... 59
SECTION 610. Merger, Conversion, Consolidation or Succession to Business .. 59
ARTICLE SEVEN
HOLDERS LISTS AND REPORTS BY TRUSTEE AND COMPANY
SECTION 701. Disclosure of Names and Addresses of Holders ................. 60
SECTION 702. Reports by Trustee ........................................... 60
SECTION 703. Reports by Company ........................................... 60
ARTICLE EIGHT
<PAGE>
vii
Page
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
SECTION 801. Company May Consolidate, Etc., Only on Certain Terms ......... 61
SECTION 802. Successor Substituted ........................................ 62
SECTION 803. Notes to Be Secured in Certain Events ........................ 62
ARTICLE NINE
SUPPLEMENTAL INDENTURES
SECTION 901. Supplemental Indentures Without Consent of Holders ........... 63
SECTION 902. Supplemental Indentures with Consent of Holders .............. 64
SECTION 903. Execution of Supplemental Indentures ......................... 65
SECTION 904. Effect of Supplemental Indentures ............................ 65
SECTION 905. Conformity with Trust Indenture Act .......................... 65
SECTION 906. Reference in Notes to Supplemental Indentures ................ 65
SECTION 907. Notice of Supplemental Indentures ............................ 66
ARTICLE TEN
COVENANTS
SECTION 1001. Payment of Principal, Premium, if Any, and Interest ......... 66
SECTION 1002. Maintenance of Office or Agency ............................. 66
SECTION 1003. Money for Note Payments to Be Held in Trust ................. 67
SECTION 1004. Corporate Existence ......................................... 68
SECTION 1005. Payment of Taxes and Other Claims ........................... 68
SECTION 1006. Maintenance of Properties ................................... 68
SECTION 1007. Insurance ................................................... 69
SECTION 1008. Statement by Officers as to Default ......................... 69
SECTION 1009. Provision of Financial Statements and Reports ............... 70
SECTION 1010. Repurchase of Notes upon Change of Control .................. 70
SECTION 1011. Limitation on Indebtedness .................................. 72
SECTION 1012. Limitation on Restricted Payments ........................... 75
SECTION 1013. Limitation on Dividend and Other Payment Restrictions
Affecting Restricted Subsidiaries ........................... 77
SECTION 1014. Limitation on the Issuance and Sale of Capital Stock of
Restricted Subsidiaries ..................................... 79
SECTION 1015. Limitation on Transactions with Stockholders and Affiliates . 79
SECTION 1016. Limitation on Liens ......................................... 80
<PAGE>
viii
Page
SECTION 1017. Limitation on Asset Sales ................................... 81
SECTION 1018. Limitation on Issuances of Guarantees of Indebtedness by
Restricted Subsidiaries ..................................... 82
SECTION 1019. Business of the Company; Restriction on Transfers of
Existing Business ........................................... 83
SECTION 1020. Limitation on Investments in Unrestricted Subsidiaries ...... 84
SECTION 1021. Limitation on Sale-Leaseback Transactions ................... 84
SECTION 1022. Waiver of Certain Covenants ................................. 84
ARTICLE ELEVEN
REDEMPTION OF NOTES
SECTION 1101. Right of Redemption ......................................... 85
SECTION 1102. Applicability of Article .................................... 85
SECTION 1103. Election to Redeem; Notice to Trustee ....................... 85
SECTION 1104. Selection by Trustee of Notes to Be Redeemed ................ 86
SECTION 1105. Notice of Redemption ........................................ 86
SECTION 1106. Deposit of Redemption Price ................................. 87
SECTION 1107. Notes Payable on Redemption Date ............................ 87
SECTION 1108. Notes Redeemed in Part ...................................... 88
ARTICLE TWELVE
SECURITY
SECTION 1201. Security .................................................... 88
ARTICLE THIRTEEN
DEFEASANCE AND COVENANT DEFEASANCE
SECTION 1301. Company's Option to Effect Defeasance or Covenant
Defeasance .................................................. 89
SECTION 1302. Defeasance and Discharge .................................... 90
SECTION 1303. Covenant Defeasance ......................................... 90
SECTION 1304. Conditions to Defeasance or Covenant Defeasance ............. 91
SECTION 1305. Deposited Money and U.S. Government Obligations to Be
Held in Trust; Other Miscellaneous Provisions ............... 92
SECTION 1306. Reinstatement ............................................... 93
<PAGE>
ix
Page
TESTIMONIUM ............................................................... 94
SIGNATURES AND SEALS ...................................................... 94
EXHIBIT A Form of Note
EXHIBIT B Form of Certificate to Be Delivered upon Termination of Restricted
Period
EXHIBIT C Form of Regulation S Certificate
SCHEDULE A
<PAGE>
INDENTURE, dated as of January 28, 1998, between FACILICOM INTERNATIONAL,
INC., a corporation duly organized and existing under the laws of the State of
Delaware (herein called the "Company"), having its principal office at 1401 New
-------
York Avenue, NW, 8th Floor, Washington, D.C. 20005, as issuer, and STATE STREET
BANK AND TRUST COMPANY, a trust company duly organized and existing under the
laws of The Commonwealth of Massachusetts, Trustee (the "Trustee").
-------
RECITALS OF THE COMPANY
The Company has duly authorized the creation of an issue of 10 1/2% Senior
Notes due 2008 (the "Initial Notes"), and its 10 1/2% Series B Senior Notes due
-------------
2008 (the "Exchange Notes" and, together with the Initial Notes, the "Notes"),
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of substantially the tenor and amount hereinafter set forth, and to provide
therefor the Company has duly authorized the execution and delivery of this
Indenture.
Upon the issuance of Exchange Notes, if any, or the effectiveness of the
Shelf Registration Statement (as defined herein), this Indenture will be subject
to the provisions of the Trust Indenture Act that are required to be part of
this Indenture and shall, to the extent applicable, be governed by such
provisions.
All things necessary have been done to make the Notes, when executed by the
Company and authenticated and delivered hereunder and duly issued by the
Company, the valid obligations of the Company and to make this Indenture a valid
agreement of the Company, in accordance with their and its terms.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of the Notes by
the Holders thereof, it is mutually covenanted and agreed, for the equal and
proportionate benefit of all Holders of the Notes, as follows:
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS
OF GENERAL APPLICATION
SECTION 101. Definitions.
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For all purposes of this Indenture, except as otherwise expressly provided
or unless the context otherwise requires:
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2
(a) the terms defined in this Article have the meanings assigned to
them in this Article, and include the plural as well as the singular;
(b) all other terms used herein which are defined in the Trust
Indenture Act, either directly or by reference therein, have the meanings
assigned to them therein, and the terms "cash transaction" and "self-
liquidating paper", as used in TIA Section 311, shall have the meanings
assigned to them in the rules of the Commission adopted under the Trust
Indenture Act;
(c) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with GAAP; and
(d) the words "herein", "hereof" and "hereunder" and other words of
similar import refer to this Indenture as a whole and not to any particular
Article, Section or other subdivision.
"Acquired Indebtedness" means Indebtedness of a Person existing at the
time such Person becomes a Restricted Subsidiary or assumed in connection with
an Asset Acquisition by 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.
"Act", when used with respect to any Holder, has the meaning specified
in Section 104.
"Affiliate" means, as applied to any Person, any other Person directly
or indirectly controlling, controlled by, or under direct or indirect common
control with, such Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "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.
"Armstrong" means Armstrong Holdings, Inc., which owns Armstrong
International Telecommunications, Inc., of which the Company is a majority owned
indirect Subsidiary.
"Asset Acquisition" means (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
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3
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" means 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" means 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 Article Eight 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 million or
(b) are for net proceeds in excess of $1 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".
"Attributable Value" means, 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.
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"Average Life" means, 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" means 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.
"Board Resolution" means a copy of a resolution certified by the
secretary or any assistant secretary of the Company to have been duly adopted by
the Board of Directors and to be in full force and effect on the date of such
certification, and delivered to the Trustee.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and
Friday which is not a day on which banking institutions in The City of New York
or The City of Boston are authorized or obligated by law or executive order to
close.
"Capital Stock" means, 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 this Indenture, including, without limitation, all
Common Stock and Preferred Stock.
"Capitalized Lease Obligation" means 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 this Indenture, the
amount of such obligation at any date shall be the capitalized amount thereof at
such date, determined in accordance with GAAP.
"Certificated Notes" has the meaning specified in Section 201.
"Change of Control" means 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% 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
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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 transaction 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 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.
"Change of Control Offer" has the meaning specified in Section 1010.
"Change of Control Payment" has the meaning specified in Section 1010.
"Change of Control Payment Date" has the meaning specified in
Section 1010.
"Closing Date" means the date on which the Initial Notes are
originally issued under this Indenture.
"Commission" means the Securities and Exchange Commission, as from
time to time constituted, created under the Exchange Act, or, if at any time
after the execution of this Indenture such Commission is not existing and
performing the duties now assigned to it under the Trust Indenture Act, then the
body performing such duties at such time.
"Common Stock" means, 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 this Indenture, including, without
limitation, all series and classes of such common stock.
"Company" means the Person named as the "Company" in the first
paragraph of this Indenture, until a successor Person shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Company" shall mean such successor Person.
"Company Request" or "Company Order" means a written request or order
signed in the name of the Company by its chairman, its president, any Vice
President, its treasurer or any assistant treasurer, and delivered to the
Trustee.
"Consolidated Cash Flow" means, 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
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6
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" means, for any period, Consolidated
Interest Expense plus dividends declared and payable on Preferred Stock.
"Consolidated Interest Expense" means, 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 any 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
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or other distributions actually paid to the Company or any of its Restricted
Subsidiaries by such other Person during such period.
"Consolidated Net Worth" means, 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 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).
"Corporate Trust Office" means the principal corporate trust
operations office of the Trustee, at which at any particular time its corporate
trust business shall be administered, which office at the date of execution of
this Indenture is located at 225 Franklin Street, Boston Massachusetts 02110,
Attention: Corporate Trust Department.
"corporation" includes corporations, associations, companies and
business trusts.
"covenant defeasance" has the meaning specified in Section 1303.
"Credit Facilities" means 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" means, 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" means 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.
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"Cumulative Consolidated Interest Expense" means, 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" means 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" means any event that is, or after notice or passage of time
or both would be, an Event of Default.
"Defaulted Interest" has the meaning specified in Section 307.
"defeasance" has the meaning specified in Section 1302.
"Depositary" means The Depository Trust Company, its nominees and
successors or any replacement thereof.
"Eligible Accounts Receivable" means 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" means a commercial banking institution that has
combined capital and surplus of not less than $500 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 specified in Section 501.
"Excess Proceeds" has the meaning specified in Section 1017.
"Excess Proceeds Offer" has the meaning specified in Section 1017.
"Excess Proceeds Payment" has the meaning specified in Section 1017.
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"Excess Proceeds Payment Date" has the meaning specified in
Section 1017.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exchange Notes" has the meaning stated in the first recital of this
Indenture and refers to any Exchange Notes containing terms substantially
identical to the Initial Notes (except that such Exchange Notes shall not
contain terms with respect to transfer restrictions and shall be registered
under the Securities Act) that are issued and exchanged for the Initial Notes in
accordance with the Exchange Offer, as provided for in the Registration Rights
Agreement and this Indenture.
"Exchange Offer" means the offer by the Company to the Holders of the
Initial Notes to exchange all of the Initial Notes for Exchange Notes, as
provided for in the Registration Rights Agreement.
"Exchange Offer Registration Statement" means the Exchange Offer
Registration Statement as defined in the Registration Rights Agreement.
"Existing Indebtedness" means Indebtedness outstanding on the date
hereof.
"Fair Market Value" means, 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.
"FMG" means FCI Management Group, a Pennsylvania general partnership
and holder of a minority interest in the Company.
"GAAP" means generally accepted accounting principles in the United
States of America 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.
"Global Notes" means any of the Rule 144A Global Notes or Regulation S
Global Notes.
"Guarantee" means 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
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10
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.
"Holder" means a Person in whose name a Note is registered in the
Register.
"Incur" or "Incurrence" means, 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% 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" means, 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.
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"Indenture" means this instrument and the Pledge Agreement as
originally executed and as they may from time to time be supplemented or amended
by one or more indentures supplemental hereto and pledge agreements supplemental
thereto entered into pursuant to the applicable provisions hereof.
"Indirect Participant" means a Person who holds a beneficial interest
in a Global Note through a Participant.
"Initial Notes" has the meaning stated in the first recital of this
Indenture.
"Initial Purchasers" means Lehman Brothers Inc. and BT Alex. Brown
Incorporated.
"Interest Payment Date" means the Stated Maturity of an installment of
interest on the Notes.
"Interest Rate Agreements" means any 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" means the obligations of any
Person pursuant to any Interest Rate Agreements.
"Investment" in any Person means any direct or indirect advance, loan
or other extension of credit (including, without limitation, by way of Guarantee
or similar arrangement; but excluding advances to customers in the ordinary
course of business that are, in conformity with GAAP, recorded as accounts
receivable on 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" and Sections 1012 and 1014, (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 Section 1014 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
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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.
"IRU" means Indefeasible Right of Use, which is the right to use a
telecommunications system with most of the rights and duties of ownership, but
without the right to control or manage such facility and, depending upon the
particular agreement, without any right to salvage or duty to dispose of such
system's cable at the end of its useful life.
"Issue Date" means January 28, 1998, the date the Initial Notes are
initially issued.
"Lien" means 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).
"Liquidated Damages" means all liquidated damages then owing pursuant
to Section 5 of the Registration Rights Agreement.
"MAOU" means Minimum Assignable Ownership Units which is capacity on a
telecommunications system that has been acquired on an ownership basis.
"Marketable Securities" means: (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 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 level for a par security not more than 90 days
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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; (viii) any obligations of the Trustee to the extent such
obligations qualify as such under clauses (i) through (vii) above and (ix) any
fund investing exclusively in investments of the types described in clauses (i)
through (viii) above.
"Maturity", when used with respect to any Notes, means the date on
which the principal of such Notes or an installment of principal becomes due and
payable as therein or herein provided, whether at the Stated Maturity or by
declaration of acceleration, notice of redemption or otherwise.
"Maturity Date" means January 15, 2008.
"Net Cash Proceeds" means, (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 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
<PAGE>
14
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.
"Notes" means any of the Notes as defined in the first recital of this
Indenture and more particularly means any Notes authenticated and delivered
under this Indenture.
"Officer's Certificate" means a certificate signed by the chairman,
the president, a Vice President, the treasurer, an assistant treasurer, the
secretary or an assistant secretary of the Company, and delivered to the
Trustee.
"Opinion of Counsel" means a written opinion of counsel, who may be
counsel for the Company, including an employee of the Company, and who shall be
acceptable to the Trustee.
"Outstanding", when used with respect to Notes, means, as of the date
of determination, all Notes theretofore authenticated and delivered under this
Indenture, except:
(i) Notes theretofore cancelled by the Trustee or delivered to the
Trustee for cancellation;
(ii) Notes, or portions thereof, for whose payment or redemption
money in the necessary amount has been theretofore deposited with the
Trustee or any Paying Agent (other than the Company) in trust or set aside
and segregated in trust by the Company (if the Company shall act as its own
Paying Agent) for the Holders of such Notes; provided that, if such Notes
are to be redeemed, notice of such redemption has been duly given pursuant
to this Indenture or provision therefor satisfactory to the Trustee has
been made;
(iii) Notes, except to the extent provided in Sections 1302 and 1303,
with respect to which the Company has effected defeasance and/or covenant
defeasance as provided in Article Thirteen; and
(iv) Notes which have been paid pursuant to Section 306 or in
exchange for or in lieu of which other Notes have been authenticated and
delivered pursuant to this Indenture, other than any such Notes in respect
of which there shall have been presented to the Trustee proof satisfactory
to it that such Notes are held by a bona fide purchaser in whose hands the
Notes are valid obligations of the Company;
<PAGE>
15
provided, however, that in determining whether the Holders of the requisite
principal amount of Outstanding Notes have given any request, demand,
authorization, direction, consent, notice or waiver hereunder, and for the
purpose of making the calculations required by Section 313 of the TIA, Notes
owned by the Company or any other obligor upon the Notes or any Affiliate of the
Company or such other obligor shall be disregarded and deemed not to be
Outstanding, except that, in determining whether the Trustee shall be protected
in making such calculation or in relying upon any such request, demand,
authorization, direction, notice, consent or waiver, only Notes which the
Trustee actually knows to be so owned shall be so disregarded. Notes so owned
which have been pledged in good faith may be regarded as Outstanding if the
pledgee establishes to the satisfaction of the Trustee the pledgee's right so to
act with respect to such Notes and that the pledgee is not the Company or any
other obligor upon the Notes or any Affiliate of the Company or such other
obligor.
"Participant" means, with respect to the Depositary or its nominee, an
institution that has an account therewith.
"Paying Agent" means any Person (including the Company acting as
Paying Agent) authorized by the Company to pay the principal of (and premium, if
any) or interest on any Notes on behalf of the Company. The initial Paying
Agent shall be the Trustee.
"Payment Account" has the meaning specified in Section 402.
"Permitted Business" means any business involving voice, data and
other telecommunications services.
"Permitted Indebtedness" has the meaning specified in Section 1011(b).
"Permitted Investment" means (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 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 Section 1017; (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 million or (B) 5% 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
<PAGE>
16
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 million in any calendar
year and $3 million from the date of this 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 this Indenture.
"Permitted Liens" means (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 Section 1011 (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
<PAGE>
17
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 Section 1011;
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
Section 1011.
"Person" means any individual, corporation, limited liability company,
partnership, joint venture, association, joint-stock company, trust,
unincorporated organization or government or any agency or political subdivision
thereof.
"Pledge Account" means an account established with the Trustee in its
name as Trustee hereunder 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.
<PAGE>
18
"Pledge Agreement" means the Collateral Pledge and Security Agreement,
dated as of the date of this Indenture, from the Company to the Trustee,
governing the Pledge Account and the disbursement of funds therefrom.
"Pledged Securities" means 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. The Pledged
Securities may be held in book-entry form through State Street Bank and Trust
Company acting as securities intermediary.
"Predecessor Note" of any particular Note means every previous Note
evidencing all or a portion of the same debt as that evidenced by such
particular Note; and, for the purposes of this definition, any Note
authenticated and delivered under Section 306 in exchange for a mutilated
security or in lieu of a lost, destroyed or stolen Note shall be deemed to
evidence the same debt as the mutilated, lost, destroyed or stolen Note.
"Preferred Stock" means, 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.
"Private Placement Legend" has the meaning specified in Section 202.
"Pro Forma Consolidated Cash Flow" means, 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" means an underwritten primary public offering
of Common Stock of the Company pursuant to an effective registration statement
under the Securities Act.
"Purchase Money Indebtedness" means the principal of, premium, if any,
and interest on, and any other payment obligations in respect of, any
Indebtedness of the Company incurred to finance the purchase of plant, property,
equipment, machinery or similar assets (including, without limitation,
indebtedness for money borrowed for such purpose and indebtedness in respect of
installment payment arrangements).
"Purchase Price" has the meaning set forth in Section 1010.
<PAGE>
19
"Qualified Institutional Buyers" or "QIBs" has the meaning set forth
in Section 201.
"Redeemable Stock" means 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 Sections 1010 and 1017
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 Sections 1010 and 1017.
"Redemption Date", when used with respect to any Note to be redeemed,
in whole or in part, means the date fixed for such redemption by or pursuant to
this Indenture.
"Redemption Price", when used with respect to any Note to be redeemed,
means the price at which it is to be redeemed pursuant to this Indenture.
"Register" and "Registrar" have the respective meanings specified in
Section 305.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of the date of this Indenture, by and between the Initial
Purchasers and the Company, concerning the registration and exchange of the
Notes, a conformed copy of which has been delivered to the Trustee.
"Registration Statement" means the Registration Statement as defined
in the Registration Rights Agreement.
"Regular Record Date" for the interest payable on any Interest Payment
Date means the January 1 or July 1 (whether or not a Business Day), as the case
may be, next preceding such Interest Payment Date.
<PAGE>
20
"Regulation S" means Regulation S under the Securities Act.
"Regulation S Certificated Notes" has the meaning specified in
Section 201.
"Regulation S Global Notes" has the meaning specified in Section 201.
"Regulation S Permanent Global Notes" has the meaning specified in
Section 201.
"Regulation S Temporary Global Notes" has the meaning specified in
Section 201.
"Responsible Officer", when used with respect to the Trustee, means
any officer of its corporate trust department or similar group having direct
responsibility for the administration of this Indenture and also means, with
respect to a particular corporate trust matter, any other officer to whom such
matter is referred because of his knowledge of and familiarity with the
particular subject.
"Restricted Payments" has the meaning specified in Section 1012.
"Restricted Period" has the meaning specified in Section 201.
"Restricted Subsidiary" means any Subsidiary of the Company other than
an Unrestricted Subsidiary.
"Rule 144A Certificated Notes" has the meaning specified in
Section 201.
"Rule 144A Global Notes" has the meaning specified in Section 201.
"Sale-Leaseback Transaction" of any person means 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 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.
"Securities Act" means the Securities Act of 1933, as amended.
"Shelf Registration Statement" means the Shelf Registration as defined
in the Registration Rights Agreement.
<PAGE>
21
"Significant Subsidiary" means 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.
"Special Record Date" for the payment of any Defaulted Interest means
a date fixed by the Trustee pursuant to Section 307.
"Stated Maturity" means (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" means, with respect to any Person, any corporation,
association or other business entity of which more than 50% of the outstanding
Voting Stock is owned, directly or indirectly, by such Person and one or more
other Subsidiaries of such Person.
"Telecommunications Assets" means, 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.
"Tested Transaction" has the meaning stated in the definition of
"United States Dollar Equivalent".
"TMG" means Telecommunications Management Group, Inc., a company that
has provided consulting services to the Company from time to time and of which
two executive officers of the Company are co-founders and significant
shareholders.
"Trade Payables" means 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" means, 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.
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22
"Trust Indenture Act" or "TIA" means the Trust Indenture Act of 1939
as in force at the date as of which this Indenture was executed, except as
provided in Section 905.
"Trustee" means the Person named as the "Trustee" in the first
paragraph of this Indenture until a successor Trustee shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Trustee" shall mean such successor Trustee.
"Uniform Commercial Code" means the Uniform Commercial Code as in
effect in New York State.
"United States Dollar Equivalent" means, 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 Section 1015 can be undertaken (a "Tested
------
Transaction"), the United States Dollar Equivalent of such Indebtedness,
- -----------
Investment or transaction described in Section 1015 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 this Indenture.
"Unrestricted Subsidiary" means (i) any Subsidiary of the Company that
at the time of determination shall be designated an Unrestricted Subsidiary by
the Board of Directors in the manner provided below and (ii) any Subsidiary of
an Unrestricted Subsidiary. The Board of Directors may designate any 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 (A) that the Subsidiary
to be so designated has total assets of $1,000 or less or (B) if such Subsidiary
has assets greater than $1,000, that such designation would be permitted under
Section 1012, 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 Section 1011 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.
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23
"Unrestricted Subsidiary Indebtedness" means 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 on 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" has the meaning specified in
Section 1304.
"U.S. Person" has the meaning given to such term in Regulation S under
the Securities Act.
"Vice President", when used with respect to the Company or the
Trustee, means any vice president, whether or not designated by a number or a
word or words added before or after the title "vice president".
"Voting Stock" means 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.
"Wholly Owned", with respect to any Subsidiary, means a Subsidiary of
the Company if all of the outstanding Capital Stock in such Subsidiary (other
than any director's qualifying shares or Investments by foreign nationals
mandated by applicable law) is owned by the Company or one or more Wholly Owned
Subsidiaries of the Company.
SECTION 102. Compliance Certificates and Opinions.
------------------------------------
Upon any application or request by the Company to the Trustee to take
any action under any provision of this Indenture, the Company shall furnish to
the Trustee an Officer's Certificate stating that all conditions precedent, if
any, provided for in this Indenture (including any covenant compliance with
which constitutes a condition precedent) relating to the proposed action have
been complied with and an Opinion of Counsel stating that in the opinion of such
counsel all such conditions precedent, if any, have been complied with, except
that in the case of any such application or request as to which the furnishing
of such documents is specifically required by any provision of this Indenture
relating to such particular application or request, no additional certificate or
opinion need be furnished.
Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture (other than pursuant to
Section 1008(a)) shall include:
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24
(1) a statement that each individual signing such certificate or
opinion has read such covenant or condition and the definitions herein
relating thereto;
(2) a brief statement as to the nature and scope of the examination
or investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(3) a statement that, in the opinion of each such individual, he or
she has made such examination or investigation as is necessary to enable
him or her to express an informed opinion as to whether or not such
covenant or condition has been complied with; and
(4) a statement as to whether, in the opinion of each such
individual, such condition or covenant has been complied with.
SECTION 103. Form of Documents Delivered to Trustee.
--------------------------------------
In any case where several matters are required to be certified by, or
covered by an opinion of, any specified Person, it is not necessary that all
such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.
Any certificate or opinion of an officer of the Company may be based,
insofar as it relates to legal matters, upon a certificate or opinion of, or
representations by, counsel, unless such officer knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representations
with respect to the matters upon which his certificate or opinion is based are
erroneous. Any such certificate or Opinion of Counsel may be based, insofar as
it relates to factual matters, upon a certificate or opinion of, or
representations by, an officer or officers of the Company stating that the
information with respect to such factual matters is in the possession of the
Company, unless such counsel knows, or in the exercise of reasonable care should
know, that the certificate or opinion or representations with respect to such
matters are erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
<PAGE>
25
SECTION 104. Acts of Holders.
---------------
(a) Any request, demand, authorization, direction, notice, consent,
waiver or other action provided by this Indenture to be given or taken by
Holders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Holders in person or by agents duly
appointed in writing; and, except as herein otherwise expressly provided, such
action shall become effective when such instrument or instruments are delivered
to the Trustee and, where it is hereby expressly required, to the Company. Such
instrument or instruments (and the action embodied therein and evidenced
thereby) are herein sometimes referred to as the "Act" of the Holders signing
---
such instrument or instruments. Proof of execution of any such instrument or of
a writing appointing any such agent shall be sufficient for any purpose of this
Indenture and conclusive in favor of the Trustee and the Company, if made in the
manner provided in this Section.
(b) The fact and date of the execution by any Person of any such
instrument or writing may be proved by the affidavit of a witness of such
execution or by a certificate of a notary public or other officer authorized by
law to take acknowledgments of deeds, certifying that the individual signing
such instrument or writing acknowledged to him the execution thereof. Where
such execution is by a signer acting in a capacity other than his individual
capacity, such certificate or affidavit shall also constitute sufficient proof
of authority. The fact and date of the execution of any such instrument or
writing, or the authority of the Person executing the same, may also be proved
in any other manner that the Trustee deems sufficient.
(c) The principal amount and serial numbers of Notes held by any
Person, and the date of holding the same, shall be proved by the Register.
(d) If the Company shall solicit from the Holders of Notes any
request, demand, authorization, direction, notice, consent, waiver or other Act,
the Company may, at its option, by or pursuant to a Board Resolution, fix in
advance a record date for the determination of Holders entitled to give such
request, demand, authorization, direction, notice, consent, waiver or other Act,
but the Company shall have no obligation to do so. Notwithstanding TIA Section
316(c), such record date shall be the record date specified in or pursuant to
such Board Resolution, which shall be a date not earlier than the date 30 days
prior to the first solicitation of Holders generally in connection therewith and
not later than the date such solicitation is completed. If such a record date
is fixed, such request, demand, authorization, direction, notice, consent,
waiver or other Act may be given before or after such record date, but only the
Holders of record at the close of business on such record date shall be deemed
to be Holders for the purposes of determining whether Holders of the requisite
proportion of Outstanding Notes have authorized or agreed or consented to such
request, demand, authorization, direction, notice, consent, waiver or other Act,
and for that purpose the Outstanding Notes shall be computed as of such record
date; provided that no such authorization, agreement or consent by the Holders
on such record date shall be deemed effective unless it shall
<PAGE>
26
become effective pursuant to the provisions of this Indenture not later than
eleven months after the record date.
(e) Any request, demand, authorization, direction, notice, consent,
waiver or other Act of the Holder of any Note shall bind every future Holder of
the same Note and the Holder of every Note issued upon the registration of
transfer thereof or in exchange therefor or in lieu thereof in respect of
anything done, omitted or suffered to be done by the Trustee or the Company in
reliance thereon, whether or not notation of such action is made upon such Note.
SECTION 105. Notices, Etc., to Trustee, Company.
----------------------------------
Any request, demand, authorization, direction, notice, consent, waiver
or Act of Holders or other document provided or permitted by this Indenture to
be made upon, given or furnished to, or filed with,
(1) the Trustee by any Holder or by the Company shall be sufficient
for every purpose hereunder if made, given, furnished or filed in writing
to or with the Trustee at its Corporate Trust Office, or
(2) the Company by the Trustee or by any Holder shall be sufficient
for every purpose hereunder (unless otherwise herein expressly provided) if
in writing and mailed, first-class postage prepaid, to the Company
addressed to it at the address of its principal office specified in the
first paragraph of this Indenture, or at any other address previously
furnished in writing to the Trustee by the Company.
SECTION 106. Notice to Holders; Waiver.
-------------------------
Where this Indenture provides for notice of any event to Holders by
the Company or the Trustee, such notice shall be sufficiently given (unless
otherwise herein expressly provided) if in writing and mailed, first-class
postage prepaid, to each Holder affected by such event, at his address as it
appears in the Register, not later than the latest date, and not earlier than
the earliest date, prescribed for the giving of such notice. In any case where
notice to Holders is given by mail, neither the failure to mail such notice, nor
any defect in any notice so mailed, to any particular Holder shall affect the
sufficiency of such notice with respect to other Holders. Any notice mailed to
a Holder in the manner herein prescribed shall be conclusively deemed to have
been received by such Holder, whether or not such Holder actually receives such
notice. Where this Indenture provides for notice in any manner, such notice may
be waived in writing by the Person entitled to receive such notice, either
before or after the event, and such waiver shall be the equivalent of such
notice. Waivers of notice by Holders shall be filed with the Trustee, but such
filing shall not be a condition precedent to the validity of any action taken in
reliance upon such waiver.
<PAGE>
27
In case by reason of the suspension of or irregularities in regular
mail service or by reason of any other cause, it shall be impracticable to mail
notice of any event to Holders when such notice is required to be given pursuant
to any provision of this Indenture, then any manner of giving such notice as
shall be satisfactory to the Trustee shall be deemed to be a sufficient giving
of such notice for every purpose hereunder.
SECTION 107. Effect of Headings and Table of Contents.
----------------------------------------
The Article and Section headings herein and the Table of Contents are
for convenience only and shall not affect the construction hereof.
SECTION 108. Successors and Assigns.
----------------------
All covenants and agreements in this Indenture by the Company shall
bind its successors and assigns, whether so expressed or not.
SECTION 109. Separability Clause.
-------------------
In case any provision in this Indenture or in the Notes shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
SECTION 110. Benefits of Indenture.
---------------------
Nothing in this Indenture or in the Notes, express or implied, shall
give to any Person, other than the parties hereto, any Paying Agent, any Notes
Registrar and their successors hereunder, and the Holders, any benefit or any
legal or equitable right, remedy or claim under this Indenture.
SECTION 111. Governing Law.
-------------
This Indenture and the Notes shall be governed by and construed in
accordance with the laws of the State of New York. Upon the issuance of
Exchange Notes, if any, or the effectiveness of the Shelf Registration
Statement, this Indenture will be subject to the provisions of the Trust
Indenture Act that are required to be part of this Indenture and shall, to the
extent applicable, be governed by such provisions. Each of the parties hereto
submits to the jurisdiction of the U.S. federal and any New York state court
located in the Borough of Manhattan, The City and State of New York with respect
to any actions brought against it as defendant in any suit, action or proceeding
arising out of or relative to this Indenture or the Notes and waives any rights
to which it may be entitled on account of place of residence or domicile.
<PAGE>
28
SECTION 112. Legal Holidays.
--------------
In any case where any Interest Payment Date, Redemption Date, sinking
fund payment date or Stated Maturity or Maturity of any Note shall not be a
Business Day, then (notwithstanding any other provision of this Indenture or of
the Notes) payment of principal (or premium, if any) or interest need not be
made on such date, but may be made on the next succeeding Business Day with the
same force and effect as if made on such Interest Payment Date, Redemption Date
or sinking fund payment date, or at the Stated Maturity or Maturity; provided
that no interest shall accrue for the period from and after such Interest
Payment Date, Redemption Date, sinking fund payment date, Stated Maturity or
Maturity, as the case may be.
ARTICLE TWO
NOTE FORMS
SECTION 201. Forms Generally.
---------------
The Notes and the Trustee's certificate of authentication shall be
substantially in the form annexed hereto as Exhibit A with such appropriate
insertions, omissions, substitutions and other variations as are required or
permitted by this Indenture. The Notes may have notations, legends or
endorsements required by law, stock exchange agreements to which the Company is
subject or usage. The Company shall approve the form of the Notes and any
notation, legend or endorsement on the Notes. Each Note shall be dated the date
of its authentication.
The terms and provisions contained in the form of the Notes annexed
hereto as Exhibit A shall constitute, and are hereby expressly made, a part of
this Indenture. To the extent applicable, the Company and the Trustee, by their
execution and delivery of this Indenture, expressly agree to such terms and
provisions and to be bound thereby.
Notes offered and sold to qualified institutional buyers ("Qualified
---------
Institutional Buyers" or "QIBs") in reliance on Rule 144A under the Securities
- -------------------- ----
Act shall be issued initially in the form of one or more permanent global Notes
in registered form, substantially in the form set forth in Exhibit A (the "Rule
----
144A Global Notes"), registered in the name of the Depositary or the nominee of
- -----------------
the Depositary, deposited with the Trustee, as custodian for the Depositary,
duly executed by the Company and authenticated by the Trustee as hereinafter
provided. The aggregate principal amount of the Rule 144A Global Notes may from
time to time be increased or decreased by adjustments made on the records of the
Trustee, as custodian for the Depositary or its nominee, in accordance with the
instructions given by the Holder thereof, as hereinafter provided.
<PAGE>
29
Notes offered and sold in offshore transactions in reliance on
Regulation S under the Securities Act shall be issued initially in the form of
one or more temporary global Notes ("Regulation S Temporary Global Note") in
----------------------------------
registered form substantially in the form set forth in Exhibit A, registered in
the name of the Depositary or the nominee of the Depositary, deposited with the
Trustee, as custodian for the Depositary, duly executed by the Company and
authenticated by the Trustee as hereinafter provided. At any time following
March 9, 1998 (the "Restricted Period"), upon receipt by the Trustee and the
-----------------
Company of a certificate substantially in the form of Exhibit B hereto, one or
more permanent global Notes in registered form substantially in the form set
forth in Exhibit A (the "Regulation S Permanent Global Notes"; and together with
-----------------------------------
the Regulation S Temporary Global Notes, the "Regulation S Global Notes"), duly
-------------------------
executed by the Company and authenticated by the Trustee as hereinafter
provided, shall be deposited with the Trustee, as custodian for the Depositary,
and the Registrar shall reflect on its books and records the date and a decrease
in the principal amount of the Regulation S Temporary Global Note in an amount
equal to the principal amount of the beneficial interest in the Regulation S
Temporary Global Note transferred.
Notes issued pursuant to Section 312 in exchange for interests in Rule
144A Global Notes shall be issued in the form of permanent certificated Notes in
registered form in substantially the form set forth in Exhibit A (the "Rule 144A
---------
Certificated Notes"). Notes issued pursuant to Section 312 in exchange for
- ------------------
interests in the Regulation S Global Notes shall be in the form of permanent
certificated Notes in registered form substantially in the form set forth in
Exhibit A (the "Regulation S Certificated Notes").
-------------------------------
The Regulation S Certificated Notes and Rule 144A Certificated Notes
are sometimes collectively herein referred to as the "Certificated Notes". The
------------------
Rule 144A Global Notes and the Regulation S Global Notes are sometimes
collectively referred to herein as the "Global Notes". Ownership of beneficial
------------
interests in Global Notes will be limited to Participants or Indirect
Participants.
The definitive Notes shall be typed, printed, lithographed or engraved
or produced by any combination of these methods or may be produced in any other
manner permitted by the rules of any securities exchange on which the Notes may
be listed, all as determined by the officers executing such Notes, as evidenced
by their execution of such Notes.
SECTION 202. Restrictive Legends.
-------------------
Unless and until a Note is exchanged for an Exchange Note in
connection with an effective Registration Statement pursuant to the Registration
Rights Agreement, Rule 144A Global Notes, Regulation S Temporary Global Notes
and each Rule 144A Certificated Note shall bear the following legend (the
"Private Placement Legend") on the face thereof:
------------------------
<PAGE>
30
THE NOTES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE OR OTHER
SECURITIES LAWS. NEITHER THIS NOTE NOR ANY INTEREST OR PARTICIPATION HEREIN
MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR
OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS THE
TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT. THE HOLDER OF THIS NOTE BY ITS
ACCEPTANCE HEREOF (1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL
BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) OR (B) IT IS NOT
A U.S. PERSON AND IS ACQUIRING ITS NOTE IN AN "OFFSHORE TRANSACTION"
PURSUANT TO RULE 904 OF REGULATION S UNDER THE SECURITIES ACT, (2) AGREES
THAT IT WILL NOT PRIOR TO (X) THE DATE WHICH IS TWO YEARS (OR SUCH SHORTER
PERIOD OF TIME AS PERMITTED BY RULE 144(k) UNDER THE SECURITIES ACT OR ANY
SUCCESSOR PROVISION THEREUNDER) AFTER THE LATER OF THE ORIGINAL ISSUE DATE
HEREOF (OR OF ANY PREDECESSOR NOTE OF THIS NOTE) OR THE LAST DAY ON WHICH
THE COMPANY OR ANY AFFILIATE OF THE COMPANY WAS THE OWNER OF THIS NOTE (OR
ANY PREDECESSOR NOTE OF THIS NOTE) AND (Y) SUCH LATER DATE, IF ANY, AS MAY
BE REQUIRED BY APPLICABLE LAWS (THE "RESTRICTED PERIOD") OFFER, SELL OR
OTHERWISE TRANSFER THIS NOTE EXCEPT (A) TO THE COMPANY, (B) PURSUANT TO A
REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE
SECURITIES ACT, (C) FOR SO LONG AS THE NOTES ARE ELIGIBLE FOR RESALE
PURSUANT TO RULE 144A, TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED
INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT THAT
PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED
INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE
IN RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS AND SALES TO NON-U.S.
PERSONS THAT OCCUR OUTSIDE THE UNITED STATES WITHIN THE MEANING OF
REGULATION S UNDER THE SECURITIES ACT OR (E) PURSUANT TO ANOTHER AVAILABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND (3)
AGREES THAT IT WILL GIVE TO EACH PERSON TO WHOM THIS NOTE IS TRANSFERRED A
NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND; PROVIDED THAT THE
COMPANY, THE TRUSTEE AND THE REGISTRAR SHALL HAVE THE RIGHT PRIOR TO ANY
SUCH OFFER, SALE OR TRANSFER, IN EACH OF THE FOREGOING CASES, TO REQUIRE
THAT A CERTIFICATION OF TRANSFER IN THE FORM APPEARING ON THE REVERSE SIDE
OF THIS NOTE IS COMPLETED AND DELIVERED BY THE TRANSFEROR TO THE TRUSTEE.
IN CONNECTION WITH ANY TRANSFER OF THIS NOTE
<PAGE>
31
WITHIN THE TIME PERIOD REFERRED TO ABOVE, THE HOLDER MUST CHECK THE
APPROPRIATE BOX SET FORTH ON THE REVERSE SIDE HEREOF RELATING TO THE MANNER
OF SUCH TRANSFER AND SUBMIT THIS CERTIFICATE TO THE TRUSTEE. THIS LEGEND
WILL BE REMOVED UPON THE REQUEST OF THE HOLDER AFTER THE RESTRICTED PERIOD.
AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION", "UNITED STATES" AND "U.S.
PERSON" HAVE THE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE
SECURITIES ACT.
Each Global Note, whether or not an Exchange Note, shall also bear the
following legend on the face thereof:
UNLESS THIS CERTIFICATE IS PRESENTED, BY AN AUTHORIZED REPRESENTATIVE OF
THE DEPOSITORY TRUST COMPANY, TO THE COMPANY OR ITS AGENT FOR REGISTRATION
OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED
IN THE NAME OF CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY OR SUCH OTHER
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY OR SUCH OTHER NAME AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY
(AND ANY PAYMENT HEREON IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY),
ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO
ANY PERSON IS WRONGFUL SINCE THE REGISTERED OWNER HEREOF, CEDE & CO., HAS
AN INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT
NOT IN PART, TO NOMINEES OF CEDE & CO. OR TO A SUCCESSOR THEREOF OR SUCH
SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL NOTE SHALL BE
LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN
SECTIONS 311 AND 312 OF THE INDENTURE.
<PAGE>
32
ARTICLE THREE
THE NOTES
SECTION 301. Title and Terms.
---------------
The aggregate principal amount of Notes which may be authenticated and
delivered under this Indenture is limited to $300,000,000, except for Notes
authenticated and delivered upon registration of transfer of, or in exchange
for, or in lieu of, other Notes pursuant to Section 303, 304, 305, 306, 906,
1010, 1017 or 1108.
The Initial Notes shall be known and designated as the "10 1/2%
Senior Notes due 2008" of the Company and the Exchange Notes shall be known and
designated as the "10 1/2% Series B Senior Notes due 2008" of the Company. The
Stated Maturity of the principal of the Notes shall be January 15, 2008 and they
shall bear interest at the rate of 10 1/2% per annum, payable on January 15 and
July 15 of each year, commencing on July 15, 1998, until the principal thereof
is paid or duly provided for. Interest on the Notes will accrue from the most
recent Interest Payment Date for which interest has been paid or, if no interest
has been paid, from the Issue Date.
The principal of (and premium and Liquidated Damages, if any) and
interest on the Notes shall be payable at the office or agency of the Company
maintained for such purpose pursuant to Section 1002, or, at the option of the
Company, interest may be paid by check mailed to addresses of the Persons
entitled thereto as such addresses shall appear on the Register; provided that
all payments with respect to the Global Notes and Certificated Notes 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.
The Notes shall be redeemable as provided in Article Eleven.
SECTION 302. Denominations.
-------------
The Notes shall be issuable only in registered form without coupons
and only in denominations of $1,000 and any integral multiple thereof.
SECTION 303. Execution, Authentication, Delivery and Dating.
----------------------------------------------
The Notes shall be executed on behalf of the Company by its chairman,
its president, chief financial officer or any Vice President. The signature of
any of these officers on the Notes may be manual or facsimile signatures of the
present or any future such authorized officer and may be imprinted or otherwise
reproduced on the Notes.
<PAGE>
33
Notes bearing the manual or facsimile signatures of individuals who
were at any time the proper officers of the Company shall bind the Company,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Notes or did not hold
such offices at the date of such Notes.
At any time and from time to time after the execution and delivery of
this Indenture, the Company may deliver Initial Notes executed by the Company to
the Trustee for authentication, together with a Company Order for the
authentication and delivery of such Initial Notes directing the Trustee to
authenticate the Notes and certifying that all conditions precedent to the
issuance of Notes contained herein have been fully complied with, and the
Trustee in accordance with such Company Order shall authenticate and deliver
such Initial Notes. On Company Order, the Trustee shall authenticate for
original issue Exchange Notes in an aggregate principal amount not to exceed
$300,000,000; provided that such Exchange Notes shall be issuable only upon the
valid surrender for cancellation of Initial Notes of a like aggregate principal
amount in accordance with an Exchange Offer pursuant to the Registration Rights
Agreement and a Company Order for the authentication of such securities
certifying that all conditions precedent to the issuance have been complied with
(including the effectiveness of a registration statement related thereto). In
each case, the Trustee shall be entitled to receive an Officer's Certificate and
an Opinion of Counsel of the Company that it may reasonably request in
connection with such authentication of Notes. Such order shall specify the
amount of Notes to be authenticated and the date on which the original issue of
Initial Notes or Exchange Notes is to be authenticated.
Each Note shall be dated the date of its authentication.
No Note shall be entitled to any benefit under this Indenture or be
valid or obligatory for any purpose unless there appears on such Note a
certificate of authentication, substantially in the form provided for in Exhibit
A, duly executed by the Trustee by manual signature of an authorized officer,
and such certificate upon any Note shall be conclusive evidence, and the only
evidence, that such Note has been duly authenticated and delivered hereunder and
is entitled to the benefits of this Indenture.
In case the Company, pursuant to Article Eight, shall be consolidated
or merged with or into any other Person or shall convey, transfer, lease or
otherwise dispose of its properties and assets substantially as an entirety in a
transaction or a series of transactions to any Person, and the successor Person
resulting from such consolidation, or surviving such merger, or into which the
Company shall have been merged, or the Person which shall have received a
conveyance, transfer, lease or other disposition as aforesaid, shall have
executed an indenture supplemental hereto with the Trustee pursuant to Article
Eight, any of the Notes authenticated or delivered prior to such consolidation,
merger, conveyance, transfer, lease or other disposition may, from time to time,
at the request of the successor Person, be exchanged for other Notes executed in
the name of the successor Person with such changes in phraseology and form as
may
<PAGE>
34
be appropriate, but otherwise in substance of like tenor as the Notes
surrendered for such exchange and of like principal amount; and the Trustee,
upon Company Request of the successor Person, shall authenticate and deliver
Notes as specified in such request for the purpose of such exchange. If Notes
shall at any time be authenticated and delivered in any new name of a successor
Person pursuant to this Section in exchange or substitution for or upon
registration of transfer of any Notes, such successor Person, at the option of
the Holders but without expense to them, shall provide for the exchange of all
Notes at the time Outstanding for Notes authenticated and delivered in such new
name.
SECTION 304. Temporary Notes.
---------------
Pending the preparation of definitive Notes, the Company may execute,
and upon Company Order the Trustee shall authenticate and deliver, temporary
Notes which are printed, lithographed, typewritten, mimeographed or otherwise
produced, in any authorized denomination, substantially of the tenor of the
definitive Notes in lieu of which they are issued and with such appropriate
insertions, omissions, substitutions and other variations as the officers
executing such Notes may determine, as conclusively evidenced by their execution
of such Notes.
If temporary Notes are issued, the Company shall cause definitive
Notes to be prepared without unreasonable delay. After the preparation of
definitive Notes, the temporary Notes shall be exchangeable for definitive Notes
upon surrender of the temporary Notes at the office or agency of the Company
designated for such purpose pursuant to Section 1002 without charge to the
Holder. Upon surrender for cancellation of any one or more temporary Notes, the
Company shall execute and upon Company Order the Trustee shall authenticate and
deliver in exchange therefor a like principal amount of definitive Notes of
authorized denominations. Until so exchanged, the temporary Notes shall in all
respects be entitled to the same benefits under this Indenture as definitive
Notes.
SECTION 305. Registration, Registration of Transfer and Exchange.
---------------------------------------------------
The Company shall cause to be kept at the Corporate Trust Office of
the Trustee a register (the register maintained in such office and in any other
office or agency designated pursuant to Section 1002 being herein sometimes
referred to as the "Register") in which, subject to such reasonable regulations
--------
as it may prescribe, the Company shall provide for the registration of Notes and
of transfers of Notes. The Register shall be in written form or any other form
capable of being converted into written form within a reasonable time. At all
reasonable times, the Register shall be open to inspection by the Trustee. The
Trustee is hereby initially appointed as security registrar (the "Registrar")
---------
for the purpose of registering Notes and transfers of Notes as herein provided.
<PAGE>
35
Upon surrender for registration of transfer of any Note at the office
or agency of the Company designated pursuant to Section 1002, the Company shall
execute, and the Trustee shall authenticate and deliver, in the name of the
designated transferee or transferees, one or more new Notes of any authorized
denomination or denominations of a like aggregate principal amount.
At the option of the Holder, Notes may be exchanged for other Notes of
any authorized denomination and of a like aggregate principal amount, upon
surrender of the Notes to be exchanged at such office or agency. Whenever any
Notes are so surrendered for exchange, the Company shall execute, and the
Trustee shall authenticate and deliver, the Notes which the Holder making the
exchange is entitled to receive; provided that no exchange of Initial Notes for
Exchange Notes shall occur until an Exchange Offer Registration Statement shall
have been declared effective by the Commission, the Trustee shall have received
an Officer's Certificate confirming that the Exchange Offer Registration
Statement has been declared effective by the Commission and the Initial Notes to
be exchanged for the Exchange Notes shall be cancelled by the Trustee.
All Notes issued upon any registration of transfer or exchange of
Notes shall be the valid obligations of the Company, evidencing the same debt,
and entitled to the same benefits under this Indenture, as the Notes surrendered
upon such registration of transfer or exchange.
Every Note presented or surrendered for registration of transfer or
for exchange shall be duly endorsed and be accompanied by a written instrument
of transfer, in form satisfactory to the Company and the Registrar, duly
executed by the Holder thereof or his attorney duly authorized in writing.
No service charge shall be made for any registration of transfer or
exchange or redemption of Notes, but the Company may require payment of a sum
sufficient to cover any tax or other governmental charge that may be imposed in
connection with any registration of transfer or exchange of Notes, other than
exchanges pursuant to Section 304, 906, 1010, 1017 or 1108 not involving any
transfer.
The Company shall not be required (i) to issue, register the transfer
of or exchange any Note during a period beginning at the opening of business 15
days before the selection of Notes to be redeemed under Section 1104 and ending
at the close of business on the day of such mailing of the relevant notice of
redemption, or (ii) to register the transfer of or exchange any Note so selected
for redemption in whole or in part, except the unredeemed portion of any Note
being redeemed in part.
<PAGE>
36
SECTION 306. Mutilated, Destroyed, Lost and Stolen Notes.
-------------------------------------------
If (i) any mutilated Note is surrendered to the Trustee, or (ii) the
Company and the Trustee receive evidence to their satisfaction of the
destruction, loss or theft of any Note, and there is delivered to the Company
and the Trustee such security or indemnity as may be required by them to save
each of them harmless, then, in the absence of notice to the Company or the
Trustee that such Note has been acquired by a bona fide purchaser, the Company
shall execute and upon Company Order the Trustee shall authenticate and deliver,
in exchange for any such mutilated Note or in lieu of any such destroyed, lost
or stolen Note, a new Note of like tenor and principal amount, bearing a number
not contemporaneously outstanding.
In case any such mutilated, destroyed, lost or stolen Note has become
or is about to become due and payable, the Company in its discretion may,
instead of issuing a new Note, pay such Note.
Upon the issuance of any new Note under this Section 306, the Company
may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and any other
expenses (including the fees and expenses of the Trustee) connected therewith.
Every new Note issued pursuant to this Section 306 in lieu of any
mutilated, destroyed, lost or stolen Note shall constitute an original
additional contractual obligation of the Company, whether or not the mutilated,
destroyed, lost or stolen Note shall be at any time enforceable by anyone, and
shall be entitled to all benefits of this Indenture equally and proportionately
with any and all other Notes duly issued hereunder.
The provisions of this Section 306 are exclusive and shall preclude
(to the extent lawful) all other rights and remedies with respect to the
replacement or payment of mutilated, destroyed, lost or stolen Notes.
SECTION 307. Payment of Interest; Interest Rights Preserved.
----------------------------------------------
Interest on any Note which is payable, and is punctually paid or duly
provided for, on any Interest Payment Date shall be paid to the Person in whose
name such Note (or Predecessor Notes) is registered at the close of business on
the Regular Record Date (or if a Predecessor Note is outstanding on such Regular
Record Date, such Predecessor Note) for such interest at the office or agency of
the Company maintained for such purpose pursuant to Section 1002 or, at the
option of the Company, interest may be paid by check mailed to the address of
the Person entitled thereto as such address shall appear on the Register;
provided that all payments with respect to Global Notes and Certificated Notes
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.
<PAGE>
37
Any interest on any Note which is payable, but is not punctually paid
or duly provided for, on any Interest Payment Date shall forthwith cease to be
payable to the Holder on the Regular Record Date by virtue of having been such
Holder, and such defaulted interest and (to the extent lawful) interest on such
defaulted interest at the rate borne by the Notes (such defaulted interest and
interest thereon herein collectively called "Defaulted Interest") may be paid by
------------------
the Company, at its election in each case, as provided in clause (1) or (2)
below:
(1) The Company may elect to make payment of any Defaulted Interest
to the Persons in whose names the Notes (or their respective Predecessor
Notes) are registered at the close of business on a special record date
("Special Record Date") for the payment of such Defaulted Interest, which
-------------------
shall be fixed in the following manner. The Company shall notify the
Trustee in writing of the amount of Defaulted Interest proposed to be paid
on each Note and the date of the proposed payment, and at the same time the
Company shall deposit with the Trustee an amount of money equal to the
aggregate amount proposed to be paid in respect of such Defaulted Interest
or shall make arrangements satisfactory to the Trustee for such deposit
prior to the date of the proposed payment, such money when deposited to be
held in trust for the benefit of the Persons entitled to such Defaulted
Interest as in this clause provided. Thereupon the Trustee shall fix a
Special Record Date for the payment of such Defaulted Interest which shall
be not more than 15 days and not less than 10 days prior to the date of the
proposed payment and not less than 10 days after the receipt by the Trustee
of the notice of the proposed payment. The Trustee shall promptly notify
the Company of such Special Record Date and, in the name and at the expense
of the Company, shall cause notice of the proposed payment of such
Defaulted Interest and the Special Record Date therefor to be given in the
manner provided for in Section 106 not less than 10 days prior to such
Special Record Date. Notice of the proposed payment of such Defaulted
Interest and the Special Record Date therefor having been so given, such
Defaulted Interest shall be paid to the Persons in whose names the Notes
(or their respective Predecessor Notes) are registered at the close of
business on such Special Record Date and shall no longer be payable
pursuant to the following clause (2).
(2) The Company may make payment of any Defaulted Interest in any
other lawful manner not inconsistent with the requirements of any
securities exchange on which the Notes may be listed, and upon such notice
as may be required by such exchange, if, after notice given by the Company
to the Trustee of the proposed payment pursuant to this clause, such manner
of payment shall be deemed practicable by the Trustee.
Subject to the foregoing provisions of this Section 307, each Note
delivered under this Indenture upon registration of transfer of or in exchange
for or in lieu of any other Note shall carry the rights to interest accrued and
unpaid, and to accrue, which were carried by such other Note.
<PAGE>
38
SECTION 308. Persons Deemed Owners.
---------------------
Prior to the due presentment of a Note for registration of transfer,
the Company, the Trustee and any agent of the Company or the Trustee may treat
the Person in whose name such Note is registered as the owner of such Note for
the purpose of receiving payment of principal of (and premium, if any) and
(subject to Sections 305 and 307) interest on such Note and for all other
purposes whatsoever, whether or not such Note be overdue, and none of the
Company, the Trustee or any agent of the Company or the Trustee shall be
affected by notice to the contrary.
SECTION 309. Cancellation.
------------
All Notes surrendered for payment, redemption, registration of
transfer or exchange shall, if surrendered to any Person other than the Trustee,
be delivered to, and promptly cancelled by, the Trustee. The Company may at any
time deliver to the Trustee for cancellation any Notes previously authenticated
and delivered hereunder which the Company may have acquired in any manner
whatsoever, and may deliver to the Trustee (or to any other Person for delivery
to the Trustee) for cancellation any Notes previously authenticated hereunder
which the Company has not issued and sold, and all Notes so delivered shall be
promptly cancelled by the Trustee. If the Company shall so acquire any of the
Notes, however, such acquisition shall not operate as a redemption or
satisfaction of the Indebtedness represented by such Notes unless and until the
same are surrendered to the Trustee for cancellation. No Notes shall be
authenticated in lieu of or in exchange for any Notes cancelled as provided in
this Section, except as expressly permitted by this Indenture. All cancelled
Notes held by the Trustee shall be disposed of by the Trustee in accordance with
its customary procedures and certification of their disposal delivered to the
Company unless by Company Order the Company shall direct that cancelled Notes be
returned to it after being appropriately designated as cancelled.
SECTION 310. Computation of Interest.
-----------------------
Interest on the Notes shall be computed on the basis of a 360-day year
of twelve 30-day months.
SECTION 311. Book-Entry Provisions for Global Notes.
--------------------------------------
(a) Each Global Note initially shall (i) be registered in the name
of the Depositary for such Global Notes or the nominee of such Depositary,
(ii) be delivered to the Trustee as custodian for such Depositary and (iii) bear
legends as set forth in Section 202.
Except as provided in Section 311(b), owners of beneficial interests
in the Global Notes will not have Notes registered in their names, will not
receive physical delivery of Notes
<PAGE>
39
in certificated form and will not be considered the registered owner or Holder
thereof under this Indenture for any purpose.
Members of, or Participants in, the Depositary shall have no rights
under this Indenture with respect to any Global Note, and the Depositary may be
treated by the Company, the Trustee and any agent of the Company or the Trustee
as the absolute owner of such Global Note for all purposes whatsoever.
Notwithstanding the foregoing, nothing herein shall prevent the Company, the
Trustee or any agent of the Company or the Trustee from giving effect to any
written certification, proxy or other authorization furnished by the Depositary
or impair, as between the Depositary and its Participants, the operation of
customary practices governing the exercise of the rights of a beneficial owner
of any Note. The registered Holder of a Global Note may grant proxies and
otherwise authorize any person, including Participants and persons that may hold
interests through Participants, to take any action which a Holder is entitled to
take under this Indenture or the Notes.
(b) Interests of beneficial owners in a Global Note may be
transferred in accordance with the applicable rules and procedures of the
Depositary and the provisions of Section 312. Transfers of a Global Note shall
be limited to transfers of such Global Note in whole, but not in part, to the
Depositary, a nominee of the Depositary, its successors or their respective
nominees. Interests of beneficial owners in the Global Notes may be transferred
in accordance with the rules and procedures of the Depositary and the provisions
of Section 312 hereof. Rule 144A Certificated Notes and Regulation S
Certificated Notes shall be transferred to beneficial owners in exchange for
their beneficial interests in the Rule 144A Global Note(s) or the Regulation S
Global Note(s), as the case may be, if (i) the Depositary (A) notifies the
Company that it is unwilling or unable to continue as depository for the Global
Notes and the Company thereupon fails to appoint a successor depository or (B)
has ceased to be a clearing agency registered under the Exchange Act; (ii) there
shall have occurred and be continuing an Event of Default with respect to the
Notes; or (iii) the Company, at its option, notifies the Trustee in writing that
it elects to cause issuance of the Notes in certificated form; provided that in
no event shall the Regulation S Temporary Global Note be exchanged by the
Company for Certificated Notes prior to (x) the end of the Restricted Period and
(y) receipt by the Trustee and the Company of a certificate substantially in the
form of Exhibit B hereto. In connection with a transfer of an entire Global Note
to beneficial owners pursuant to clause (i), (ii) or (iii) of this paragraph
(b), the applicable Global Note shall be deemed to be surrendered to the Trustee
for cancellation, and the Company shall execute, and the Trustee shall
authenticate and deliver, to each beneficial owner identified by the Depositary
in exchange for its beneficial interest in the applicable Global Note, an equal
aggregate principal amount of Rule 144A Certificated Notes (in the case of the
Rule 144A Global Note) or Regulation S Certificated Notes (in the case of the
Regulation S Global Note), as the case may be, of authorized denominations.
(c) Any beneficial interest in one of the Global Notes that is
transferred to a Person who takes delivery in the form of an interest in the
other Global Note will, upon transfer,
<PAGE>
40
cease to be an interest in such Global Note and become an interest in the other
Global Note and, accordingly, will thereafter be subject to all transfer
restrictions, if any, and other procedures applicable to beneficial interests in
such other Global Note for as long as it remains such an interest.
(d) Any Rule 144A Certificated Note delivered in exchange for an
interest in the Rule 144A Global Note pursuant to paragraph (b) of this Section
shall, unless such exchange is made on or after the date which is two years
following the date hereof, or such shorter period of time as permitted under
Rule 144(k) under the Securities Act, and except as otherwise provided in
Section 312, bear the Private Placement Legend.
SECTION 312. Transfer Provisions.
-------------------
Unless and until a Note is exchanged for an Exchange Note in
connection with an effective Registration Statement pursuant to the Registration
Rights Agreement, the following provisions shall apply:
(a) Transfers to QIBs. The following provisions shall apply with
-----------------
respect to the registration of any proposed transfer of a Rule 144A
Certificated Note or an interest in the Rule 144A Global Note to a QIB
(excluding Non-U.S. Persons):
(i) If the Note to be transferred consists of (x) Rule 144A
Certificated Notes, the Registrar shall register the transfer if such
transfer is being made by a proposed transferor who has checked the
box provided for on the form of Note stating, or has otherwise advised
the Company and the Registrar in writing, that the sale has been made
in compliance with the provisions of Rule 144A to a transferee who has
signed the certification provided for on the form of Note stating, or
has otherwise advised the Company and the Registrar in writing, that
it is purchasing the Note for its own account (or an account with
respect to which it exercises sole investment discretion) and that
each of it and any such account is a QIB, and is aware that the sale
to it is being made in reliance on Rule 144A and acknowledges that it
has received such information regarding the Company as it has
requested pursuant to Rule 144A or has determined not to request such
information and that it is aware that the transferor is relying upon
its foregoing representations in order to claim the exemption from
registration provided by Rule 144A or (y) an interest in the Rule 144A
Global Note, the transfer of such interest may be effected only
through the book-entry system maintained by the Depositary.
(ii) If the proposed transferee is a Participant, and the Note
to be transferred consists of Rule 144A Certificated Notes, upon
receipt by the Registrar of the documents referred to in clause (i)(x)
and instructions given in
<PAGE>
41
accordance with the Depositary's and the Registrar's procedures, the
Registrar shall reflect on its books and records the date and an
increase in the principal amount of the Rule 144A Global Note in an
amount equal to the principal amount of the Rule 144A Certificated
Notes to be transferred, and the Trustee shall cancel the Rule 144A
Certificated Note so transferred.
(b) Transfers of Interests in the Regulation S Temporary Global Note
----------------------------------------------------------------
to QIBs. The following provisions shall apply with respect to registration
-------
of any proposed transfer of interests in the Regulation S Temporary Global
Note:
(i) The Registrar shall register the transfer of any Note (x)
if the proposed transferee is a Non-U.S. Person and the proposed
transferor has delivered to the Registrar a certificate substantially
in the form of Exhibit C hereto or (y) if the proposed transferee is a
QIB and the proposed transferor has checked the box provided for on
the form of Note stating, or has otherwise advised the Company and the
Registrar in writing, that the sale has been made in compliance with
the provisions of Rule 144A to a transferee who has signed the
certification provided for on the form of Note stating, or has
otherwise advised the Company and the Registrar in writing, that it is
purchasing the Note for its own account or an account with respect to
which it exercises sole investment discretion and that each of it and
any such account is a QIB within the meaning of Rule 144A, and is
aware that the sale to it is being made in reliance on Rule 144A and
acknowledges that it has received such information regarding the
Company as it has requested pursuant to Rule 144A or has determined
not to request such information and that it is aware that the
transferor is relying upon its foregoing representations in order to
claim the exemption from registration provided by Rule 144A.
(ii) If the proposed transferee is a Participant, upon receipt
by the Registrar of the documents referred to in clause (i)(x) above
and instructions given in accordance with the Depositary's and the
Registrar's procedures, the Registrar shall reflect on its books and
records the date and an increase in the principal amount of the Rule
144A Global Note in an amount equal to the principal amount of the
Regulation S Temporary Global Note to be transferred, and the Trustee
shall decrease the amount of the Regulation S Temporary Global Note.
(c) Transfers of Interests in the Regulation S Permanent Global Note
----------------------------------------------------------------
or Regulation S Certificated Notes to U.S. Persons. The following
--------------------------------------------------
provisions shall apply with respect to registration of any proposed
transfer of interests in the Regulation S Permanent Global Note or
Regulation S Certificated Notes to U.S. Persons:
<PAGE>
42
(i) The Registrar shall register the transfer of any such Note
without requiring any additional certification.
(ii) (A) If the proposed transferor is a Participant holding a
beneficial interest in the Regulation S Permanent Global Note, upon
receipt by the Registrar of instructions in accordance with the
Depositary's and the Registrar's procedures, the Registrar shall
reflect on its books and records the date and a decrease in the
principal amount of the Regulation S Permanent Global Note in an
amount equal to the principal amount of the beneficial interest in the
Regulation S Permanent Global Note to be transferred, and (B) if the
proposed transferee is a Participant, upon receipt by the Registrar of
instructions given in accordance with the Depositary's and the
Registrar's procedures, the Registrar shall reflect on its books and
records the date and an increase in the principal amount of the Rule
144A Global Note in an amount equal to the principal amount of the
Regulation S Certificated Notes or the Regulation S Permanent Global
Note, as the case may be, to be transferred, and the Trustee shall
cancel the Certificated Note, if any, so transferred or decrease the
amount of the Regulation S Permanent Global Note.
(d) Transfers to Non-U.S. Persons at Any Time. The following
-----------------------------------------
provisions shall apply with respect to any transfer of a Note to a Non-U.S.
Person:
(i) Prior to March 9, 1998, the Registrar shall register any
proposed transfer of a Note to a Non-U.S. Person upon receipt of a
certificate substantially in the form of Exhibit C hereto from the
proposed transferor.
(ii) On and after March 9, 1998, the Registrar shall register
any proposed transfer to any Non-U.S. Person if the Note to be
transferred is a Rule 144A Certificated Note or an interest in the
Rule 144A Global Note, upon receipt of a certificate substantially in
the form of Exhibit C hereto from the proposed transferor.
(iii) (A) If the proposed transferor is a Participant holding a
beneficial interest in the Rule 144A Global Note, upon receipt by the
Registrar of the documents, if any, required by paragraph (ii) and
instructions in accordance with the Depositary's and the Registrar's
procedures, the Registrar shall reflect on its books and records the
date and a decrease in the principal amount of the Rule 144A Global
Note in an amount equal to the principal amount of the beneficial
interest in the Rule 144A Global Note to be transferred, and (B) if
the proposed transferee is a Participant, upon receipt by the
Registrar of instructions given in accordance with the Depositary's
and the Registrar's procedures, the Registrar shall reflect on its
books and records the date and an increase in the principal
<PAGE>
43
amount of the Regulation S Global Note in an amount equal to the
principal amount of the Rule 144A Certificated Notes or the Rule 144A
Global Note, as the case may be, to be transferred, and the Trustee
shall cancel the Certificated Note, if any, so transferred or decrease
the amount of the Rule 144A Global Note.
(e) Private Placement Legend. Upon the transfer, exchange or
------------------------
replacement of Notes not bearing the Private Placement Legend, the
Registrar shall deliver Notes that do not bear the Private Placement
Legend. Upon the transfer, exchange or replacement of Notes bearing the
Private Placement Legend, the Registrar shall deliver only Notes that bear
the Private Placement Legend unless either (i)(A) the circumstances
contemplated by the fourth paragraph of Section 201 or Section 312(d)(ii)
exist or (B) the requested transfer is after the time period referred to in
Rule 144(k) under the Securities Act or (ii) there is delivered to the
Registrar an Opinion of Counsel reasonably satisfactory to the Company and
the Trustee to the effect that neither such legend nor the related
restrictions on transfer are required in order to maintain compliance with
the provisions of the Securities Act.
(f) General. By its acceptance of any Note bearing the Private
-------
Placement Legend, each Holder of such a Note acknowledges the restrictions
on transfer of such Note set forth in this Indenture and in the Private
Placement Legend and agrees that it shall transfer such Note only as
provided in this Indenture. The Registrar shall not register a transfer of
any Note unless such transfer complies with the restrictions on transfer of
such Note set forth in this Indenture. In connection with any transfer of
Notes, each Holder agrees by its acceptance of the Notes to furnish the
Registrar or the Company such certifications, legal opinions or other
information as either of them may reasonably require to confirm that such
transfer is being made pursuant to an exemption from, or a transaction not
subject to, the registration requirements of the Securities Act; provided
--------
that the Registrar shall not be required to determine (but may rely on a
determination made by the Company with respect to) the sufficiency of any
such certifications, legal opinions or other information.
The Registrar shall retain copies of all letters, notices and other
written communications received pursuant to Section 311 or this Section 312. The
Company shall have the right to inspect and make copies of all such letters,
notices or other written communications at any reasonable time upon the giving
of reasonable written notice to the Registrar.
<PAGE>
44
ARTICLE FOUR
SATISFACTION AND DISCHARGE
SECTION 401. Satisfaction and Discharge of Indenture.
---------------------------------------
This Indenture shall upon Company Request cease to be of further
effect (except as to surviving rights of registration of transfer or exchange of
Notes as expressly provided for herein or pursuant hereto) and the Trustee, at
the expense of the Company, shall execute proper instruments acknowledging
satisfaction and discharge of this Indenture when
(i) either
(A) All Notes theretofore authenticated and delivered (other
than (i) Notes which have been destroyed, lost or stolen and which
have been replaced or paid as provided in Section 306 and (ii) Notes
for whose payment money has theretofore been deposited in trust with
the Trustee or any Paying Agent or segregated and held in trust by
the Company and thereafter repaid to the Company or discharged from
such trust, as provided in Section 1003) have been delivered to the
Trustee for cancellation; or
(B) all such Notes not theretofore delivered to the Trustee
for cancellation (other than Notes which have been destroyed, lost or
stolen and which have been replaced or paid as provided in Section
306)
(i) have become due and payable, or
(ii) will become due and payable at their Stated
Maturity within one year, or
(iii) are to be called for redemption within one year
under arrangements satisfactory to the Trustee for the giving
of notice of redemption by the Trustee in the name, and at the
expense, of the Company,
and the Company, in the case of (i), (ii) or (iii) above, has
irrevocably deposited or caused to be deposited with the Trustee as
trust funds in trust for such purpose in an amount sufficient to pay
and discharge the entire Indebtedness on such Notes not theretofore
delivered to the Trustee for cancellation, for principal (and
premium, if any), interest and Liquidated Damages, if any, to the
date of such deposit (in the case of Notes which have become due and
payable) or to the Stated Maturity or Redemption Date, as the case
may be, together with
<PAGE>
45
irrevocable instructions from the Company directing the Trustee to
apply such funds to the payment thereof at Stated Maturity or
redemption, as the case may be;
(2) the Company has paid or caused to be paid all other sums
payable hereunder by the Company; and
(3) the Company has delivered to the Trustee an Officer's
Certificate and an Opinion of Counsel, each stating that all conditions
precedent herein provided for relating to the satisfaction and discharge of
this Indenture have been complied with.
Notwithstanding the satisfaction and discharge of this Indenture, the
obligations of the Company to the Trustee under Section 606 and, if money shall
have been deposited with the Trustee pursuant to subclause (b) of clause (1) of
this Section, the obligations of the Trustee under Section 402 and the last
paragraph of Section 1003 shall survive.
SECTION 402. Application of Trust Money.
--------------------------
On or prior to the effective date of this Indenture, the Trustee
shall establish a segregated, non-interest bearing corporate trust account (the
"Payment Account") maintained by the Trustee for the benefit of the Holders in
which all amounts paid to the Trustee for the benefit of the Holders in respect
of the Notes will be held (except for amount designated to be deposited into the
Pledge Account) and from which the Trustee (if the Trustee is the Paying Agent)
shall make payments to the Holders in accordance with this Indenture and the
Notes. Subject to the provisions of the last paragraph of Section 1003, all
money deposited with the Trustee pursuant to Section 401 and otherwise pursuant
to this Indenture shall be held in trust and applied by it, in accordance with
the provisions of the Notes and this Indenture, to the payment, either directly
or through any Paying Agent (including the Company acting as its own Paying
Agent) as the Trustee may determine, to the Persons entitled thereto, of the
principal (and premium, if any) and interest for whose payment such money has
been deposited with the Trustee.
ARTICLE FIVE
REMEDIES
SECTION 501. Events of Default.
-----------------
"Event of Default", wherever used herein, means any one of the
----------------
following events (whatever the reason for such Event of Default and whether it
shall be voluntary or involuntary or be effected by operation of law or pursuant
to any judgment, decree or order of any court or any order, rule or regulation
of any administrative or governmental body):
<PAGE>
46
(1) default in the payment of any interest or Liquidated Damages,
if any, on any Note when due and payable as to any Interest Payment Date
falling on or prior to January 15, 2001; or
(2) default in the payment of interest or Liquidated Damages, if
any, on any Note 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; or
(3) default in the payment of the principal of (or premium, if any,
on) any Note at its Stated Maturity, upon acceleration, redemption or
otherwise; or
(4) default in the payment of principal or interest or Liquidated
Damages, if any, on any Note required to be purchased pursuant to an Excess
Proceeds Offer as described in Section 1017 or pursuant to a Change of
Control Offer as described in Section 1010; or
(5) failure to perform or comply with the provisions of Section
801; or
(6) default in the performance or breach of any covenant or
agreement of the Company in this Indenture or under the Notes (other than a
default in the performance, or breach, of a covenant or agreement which is
specifically dealt with elsewhere in this Section), and continuance of such
default or breach for a period of 30 consecutive days after there has been
given to the Company by the Trustee or the Holders of at least 25% or more
in aggregate principal amount of the Notes then Outstanding a written
notice specifying such default or breach; or
(7) (A) there shall have occurred with respect to any issue or
issues of Indebtedness of the Company or any Restricted Subsidiary having
an outstanding principal amount of $5 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 the 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; or
(8) any final judgment or order (not covered by insurance) for the
payment of money in excess of $5 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
<PAGE>
47
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 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; or
(9) a court having jurisdiction in the premises enters a decree or
order 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; or
(10) 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
(11) 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 502. Acceleration of Maturity; Rescission and Annulment.
--------------------------------------------------
If an Event of Default (other than an Event of Default specified in
Section 501(9) or 501(10)) occurs and is continuing, then and in every such case
the Trustee or the Holders of not less than 25% in aggregate principal amount of
the Notes Outstanding by a notice in writing to the Company (and to the Trustee
if such notice given by such Holders), may, and the Trustee at the request of
such Holders shall, declare the principal of, premium, if any, and accrued but
unpaid interest and Liquidated Damages, if any, on all the Notes to be
immediately due and payable. Upon any such declaration of acceleration, such
principal of, premium, if any, accrued interest and Liquidated Damages, if any,
shall become immediately due and payable. If an Event of Default specified in
Section 501(9) or 501(10) occurs, then the principal of, premium, if any,
accrued interest and Liquidated Damages, if any, 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.
<PAGE>
48
At any time after a declaration of acceleration has been made, the
Holders of at least a majority in aggregate principal amount of the Notes
Outstanding, by written notice to the Company and the Trustee, may rescind and
annul such declaration and its consequences if:
(1) all existing Events of Default, other than the nonpayment of
amounts of principal of, premium, if any, accrued and unpaid interest and
Liquidated Damages, if any, on the Notes which have become due solely by
such declaration of acceleration, have been cured or waived subject to the
limitations set forth in Section 513; and
(2) the rescission, in the opinion of Counsel, would not conflict
with any judgment or decrees of a court of competent jurisdiction.
No such rescission shall affect any subsequent default or impair any right
consequent thereon.
Notwithstanding the preceding paragraph, in the event of a
declaration of acceleration in respect of the Notes because an Event of Default
specified in Section 501(7) shall have occurred and be continuing, such
declaration of acceleration shall be automatically annulled if the Indebtedness
that is the subject of such Event of Default has been discharged or the Holders
thereof have rescinded their declaration of acceleration in respect of such
Indebtedness, and written notice of such discharge or rescission, as the case
may be, shall have been given to the Trustee by the Company and countersigned by
the Holders of such Indebtedness or a trustee, fiduciary or agent for such
Holders, within 60 days after such declaration of acceleration in respect of the
Notes, and no other Event of Default has occurred during such 60-day period
which has not been cured or waived during such period.
SECTION 503. Collection of Indebtedness and Suits for Enforcement by
-------------------------------------------------------
Trustee.
- -------
The Company covenants that if
(a) default is made in the payment of any installment of interest
and Liquidated Damages, if any, on any Note when such interest becomes due
and payable and such default continues for a period of 30 days, or
(b) default is made in the payment of the principal of (or premium,
if any, on) any Note at the Maturity thereof,
the Company shall pay to the Trustee for the benefit of the Holders of such
Notes, the whole amount then due and payable on such Notes for principal (and
premium and Liquidated Damages, if any) and interest, and interest on any
overdue principal (and premium, if any) and, to the extent that payment of such
interest shall be legally enforceable, upon any overdue installment of interest
and Liquidated Damages, if any, at the rate borne by the Notes, and, in addition
thereto, such further amount as shall be sufficient to cover the costs and
expenses of
<PAGE>
49
collection, including the reasonable compensation, fees expenses, disbursements
and advances of the Trustee, its agents and counsel.
If the Company fails to pay such amounts forthwith upon such demand,
the Trustee, in its own name as trustee of an express trust, may institute a
judicial proceeding for the collection of the sums so due and unpaid, may
prosecute such proceeding to judgment or final decree and may enforce the same
against the Company or any other obligor upon the Notes and collect the moneys
adjudged or decreed to be payable in the manner provided by law out of the
property of the Company or any other obligor upon the Notes, wherever situated.
If an Event of Default occurs and is continuing, the Trustee may in
its discretion proceed to protect and enforce its rights and the rights of the
Holders by such appropriate judicial proceedings as the Trustee shall deem most
effectual to protect and enforce any such rights, whether for the specific
enforcement of any covenant or agreement in this Indenture or in aid of the
exercise of any power granted herein, or to enforce any other proper remedy.
SECTION 504. Trustee May File Proofs of Claim.
--------------------------------
In case of the pendency of any receivership, insolvency, liquidation,
bankruptcy, reorganization, arrangement, adjustment, composition or other
judicial proceeding relative to the Company or any other obligor upon the Notes
or the property of the Company or of such other obligor or their creditors, the
Trustee (irrespective of whether the principal of the Notes shall then be due
and payable as therein expressed or by declaration or otherwise and irrespective
of whether the Trustee shall have made any demand on the Company for the payment
of overdue principal, premium, if any, interest or Liquidated Damages, if any)
shall be entitled and empowered, by intervention in such proceeding or
otherwise,
(i) to file and prove a claim for the whole amount of principal
(and premium and Liquidated Damages, if any) and interest owing and unpaid
in respect of the Notes and to file such other papers or documents and take
other actions as the Trustee may deem necessary or advisable in order to
have the claims of the Trustee (including any claim for the reasonable
compensation, expenses, disbursements and advances of the Trustee, its
agents and counsel) and of the Holders allowed in such judicial proceeding,
and
(ii) to collect and receive any moneys or other property payable or
deliverable on any such claims and to distribute the same;
and any custodian, receiver, assignee, trustee, liquidator, sequestrator or
similar official in any such judicial proceeding is hereby authorized by each
Holder to make such payments to the Trustee and, in the event that the Trustee
shall consent to the making of such payments directly to the Holders, to pay the
Trustee any amount due it for the reasonable compensation, expenses,
<PAGE>
50
disbursements and advances of the Trustee, its agents and counsel, and any other
amounts due the Trustee under Section 606.
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Holder any plan of
reorganization, arrangement, adjustment or composition affecting the Notes or
the rights of any Holder thereof, or to authorize the Trustee to vote in respect
of the claim of any Holder in any such proceeding.
SECTION 505. Trustee May Enforce Claims Without Possession of Notes.
------------------------------------------------------
All rights of action and claims under this Indenture or the Notes may
be prosecuted and enforced by the Trustee without the possession of any of the
Notes or the production thereof in any proceeding relating thereto, and any such
proceeding instituted by the Trustee shall be brought in its own name and as
trustee of an express trust, and any recovery of judgment shall, after provision
for the payment of the reasonable compensation, fees, expenses, disbursements
and advances of the Trustee, its agents and counsel, be for the ratable benefit
of the Holders of the Notes in respect of which such judgment has been
recovered.
SECTION 506. Application of Money Collected.
------------------------------
Any money collected by the Trustee pursuant to this Article shall be
applied in the following order, at the date or dates fixed by the Trustee and,
in case of the distribution of such money on account of principal (or premium,
if any, or Liquidated Damages, if any) or interest, upon presentation of the
Notes and the notation thereon of the payment if only partially paid and upon
surrender thereof if fully paid:
FIRST: To the payment of all amounts due the Trustee under Section
606;
SECOND: To the payment of the amounts then due and unpaid for
principal of (and premium and Liquidated Damages, if any) and interest on
the Notes in respect of which or for the benefit of which such money has
been collected, ratably, without preference or priority of any kind,
according to the amounts due and payable on such Notes for principal (and
premium and Liquidated Damages, if any) and interest, respectively; and
THIRD: The balance, if any, to the Person or Persons entitled
thereto.
SECTION 507. Limitation on Suits.
-------------------
Except to enforce the right to receive payment of principal or
premium, if any, or interest or Liquidated Damages, if any, when due, no Holder
of any Notes shall have any right to institute any proceeding, judicial or
otherwise, with respect to this Indenture, or for the
<PAGE>
51
appointment of a receiver or trustee, or for any other remedy hereunder, unless
the following conditions have been met:
(1) such Holder has previously given written notice to the Trustee
of a continuing Event of Default;
(2) the Holders of not less than 25% in aggregate principal amount
of the Outstanding Notes shall have made written request to the Trustee to
pursue the remedy in respect of such Event of Default in its own name as
Trustee hereunder;
(3) such Holder or Holders have offered to the Trustee indemnity
satisfactory to the Trustee against any costs, expenses and liabilities to
be incurred in compliance with such request;
(4) the Trustee has failed to institute any such proceeding for 60
days after its receipt of such notice, request and offer of indemnity; and
(5) during such 60-day period, no direction inconsistent with such
written request has been given to the Trustee by the Holders of a majority
or more in aggregate principal amount of the Outstanding Notes;
it being understood and intended that no one or more Holders shall have any
right in any manner whatever by virtue of, or by availing of, any provision of
this Indenture to affect, disturb or prejudice the rights of any other Holders,
or to obtain or to seek to obtain priority or preference over any other Holders
or to enforce any right under this Indenture, except in the manner herein
provided and for the equal and ratable benefit of all the Holders.
SECTION 508. Unconditional Right of Holders to Receive Principal,
----------------------------------------------------
Premium and Interest.
- --------------------
Notwithstanding any other provision in this Indenture, the Holder of
any Note shall have the right, which is absolute and unconditional, to receive
payment, as provided herein (including, if applicable, Article Thirteen) and in
such Note of the principal of (and premium and Liquidated Damages, if any) and
(subject to Section 307) interest on such Note on the respective Stated
Maturities expressed in such Note (or, in the case of redemption, on the
Redemption Date) and to institute suit for the enforcement of any such payment
on or after such Stated Maturities, and such rights shall not be impaired
without the consent of such Holder.
SECTION 509. Restoration of Rights and Remedies.
----------------------------------
If the Trustee or any Holder has instituted any proceeding to enforce
any right or remedy under this Indenture and such proceeding has been
discontinued or abandoned for any
<PAGE>
52
reason, or has been determined adversely to the Trustee or to such Holder, then
and in every such case, subject to any determination in such proceeding, the
Company, the Trustee and the Holders shall be restored severally and
respectively to their former positions hereunder and thereafter all rights and
remedies of the Trustee and the Holders shall continue as though no such
proceeding had been instituted.
SECTION 510. Rights and Remedies Cumulative.
------------------------------
Except as otherwise provided with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Notes in the last paragraph of
Section 306, no right or remedy herein conferred upon or reserved to the Trustee
or to the Holders is intended to be exclusive of any other right or remedy, and
every right and remedy shall, to the extent permitted by law, be cumulative and
in addition to every other right and remedy given hereunder or now or hereafter
existing at law or in equity or otherwise. The assertion or employment of any
right or remedy hereunder, or otherwise, shall not prevent the concurrent
assertion or employment of any other appropriate right or remedy.
SECTION 511. Delay or Omission Not Waiver.
----------------------------
No delay or omission of the Trustee or of any Holder of any Note to
exercise any right or remedy accruing upon any Event of Default shall impair any
such right or remedy or constitute a waiver of any such Event of Default or an
acquiescence therein. Every right and remedy given by this Article or by law to
the Trustee or to the Holders may be exercised from time to time, and as often
as may be deemed expedient, by the Trustee or by the Holders, as the case may
be.
SECTION 512. Control by Holders.
------------------
The Holders of not less than a majority in aggregate principal amount
of the Outstanding Notes shall have the right to 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, provided that
(1) the Trustee need not take any action that conflicts with law or
this Indenture, which might involve the Trustee in personal liability or
which, in the good faith determination of the Trustee, may be unduly
prejudicial to rights Holders not joining in the giving of such direction,
and
(2) the Trustee may take any other action deemed proper by the
Trustee which is not inconsistent with such direction.
<PAGE>
53
SECTION 513. Waiver of Past Defaults.
-----------------------
The Holders of not less than a majority in aggregate principal amount
of the Outstanding Notes may on behalf of the Holders of all the Notes waive any
past default hereunder and its consequences, except a default
(1) in respect of the payment of the principal of (or premium or
Liquidated Damages, if any) or interest on any Note, or
(2) in respect of a covenant or provision hereof which under
Article Nine cannot be modified or amended without the consent of the
Holder of each Outstanding Note affected.
Upon any such waiver, such default shall cease to exist, and any
Event of Default arising therefrom shall be deemed to have been cured, for every
purpose of this Indenture; but no such waiver shall extend to any subsequent or
other default or Event of Default or impair any right consequent thereon.
SECTION 514. Waiver of Stay or Extension Laws.
--------------------------------
The Company covenants (to the extent that it may lawfully do so) that
it shall not at any time insist upon, or plead, or in any manner whatsoever
claim or take the benefit or advantage of, any stay or extension law wherever
enacted, now or at any time hereafter in force, which may affect the covenants
or the performance of this Indenture; and the Company (to the extent that it may
lawfully do so) hereby expressly waives all benefit or advantage of any such law
and covenants that it shall not hinder, delay or impede the execution of any
power herein granted to the Trustee, but shall suffer and permit the execution
of every such power as though no such law had been enacted.
ARTICLE SIX
THE TRUSTEE
SECTION 601. Notice of Defaults.
------------------
Within 90 days after the occurrence of any Default hereunder, the
Trustee shall transmit in the manner and to the extent provided in TIA Section
313(c), notice of such Default hereunder of the Trustee, unless such Default
shall have been cured or waived; provided, however, that, except in the case of
a Default in the payment of the principal of (or premium, if any) or interest on
any Note, the Trustee shall be protected in withholding such notice if and so
long as the board of directors, the executive committee or a trust committee of
directors
<PAGE>
54
and/or Responsible Officers of the Trustee in good faith determines that the
withholding of such notice is in the interest of the Holders; and provided
further that in the case of any Default of the character specified in Section
501(7), no such notice to Holders shall be given until at least 30 days after
the occurrence thereof.
In case an Event of Default has occurred and is continuing, the
Trustee shall exercise such of the rights and powers vested in it by this
Indenture, and use the same degree of care and skill in their exercise, as a
prudent person would exercise or use under the circumstances in the conduct of
his or her own affairs.
SECTION 602. Certain Rights of Trustee.
-------------------------
Subject to the provisions of TIA Sections 315(a) through 315(d):
(1) the Trustee may rely and shall be protected in acting or
refraining from acting upon any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order,
bond, debenture, note, other evidence of indebtedness or other paper or
document believed by it to be genuine and to have been signed or presented
by the proper party or parties;
(2) any request or direction of the Company mentioned herein shall
be sufficiently evidenced by a Company Request or Company Order and any
resolution of the Board of Directors may be sufficiently evidenced by a
Board Resolution;
(3) whenever in the administration of this Indenture the Trustee
shall deem it desirable that a matter be proved or established prior to
taking, suffering or omitting any action hereunder, the Trustee (unless
other evidence be herein specifically prescribed) may, in the absence of
bad faith on its part, may require and rely upon an Officer's Certificate;
(4) the Trustee may consult with counsel and the written advice of
such counsel or any Opinion of Counsel shall be full and complete
authorization and protection in respect of any action taken, suffered or
omitted by it hereunder in good faith and in reliance thereon;
(5) the Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or direction
of any of the Holders pursuant to this Indenture, unless such Holders shall
have offered to the Trustee reasonable security or indemnity against the
costs, expenses and liabilities which might be incurred by it in compliance
with such request or direction;
<PAGE>
55
(6) the Trustee shall not be bound to make any investigation into
the facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order,
bond, debenture, note, other evidence of indebtedness or other paper or
document, but the Trustee, in its discretion, may make such further inquiry
or investigation into such facts or matters as it may see fit, and, if the
Trustee shall determine to make such further inquiry or investigation, it
shall be entitled to examine the books, records and premises of the
Company, personally or by agent or attorney;
(7) the Trustee may execute any of the trusts or powers hereunder
or perform any duties hereunder either directly or by or through agents or
attorneys and the Trustee shall not be responsible for any misconduct or
negligence on the part of any agent or attorney appointed with due care by
it hereunder;
(8) the Trustee shall not be liable for any action taken, suffered
or omitted by it in good faith and believed by it to be authorized or
within the discretion or rights or powers conferred upon it by this
Indenture;
(9) any permissive right or power available to the Trustee under
this Indenture or any supplement hereto shall not be construed to be a
mandatory duty or obligation;
(10) the Trustee shall not be charged with knowledge of any matter
(including any default, other than as described in Section 501(1), (2) or
(3)) unless and except to the extent actually known to a Responsible
Officer of the Trustee or to the extent written notice thereof is received
by the Trustee at the Corporate Trust Office; and
(11) the Trustee shall have no liability for any inaccuracy in the
books or records of, or for any actions or omissions of, DTC, Euroclear or
CEDEL or any depository acting on behalf of any of them.
The Trustee shall not be required to expend or risk its own funds or
otherwise incur any financial liability in the performance of any of its duties
hereunder, or in the exercise of any of its rights or powers if it shall have
reasonable grounds for believing that repayment of such funds or adequate
indemnity against such risk or liability is not reasonably assured to it.
The Trustee shall not be required to examine any of the reports and
documents filed with it pursuant to Sections 703 or 1009 to determine whether or
not the Company is in compliance with the covenants set forth at Sections 1010
through 1021.
<PAGE>
56
SECTION 603. Trustee Not Responsible for Recitals or Issuance of
---------------------------------------------------
Notes.
- -----
The recitals contained in this Indenture and in the Notes, except for
the Trustees certificates of authentication, shall be taken as the statements of
the Company, and the Trustee assumes no responsibility for their correctness.
The Trustee makes no representations as to the validity or sufficiency of this
Indenture or of the Notes, except that the Trustee represents that it is duly
authorized to execute and deliver this Indenture, authenticate the Notes and
perform its obligations hereunder and that the statements made by it in a
Statement of Eligibility on Form T-1 supplied to the Company are true and
accurate, subject to the qualifications set forth therein. The Trustee shall
not be accountable for the use or application by the Company of Notes or the
proceeds thereof.
SECTION 604. May Hold Notes.
--------------
The Trustee, any Paying Agent, any Registrar or any other agent of
the Company or of the Trustee, in its individual or any other capacity, may
become the owner or pledgee of Notes and, subject to TIA Sections 310(b) and
311, may otherwise deal with the Company with the same rights it would have if
it were not Trustee, Paying Agent, Registrar or such other agent.
SECTION 605. Money Held in Trust.
-------------------
Money held by the Trustee in trust hereunder shall be segregated from
other funds. The Trustee shall be under no liability for interest on any money
received by it hereunder.
SECTION 606. Compensation and Reimbursement.
------------------------------
The Company agrees:
(1) to pay to the Trustee from time to time reasonable compensation
for all services rendered by it hereunder and under the Pledge Agreement
(which compensation shall not be limited by any provision of law in regard
to the compensation of a trustee of an express trust);
(2) except as otherwise expressly provided herein, to reimburse the
Trustee upon its request for all reasonable expenses, disbursements and
advances incurred or made by the Trustee in accordance with any provision
of this Indenture and under the Pledge Agreement (including the reasonable
compensation and the expenses and disbursements of its agents and counsel),
except any such expense, disbursement or advance as may be attributable to
its negligence or bad faith; and
<PAGE>
57
(3) to indemnify the Trustee for, and to hold it harmless against,
any loss, liability or expense incurred without gross negligence or bad
faith on its part, arising out of or in connection with the acceptance and
administration of its duties under the Pledge Agreement or the acceptance
or administration of this trust, including the costs and expenses of
defending itself against any claim or liability in connection with the
exercise or performance of any of its powers or duties hereunder.
The obligations of the Company under this Section to compensate the
Trustee, to pay or reimburse the Trustee for expenses, disbursements and
advances and to indemnify and hold harmless the Trustee shall constitute
additional indebtedness hereunder and shall survive the satisfaction and
discharge of this Indenture. As security for the performance of such
obligations of the Company, the Trustee shall have a claim prior to the Notes
upon all property and funds held or collected by the Trustee as such, except
funds held in trust for the payment of principal of (and premium, if any) or
interest on particular Notes.
When the Trustee incurs expenses or renders services in connection
with an Event of Default specified in Section 501(8) or (9), the expenses
(including the reasonable charges and expenses of its counsel) of and the
compensation for such services are intended to constitute expenses of
administration under any applicable federal or state bankruptcy, insolvency or
other similar law; provided, however, that if any such amounts are not paid as
expenses of administration, they may be collected by the Trustee as amounts
payable to it pursuant to Section 506.
The provisions of this Section 606 shall survive the termination of
this Indenture.
SECTION 607. Corporate Trustee Required; Eligibility.
---------------------------------------
There shall be at all times a Trustee hereunder which shall be
eligible to act as Trustee under TIA Section 310(a)(1) and shall have a combined
capital and surplus of at least $50 million. If such corporation publishes
reports of condition at least annually, pursuant to law or to the requirements
of federal, state, territorial or District of Columbia supervising or examining
authority, then for the purposes of this Section, the combined capital and
surplus of such corporation shall be deemed to be its combined capital and
surplus as set forth in its most recent report of condition so published. If at
any time the Trustee shall cease to be eligible in accordance with the
provisions of this Section 607, it shall resign immediately in the manner and
with the effect hereinafter specified in this Article.
SECTION 608. Resignation and Removal; Appointment of Successor.
-------------------------------------------------
(a) No resignation or removal of the Trustee and no appointment of
a successor Trustee pursuant to this Article shall become effective until the
acceptance of
<PAGE>
58
appointment by the successor Trustee in accordance with the applicable
requirements of Section 609.
(b) The Trustee may resign at any time by giving written notice
thereof to the Company. If the instrument of acceptance by a successor Trustee
required by Section 609 shall not have been delivered to the Trustee within 30
days after the giving of such notice of resignation, the resigning Trustee may
petition any court of competent jurisdiction for the appointment of a successor
Trustee.
(c) The Trustee may be removed at any time by Act of the Holders of
not less than a majority in aggregate principal amount of the Outstanding Notes,
delivered to the Trustee and to the Company.
(d) If at any time:
(1) the Trustee shall fail to comply with the provisions of TIA
Section 310(b) after written request therefor by the Company or by any
Holder who has been a bona fide Holder of a Note for at least six months,
or
(2) the Trustee shall cease to be eligible under Section 607 and
shall fail to resign after written request therefor by the Company or by
any Holder who has been a bona fide Holder of a Note for at least six
months, or
(3) the Trustee shall become incapable of acting or shall be
adjudged a bankrupt or insolvent or a receiver of the Trustee or of its
property shall be appointed or any public officer shall take charge or
control of the Trustee or of its property or affairs for the purpose of
rehabilitation, conservation or liquidation,
then, in any such case, (i) the Company, by a Board Resolution, may remove the
Trustee, or (ii) subject to TIA Section 315(e), any Holder who has been a bona
fide Holder of a Note for at least six months may, on behalf of himself and all
others similarly situated, petition any court of competent jurisdiction for the
removal of the Trustee and the appointment of a successor Trustee.
(e) If the Trustee shall resign, be removed or become incapable of
acting, or if a vacancy shall occur in the office of Trustee for any cause, the
Company, by a Board Resolution, shall promptly appoint a successor Trustee. If,
within one year after such resignation, removal or incapability, or the
occurrence of such vacancy, a successor Trustee shall be appointed by Act of the
Holders of a majority in aggregate principal amount of the Outstanding Notes
delivered to the Company and the retiring Trustee, the successor Trustee so
appointed shall, forthwith upon its acceptance of such appointment, become the
successor Trustee and supersede the successor Trustee appointed by the Company.
If no successor Trustee
<PAGE>
59
shall have been so appointed by the Company or the Holders and accepted
appointment in the manner hereinafter provided, any Holder who has been a bona
fide Holder of a Note for at least six months may, on behalf of himself and all
others similarly situated, petition any court of competent jurisdiction for the
appointment of a successor Trustee.
(f) The Company shall give notice of each resignation and each
removal of the Trustee and each appointment of a successor Trustee to the
Holders in the manner provided for in Section 106. Each notice shall include the
name of the successor Trustee and the address of its Corporate Trust Office.
SECTION 609. Acceptance of Appointment by Successor.
--------------------------------------
Every successor Trustee appointed hereunder shall execute,
acknowledge and deliver to the Company and to the retiring Trustee an instrument
accepting such appointment, and thereupon the resignation or removal of the
retiring Trustee shall become effective and such successor Trustee, without any
further act, deed or conveyance, shall become vested with all the rights,
powers, trusts and duties of the retiring Trustee; but, on request of the
Company or the successor Trustee, such retiring Trustee shall, upon payment of
its charges, execute and deliver an instrument transferring to such successor
Trustee all the rights, powers and trusts of the retiring Trustee and shall duly
assign, transfer and deliver to such successor Trustee all property and money
held by such retiring Trustee hereunder. Upon request of any such successor
Trustee, the Company shall execute any and all instruments for more fully and
certainly vesting in and confirming to such successor Trustee all such rights,
powers and trusts.
No successor Trustee shall accept its appointment unless at the time
of such acceptance such successor Trustee shall be qualified and eligible under
this Article.
SECTION 610. Merger, Conversion, Consolidation or Succession to
--------------------------------------------------
Business.
- --------
Any corporation into which the Trustee may be merged or converted or
with which it may be consolidated, or any corporation resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any
corporation succeeding to all or substantially all of the corporate trust
business of the Trustee, shall be the successor of the Trustee hereunder
(provided such corporation shall be otherwise qualified and eligible under this
Article), without the execution or filing of any paper or any further act on the
part of any of the parties hereto. In case any Notes shall have been
authenticated, but not delivered, by the Trustee then in office, any successor
by merger, conversion or consolidation to such authenticating Trustee may adopt
such authentication and deliver the Notes so authenticated with the same effect
as if such successor Trustee had itself authenticated such Notes. In case at
that time any of the Notes shall not have been authenticated, any successor
Trustee may authenticate such Notes either in the name of any predecessor
hereunder or in the name of the successor Trustee. In all such cases such
certificates shall have the full force and effect which this
<PAGE>
60
Indenture provides for the certificate of authentication of the Trustee shall
have; provided, however, that the right to adopt the certificate of
authentication of any predecessor Trustee or to authenticate Notes in the name
of any predecessor Trustee shall apply only to its successor or successors by
merger, conversion or consolidation.
ARTICLE SEVEN
HOLDERS LISTS AND REPORTS BY TRUSTEE AND COMPANY
SECTION 701. Disclosure of Names and Addresses of Holders.
--------------------------------------------
Every Holder of Notes, by receiving and holding the same, agrees with
the Company and the Trustee that none of the Company or the Trustee or any agent
of either of them shall be held accountable by reason of the disclosure of any
such information as to the names and addresses of the Holders in accordance with
TIA Section 312, regardless of the source from which such information was
derived, and that the Trustee shall not be held accountable by reason of mailing
any material pursuant to a request made under TIA Section 312(b).
SECTION 702. Reports by Trustee.
------------------
Within 60 days after February 15 of each year commencing with the
first February 15 after the first issuance of Notes, the Trustee shall transmit
to the Holders, in the manner and to the extent provided in TIA Section 313(c),
a brief report dated as of such February 15 if required by TIA Section 313(a).
SECTION 703. Reports by Company.
------------------
The Company shall:
(1) file with the Trustee, within 15 days after the Company is
required to file the same with the Commission, copies of the annual reports
and of the information, documents and other reports (or copies of such
portions of any of the foregoing as the Commission may from time to time by
rules and regulations prescribe) which the Company may be required to file
with the Commission pursuant to Section 13 or Section 15(d) of the
Securities Exchange Act of 1934; or, if the Company is not required to file
information, documents or reports pursuant to either of said Sections, then
it shall file with the Trustee and the Commission, in accordance with rules
and regulations prescribed from time to time by the Commission, such of the
supplementary and periodic information, documents and reports which may be
required pursuant to Section 13 of the Securities Exchange Act of 1934 in
respect of a security listed and registered on a
<PAGE>
61
national securities exchange as may be prescribed from time to time in such
rules and regulations;
(2) file with the Trustee and the Commission, in accordance with
rules and regulations prescribed from time to time by the Commission, such
additional information, documents and reports with respect to compliance by
the Company with the conditions and covenants of this Indenture as may be
required from time to time by such rules and regulations; and
(3) transmit by mail to all Holders, in the manner and to the
extent provided in TIA Section 313(c), within 30 days after the filing
thereof with the Trustee, such summaries of any information, documents and
reports required to be filed by the Company pursuant to paragraphs (1) and
(2) of this Section as may be required by rules and regulations prescribed
from time to time by the Commission.
ARTICLE EIGHT
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
SECTION 801. Company May Consolidate, Etc., Only on Certain Terms.
----------------------------------------------------
The Company shall not consolidate with, or 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 as 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 shall 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 of the
Company or the Company and its Restricted Subsidiaries, taken as a whole, to any
other Person or Persons, unless:
(1) either (A) the Company shall be the continuing Person or (B)
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 (i) shall be a corporation organized and validly
existing under the laws of the United States of America or any jurisdiction
thereof and (ii) shall expressly assume, by an indenture supplemental
hereto, duly executed and delivered to the Trustee, all of the obligations
of the Company with respect to all the Notes and under this Indenture;
(2) immediately after giving effect to such transaction on a pro
forma basis, no Default or Event of Default shall have occurred and be
continuing;
<PAGE>
62
(3) 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;
(4) 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 Section 1011; and
(5) the Company delivers to the Trustee an Officer's Certificate
(attaching the arithmetic computations to demonstrate compliance with
clauses (3) and (4) above) and an Opinion of Counsel, each stating that
such consolidation, merger or transfer and such supplemental indenture
complies with this Article and that all conditions precedent herein
provided for relating to such transaction have been complied with;
provided, however, that clauses (3) and (4) above shall 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 802. Successor Substituted.
---------------------
Upon any consolidation of the Company with or merger of the Company
with or into any other corporation or any conveyance, transfer or lease of the
properties and assets of the Company substantially as an entirety to any Person
in accordance with Section 801, the successor Person formed by such
consolidation or into which the Company is merged or to which such conveyance,
transfer or lease is made shall succeed to, and be substituted for, and may
exercise every right and power of, the Company under this Indenture with the
same effect as if such successor Person had been named as the Company herein,
and in the event of any such conveyance or transfer, the Company (which term
shall for this purpose mean the Person named as the "Company" in the first
paragraph of this Indenture or any successor Person which shall theretofore
become such in the manner described in Section 801), except in the case of a
lease, shall be discharged of all obligations and covenants under this Indenture
and the Notes and may be dissolved and liquidated.
SECTION 803. Notes to Be Secured in Certain Events.
-------------------------------------
If, upon any such consolidation of the Company with, or merger of the
Company into, any other corporation, or upon any conveyance, lease or transfer
of the property of the Company substantially as an entirety to any other Person,
any property or assets of the Company
<PAGE>
63
would thereupon become subject to any Lien, then unless such Lien could be
created pursuant to Section 1016 without equally and ratably securing the Notes,
the Company, prior to or simultaneously with such consolidation, merger,
conveyance, lease or transfer, will, as to such property or assets, secure the
Notes Outstanding (together with, if the Company shall so determine any other
Indebtedness of the Company now existing or hereinafter created which is not
subordinate in right of payment to the Notes) equally and ratably with (or prior
to) the Indebtedness which upon such consolidation, merger, conveyance, lease or
transfer is to become secured as to such property or assets by such Lien, or
shall cause such Notes to be so secured.
ARTICLE NINE
SUPPLEMENTAL INDENTURES
SECTION 901. Supplemental Indentures Without Consent of Holders.
--------------------------------------------------
Without the consent of any Holders, the Company, when authorized by a
Board Resolution, and the Trustee, at any time and from time to time, may enter
into one or more indentures supplemental hereto, in form satisfactory to the
Trustee, for any of the following purposes:
(1) to evidence the succession of another Person to the Company and
the assumption by any such successor of the covenants of the Company
contained herein and in the Notes; or
(2) to add to the covenants of the Company for the benefit of the
Holders or to surrender any right or power herein conferred upon the
Company; or
(3) to add any additional Events of Default; or
(4) to evidence and provide for the acceptance of appointment
hereunder by a successor Trustee pursuant to the requirements of Section
609; or
(5) to cure any ambiguity, to correct or supplement any provision
herein which may be inconsistent with any other provision herein, or to
make any other provisions with respect to matters or questions arising
under this Indenture; provided that such action shall not adversely affect
the interests of the Holders in any material respect; or
(6) to secure the Notes pursuant to the requirements of Section 803
or Section 1016 or otherwise.
<PAGE>
64
SECTION 902. Supplemental Indentures with Consent of Holders.
-----------------------------------------------
With the consent of the Holders of not less than a majority in
aggregate principal amount of the Outstanding Notes, by Act of said Holders
delivered to the Company and the Trustee, the Company, when authorized by a
Board Resolution, and the Trustee may enter into an indenture or indentures
supplemental hereto for the purpose of adding any provisions to or changing in
any manner or eliminating any of the provisions of this Indenture or of
modifying in any manner the rights of the Holders under this Indenture;
provided, however, that no such supplemental indenture shall, without the
consent of the Holder of each Outstanding Note 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 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 percentage of Outstanding Notes the consent of whose
Holders is necessary to modify, amend, waive, supplement or consent to take
any action under this 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
<PAGE>
65
(x) modify any provisions of this Section 902 or Sections 513 and
1022, except to increase any such percentage or to provide that certain
other provisions of this Indenture cannot be modified or waived without the
consent of the Holder of each Outstanding Note affected thereby.
It shall not be necessary for any Act of Holders under this Section to
approve the particular form of any proposed supplemental indenture, but it shall
be sufficient if such Act shall approve the substance thereof.
SECTION 903. Execution of Supplemental Indentures.
------------------------------------
In executing, or accepting the additional trusts created by, any
supplemental indenture permitted by this Article or the modifications thereby of
the trusts created by this Indenture, the Trustee shall be entitled to receive,
and shall be fully protected in relying upon, an Opinion of Counsel stating that
the execution of such supplemental indenture is authorized or permitted by this
Indenture. The Trustee may, but shall not be obligated to, enter into any such
supplemental indenture which affects the Trustees own rights, duties or
immunities under this Indenture or otherwise.
SECTION 904. Effect of Supplemental Indentures.
---------------------------------
Upon the execution of any supplemental indenture under this Article,
this Indenture shall be modified in accordance therewith, and such supplemental
indenture shall form a part of this Indenture for all purposes; and every Holder
of Notes theretofore or thereafter authenticated and delivered hereunder shall
be bound thereby.
SECTION 905. Conformity with Trust Indenture Act.
-----------------------------------
Every supplemental indenture executed pursuant to the Article shall
conform to the requirements of the Trust Indenture Act as then in effect.
SECTION 906. Reference in Notes to Supplemental Indentures.
---------------------------------------------
Notes authenticated and delivered after the execution of any
supplemental indenture pursuant to this Article may, and shall if required by
the Trustee, bear a notation in form approved by the Trustee as to any matter
provided for in such supplemental indenture. If the Company shall so determine,
new Notes so modified as to conform, in the opinion of the Trustee and the
Company, to any such supplemental indenture may be prepared and executed by the
Company and upon Company Order authenticated and delivered by the Trustee in
exchange for Outstanding Notes.
<PAGE>
66
SECTION 907. Notice of Supplemental Indentures.
---------------------------------
Promptly after the execution by the Company and the Trustee of any
supplemental indenture pursuant to the provisions of Section 902, the Company
shall give notice thereof to the Holders of each Outstanding Note affected
thereby, in the manner provided for in Section 106, setting forth in general
terms the substance of such supplemental indenture.
ARTICLE TEN
COVENANTS
SECTION 1001. Payment of Principal, Premium, if Any, and Interest.
---------------------------------------------------
The Company covenants and agrees for the benefit of the Holders that
it shall duly and punctually pay the principal of (and premium and Liquidated
Damages, if any) and interest on the Notes in accordance with the terms of the
Notes and this Indenture.
SECTION 1002. Maintenance of Office or Agency.
-------------------------------
The Company shall maintain in The City of New York, an office or
agency where Notes may be surrendered for registration of transfer or exchange
and where notices and demands to or upon the Company in respect of the Notes and
this Indenture may be served. The office of the Trustee located at 61 Broadway,
New York, New York 10006 shall be such office or agency of the Company, unless
the Company shall designate and maintain some other office or agency for one or
more of such purposes. In addition, the Company shall maintain an office or
agency where the Notes may be presented or surrendered for payment (which shall
be the Corporate Trust Office of the Trustee, unless the Company shall designate
and maintain some other office or agency for one or more such purposes). The
Company shall give prompt written notice to the Trustee of any change in the
location of any such office or agency. If at any time the Company shall fail to
maintain any such required office or agency or shall fail to furnish the Trustee
with the address thereof, such presentations, surrenders, notices and demands
may be made or served at the Corporate Trust Office of the Trustee, and the
Company hereby appoints the Trustee as its agent to receive all such
presentations, surrenders, notices and demands.
The Company may also from time to time designate one or more other
offices or agencies where the Notes may be presented or surrendered for any or
all such purposes and may from time to time rescind any such designation;
provided, however, that no such designation or rescission shall in any manner
relieve the Company of its obligation to maintain an office or agency in The
City of New York for such purposes. The Company shall give prompt written
notice to the Trustee of any such designation or rescission and any change in
the location of any such other office or agency.
<PAGE>
67
SECTION 1003. Money for Note Payments to Be Held in Trust.
-------------------------------------------
If the Company shall at any time act as its own Paying Agent, it
shall, on or before each due date of the principal of (or premium or Liquidated
Damages, if any) or interest on any of the Notes, segregate and hold in trust
for the benefit of the Persons entitled thereto a sum sufficient to pay the
principal of (or premium or Liquidated Damages, if any) or interest so becoming
due until such sums shall be paid to such Persons or otherwise disposed of as
herein provided and shall promptly notify the Trustee of its action or failure
so to act.
Whenever the Company shall have one or more Paying Agents for the
Notes, it shall, on or before each due date of the principal of (or premium or
Liquidated Damages, if any) or interest on any Notes, deposit with a Paying
Agent a sum sufficient to pay the principal (and premium and Liquidated Damages,
if any) or interest so becoming due, such sum to be held in trust for the
benefit of the Persons entitled to such principal, premium or interest, and
(unless such Paying Agent is the Trustee) the Company shall promptly notify the
Trustee of such action or any failure so to act.
The Company shall cause each Paying Agent (other than the Trustee) to
execute and deliver to the Trustee an instrument in which such Paying Agent
shall agree with the Trustee, subject to the provisions of this Section 1003,
that such Paying Agent shall:
(1) hold all sums held by it for the payment of the principal of (and
premium and Liquidated Damages, if any) or interest on Notes in trust for
the benefit of the Persons entitled thereto until such sums shall be paid
to such Persons or otherwise disposed of as herein provided;
(2) give the Trustee notice of any default by the Company (or any
other obligor upon the Notes) in the making of any payment of principal
(and premium and Liquidated Damages, if any) or interest on the Notes; and
(3) at any time during the continuance of any such default, upon the
written request of the Trustee, forthwith pay to the Trustee all sums so
held in trust by such Paying Agent.
The Company may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, pay, or
by Company Order direct any Paying Agent to pay, to the Trustee all sums held in
trust by the Company or such Paying Agent, such sums to be held by the Trustee
upon the same terms as those upon which such sums were held by the Company or
such Paying Agent; and, upon such payment by any Paying Agent to the Trustee,
such Paying Agent shall be released from all further liability with respect to
such sums.
<PAGE>
68
Any money deposited with the Trustee or any Paying Agent, or then held
by the Company, in trust for the payment of the principal of (or premium or
Liquidated Damages, if any) or interest on any Note and remaining unclaimed for
two years after such principal, premium, interest or Liquidated Damages has
become due and payable shall be paid to the Company on Company Request, or (if
then held by the Company) shall be discharged from such trust; and the Holder
shall thereafter, as an unsecured general creditor, look only to the Company for
payment thereof, and all liability of the Trustee or such Paying Agent with
respect to such trust money, and all liability of the Company as trustee
thereof, shall thereupon cease; provided, however, that the Trustee or such
Paying Agent, before being required to make any such repayment, may at the
expense of the Company cause to be published once, in a newspaper published in
the English language, customarily published on each Business Day and of general
circulation in the Borough of Manhattan, The City of New York, notice that such
money remains unclaimed and that, after a date specified therein, which shall
not be less than 30 days from the date of such publication, any unclaimed
balance of such money then remaining shall be repaid to the Company.
SECTION 1004. Corporate Existence.
-------------------
Subject to Article Eight, the Company shall do or cause to be done all
things necessary to preserve and keep in full force and effect the corporate
existence, rights (charter and statutory) and franchises of the Company and each
Subsidiary; provided, however, that the Company shall not be required to
preserve any such right or franchise if the Board of Directors shall determine
that the preservation thereof is no longer desirable in the conduct of the
business of the Company and its Subsidiaries as a whole and that the loss
thereof is not disadvantageous in any material respect to the Holders.
SECTION 1005. Payment of Taxes and Other Claims.
---------------------------------
The Company shall pay or discharge or cause to be paid or discharged,
before the same shall become delinquent, (a) all taxes, assessments and
governmental charges levied or imposed upon the Company or any Subsidiary or
upon the income, profits or property of the Company or any Subsidiary and (b)
all lawful claims for labor, materials and supplies, which, if unpaid, might by
law become a lien (other than a Permitted Lien) upon the property of the Company
or any Subsidiary; provided, however, that the Company shall not be required to
pay or discharge or cause to be paid or discharged any such tax, assessment,
charge or claim whose amount, applicability or validity is being contested in
good faith by appropriate proceedings.
SECTION 1006. Maintenance of Properties.
-------------------------
The Company shall cause all properties owned by the Company or any
Subsidiary or used or held for use in the conduct of its business or the
business of any Subsidiary to be maintained and kept in good condition, repair
and working order and supplied with all necessary
<PAGE>
69
equipment and shall cause to be made all necessary repairs, renewals,
replacements, betterments and improvements thereof, all as in the judgment of
the Company may be necessary so that the business carried on in connection
therewith may be properly and advantageously conducted at all times; provided,
however, that nothing in this Section shall prevent the Company from
discontinuing the maintenance of any of such properties if such discontinuance
is, in the judgment of the Company, desirable in the conduct of its business or
the business of any Subsidiary and not disadvantageous in any material respect
to the Holders.
SECTION 1007. Insurance.
---------
The Company shall at all times keep all of its and its Subsidiaries
properties which are of an insurable nature insured with insurers, believed by
the Company to be responsible, against loss or damage to the extent that
property of similar character is usually so insured by corporations similarly
situated and owning like properties.
SECTION 1008. Statement by Officers as to Default.
-----------------------------------
(a) The Company shall deliver to the Trustee, within 120 days after
the end of each fiscal year, an Officer's Certificate from the principal
executive officer, principal financial officer or principal accounting officer
to the effect that a review has been conducted of the activities of the Company
and the Company's performance under this Indenture, and that the Company has
fulfilled its 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. For purposes of this Section 1008(a), such compliance shall
be determined without regard to any period of grace or requirement of notice
under this Indenture.
(b) When any Default has occurred and is continuing under this
Indenture, or if the trustee for or the Holder of any other evidence of
Indebtedness of the Company or any Subsidiary gives any notice or takes any
other action with respect to a claimed default (other than with respect to
Indebtedness in the principal amount of less than $1,000,000) shall deliver to
the Trustee by registered or certified mail or by telegram, telex or facsimile
transmission an Officer's Certificate specifying such event, notice or other
action within five Business Days of its occurrence.
(c) When any Registration Default (as defined in the Registration
Rights Agreement) occurs, the Company shall immediately deliver to the Trustee
by registered or certified mail or by telegram, telex or facsimile transmission
an Officer's Certificate specifying the nature of such Registration Default. In
addition, the Company shall deliver to the Trustee on each Interest Payment Date
during the continuance of a Registration Default and on the Interest Payment
Date following the cure of a Registration Default, an Officer's Certificate
specifying the amount of Liquidated Damages which have accrued and which are
then owing under the Registration Rights Agreement.
<PAGE>
70
SECTION 1009. Provision of Financial Statements and Reports.
---------------------------------------------
(a) After the Company has completed the Exchange Offer, the Company
shall 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 contemplated by Item
101(d) of Regulation S-K under the Securities Act, and all such quarterly
reports shall provide the same type of interim financial information that, as of
the date of this Indenture, is the Company's practice to provide.
(b) The Company shall also be required (i) 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 (ii) 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 1010. Repurchase of Notes upon Change of Control.
------------------------------------------
(a) Upon the occurrence of a Change of Control, each Holder shall
have the right to require the Company to repurchase such Holder's Notes in whole
or in part (the "Change of Control Offer"), at a purchase price (the "Purchase
----------------------- --------
Price") in cash in an amount equal to 101% 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") in accordance
-------------------------
with the procedures set forth in paragraphs (c) and (d) of this Section.
(b) [Reserved]
(c) Within 30 days following any Change of Control, the Company shall
give to each Holder and the Trustee in the manner provided in Section 106 a
notice stating:
(i) that a Change of Control has occurred, that the Change of Control
Offer is being made pursuant to this Section 1010 and that all Notes
validly tendered will be accepted for payment;
<PAGE>
71
(ii) the circumstances and relevant facts regarding such Change of
Control (including but not limited to information with respect to pro forma
historical income, cash flow and capitalization after giving effect to such
Change of Control);
(iii) the Purchase Price and 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 shall 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 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.
(d) [Reserved].
(e) 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;
<PAGE>
72
(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 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
shall 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 Section 1010, 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 shall 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 Section 1010.
SECTION 1011. Limitation on Indebtedness.
--------------------------
(a) The Company shall not, and shall 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 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;
<PAGE>
73
(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 million and (y) 80% of Eligible
Accounts Receivable at any one time outstanding, subject to any permanent
reductions required by any other terms of this 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) or (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 another Restricted
Subsidiary shall, in each case, be an Incurrence of Indebtedness by such
Restricted Subsidiary, subject to the other provisions of this 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 this Indenture and the
Notes, except that the limitations of paragraph (a) of this Section 1011 shall
apply to such Indebtedness at such time as (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 such
Indebtedness, subject to other provisions of this 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
<PAGE>
74
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 Section 1012) 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 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 million (as estimated in good faith by the Board
of Directors), then the Company shall 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 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
<PAGE>
75
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
pursuant to Article Thirteen;
(xi) Indebtedness of a Restricted Subsidiary represented by a
Guarantee of the Notes permitted by and made in accordance with Section
1018; 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 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 Section 1011, 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
provisions of Section 1018. For purposes of determining compliance with this
Section 1011, 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.
SECTION 1012. Limitation on Restricted Payments.
---------------------------------
The Company shall not, and shall 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
<PAGE>
76
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 holder (or any Affiliate thereof) of 5% 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 Section 1011; 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 Section 1011); 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
<PAGE>
77
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 Section 1011; (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 Section
1011); (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 Section 1011); (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 Article Eight; and (vi) other Restricted
Payments not to exceed $2 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.
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 Section 1012 have
been met with respect to any subsequent Restricted 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 Section 1012 only to the extent such proceeds are not used for such
redemption, repurchase or other acquisition of the Notes.
SECTION 1013. Limitation on Dividend and Other Payment Restrictions
-----------------------------------------------------
Affecting Restricted Subsidiaries.
- ---------------------------------
So long as any of the Notes are Outstanding, the Company shall not,
and shall 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 do any one of the
following:
(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;
<PAGE>
78
(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 this 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 than is customary in comparable financing (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
Section 1013, (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 this Indenture or (C) arising or agreed to in the
ordinary course of business, not relating to
<PAGE>
79
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 Section 1013 shall
prevent the Company or any Restricted Subsidiary from (1) creating,
incurring, assuming or suffering to exist any Liens otherwise permitted in
Section 1016 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 1014. Limitation on the Issuance and Sale of Capital Stock of
-------------------------------------------------------
Restricted Subsidiaries.
- -----------------------
The Company shall not, and shall 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 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 Section 1017, (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 Section 1012 if made on the date of such
issuance, transfer, conveyance, sale, lease or other disposition (valued as
provided in the definition of "Investment" contained in Section 101).
SECTION 1015. Limitation on Transactions with Stockholders and
------------------------------------------------
Affiliates.
- ----------
The Company shall not, and shall 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% 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 the following conditions have been met:
(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
<PAGE>
80
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 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 million, then the Company or such
Restricted Subsidiary shall 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 Section 1012; (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 this Indenture and listed on Schedule A
attached thereto as such arrangements 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 1016. Limitation on Liens.
-------------------
The Company shall not, and shall 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 this 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.
<PAGE>
81
SECTION 1017. Limitation on Asset Sales.
-------------------------
The Company shall not, and shall 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% 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 Section 1017. 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 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 Section 1017 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
<PAGE>
82
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
shall 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 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 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 upon Company Order 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 shall
publicly announce the results of the Excess Proceeds Offer as soon as
practicable after the Excess Proceeds Payment Date. For purposes of this
Section 1017, the Trustee shall act as the Paying Agent.
The Company shall 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 such Excess Proceeds are received
by the Company under this Section 1017 and the Company is required to repurchase
Notes as described above.
SECTION 1018. Limitation on Issuances of Guarantees of Indebtedness
-----------------------------------------------------
by Restricted Subsidiaries.
- --------------------------
The Company shall not permit any Restricted Subsidiary, directly or
indirectly, to Guarantee, assume or in any other manner become liable with
respect to any Indebtedness of
<PAGE>
83
the Company, other than Indebtedness under Credit Facilities incurred under
clause (iii) of paragraph (b) in Section 1011, unless (i) such Restricted
Subsidiary simultaneously executes and delivers a supplemental indenture to this
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 shall 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 this 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 1019. Business of the Company; Restriction on Transfers of
----------------------------------------------------
Existing Business.
- -----------------
The Company shall not, and shall 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 shall 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 Subsidiary used in the licensed
service areas of the Company and any Restricted Subsidiary as they exist on the
Closing Date.
<PAGE>
84
SECTION 1020. Limitation on Investments in Unrestricted Subsidiaries.
------------------------------------------------------
The Company shall not make, and shall 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 together with any other
Restricted Payments made after the Closing Date would exceed the amount of
Restricted Payments then permitted to be made pursuant to Section 1012. Any
Investments in Unrestricted Subsidiaries permitted to be made pursuant to this
covenant (i) shall 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) of this Section 1020).
SECTION 1021. Limitation on Sale-Leaseback Transactions.
-----------------------------------------
The Company shall not, and shall 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.
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
Section 1011.
SECTION 1022. Waiver of Certain Covenants.
---------------------------
The Company may omit in any particular instance to comply with any
term, provision or condition set forth in Section 803 or Sections 1007 through
1021, inclusive, if before or after the time for such compliance the Holders of
at least a majority in aggregate principal amount of the Outstanding Notes, by
Act of such Holders, waive such compliance in such instance with such term,
provision or condition, but no such waiver shall extend to or affect such term,
provision or condition except to the extent so expressly waived, and, until such
waiver shall become effective, the obligations of the Company and the duties of
the Trustee in respect of any such term, provision or condition shall remain in
full force and effect.
<PAGE>
85
ARTICLE ELEVEN
REDEMPTION OF NOTES
SECTION 1101. Right of Redemption.
-------------------
(a) The Notes may be redeemed, at the election of the Company, as a
whole or in part, at any time or from time to time, on or after January 15,
2003, subject to the conditions and at the Redemption Prices specified in the
form of Note, together with accrued and unpaid interest and Liquidated Damages,
if any, thereon to the Redemption Date.
(b) Notwithstanding the foregoing, prior to January 15, 2001, the
Company may redeem up to 35% of the originally issued aggregate principal amount
of the Notes on one or more occasions with the Net Cash Proceeds of one or more
Public Equity Offerings at a redemption price equal to 110.5% of the aggregate
principal amount thereof, plus accrued interest, if any, 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
Interest Payment Date); provided that, immediately after giving effect to such
redemption, at least 65% of the originally issued aggregate principal amount of
the Notes remains Outstanding; and provided further that notice of such
redemptions shall be given within 60 days of the date of closing of any such
Public Equity Offering.
SECTION 1102. Applicability of Article.
------------------------
Redemption of Notes at the election of the Company or otherwise, as
permitted or required by any provision of this Indenture, shall be made in
accordance with such provision and this Article.
SECTION 1103. Election to Redeem; Notice to Trustee.
-------------------------------------
The election of the Company to redeem any Notes pursuant to Section
1101 shall be evidenced by a Board Resolution. In case of any redemption at the
election of the Company, the Company shall, at least 60 days prior to the
Redemption Date fixed by the Company (unless a shorter notice shall be
satisfactory to the Trustee), notify the Trustee of such Redemption Date and of
the Redemption Price and of the principal amount of Notes to be redeemed and
shall deliver to the Trustee such documentation and records as shall enable the
Trustee to select the Notes to be redeemed pursuant to Section 1104.
<PAGE>
86
SECTION 1104. Selection by Trustee of Notes to Be Redeemed.
--------------------------------------------
If less than all the Notes are to be redeemed, the particular Notes to
be redeemed shall be selected not more than 60 days prior to the Redemption Date
by the Trustee, from the Outstanding Notes not previously called for redemption,
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 fair and appropriate and
which may provide for the selection for redemption of portions of the principal
of Notes; provided, however, that no such partial redemption shall reduce the
portion of the principal amount of a Note not redeemed to less than $1,000.
The Trustee shall promptly notify the Company in writing of the Notes
selected for redemption and, in the case of any Notes selected for partial
redemption, the principal amount thereof to be redeemed.
For all purposes of this Indenture, unless the context otherwise
requires, all provisions relating to redemption of Notes shall relate, in the
case of any Note redeemed or to be redeemed only in part, to the portion of the
principal amount of such Note which has been or is to be redeemed.
SECTION 1105. Notice of Redemption.
--------------------
Notice of redemption shall be given in the manner provided for in
Section 106 not less than 30 nor more than 60 days prior to the Redemption Date,
to each Holder of Notes to be redeemed.
All notices of redemption shall state:
(1) the Redemption Date;
(2) the Redemption Price and the amount of accrued interest to the
Redemption Date payable as provided in Section 1107, if any;
(3) if less than all Outstanding Notes are to be redeemed, the
identification (and, in the case of a partial redemption, the principal
amounts) of the particular Notes to be redeemed;
(4) in case any Note is to be redeemed in part only, the notice
which relates to such Note shall state that on and after the Redemption
Date, upon surrender of such Note, the Holder shall receive, without
charge, a new Note or Notes of authorized denominations for the principal
amount thereof remaining unredeemed;
<PAGE>
87
(5) that on the Redemption Date the Redemption Price (and accrued
interest, if any, to the Redemption Date payable as provided in Section
1107) will become due and payable upon each such Note, or the portion
thereof, to be redeemed, and that interest thereon will cease to accrue on
and after said date; and
(6) the place or places where such Notes are to be surrendered for
payment of the Redemption Price and accrued interest, if any.
Notice of redemption of Notes to be redeemed at the election of the
Company shall be given by the Company or, at the Company's written request, by
the Trustee in the name and at the expense of the Company.
SECTION 1106. Deposit of Redemption Price.
---------------------------
Prior to any Redemption Date, the Company shall deposit with the
Trustee or with a Paying Agent (or, if the Company is acting as its own Paying
Agent, segregate and hold in trust as provided in Section 1003) an amount of
money sufficient to pay the Redemption Price of, and Liquidated Damages, if any,
and accrued interest on, all the Notes which are to be redeemed on that date.
SECTION 1107. Notes Payable on Redemption Date.
--------------------------------
Notice of redemption having been given as aforesaid, the Notes so to
be redeemed shall, on the Redemption Date, become due and payable at the
Redemption Price therein specified (together with Liquidated Damages and accrued
interest, if any, to the Redemption Date), and from and after such date (unless
the Company shall default in the payment of the Redemption Price and accrued
interest) such Notes shall cease to bear interest. Upon surrender of any such
Note for redemption in accordance with said notice, such Note shall be paid by
the Company at the Redemption Price, together with Liquidated Damages and
accrued interest, if any, to the Redemption Date; provided, however, that
installments of interest whose Stated Maturity is on or prior to the Redemption
Date shall be payable to the Holders of such Notes, or one or more Predecessor
Notes, registered as such at the close of business on the relevant Regular
Record Dates according to their terms and the provisions of Section 307.
If any Note called for redemption shall not be so paid upon surrender
thereof for redemption, the principal (and premium, if any) shall, until paid,
bear interest from the Redemption Date at the rate borne by the Notes.
<PAGE>
88
SECTION 1108. Notes Redeemed in Part.
----------------------
Any Note which is to be redeemed only in part (pursuant to the
provisions of this Article Eleven) shall be surrendered at the office or agency
of the Company maintained for such purpose pursuant to Section 1002 (with, if
the Company or the Trustee so requires, due endorsement by, or a written
instrument of transfer in form satisfactory to the Company and the Trustee duly
executed by, the Holder thereof or such Holder's attorney duly authorized in
writing), and the Company shall execute, and the Trustee shall upon Company
Order authenticate and deliver to the Holder of such Note without service
charge, a new Note or Notes, of any authorized denomination as requested by such
Holder, in aggregate principal amount equal to and in exchange for the
unredeemed portion of the principal of the Note so surrendered.
ARTICLE TWELVE
SECURITY
SECTION 1201. Security.
--------
(a) On the Closing Date, the Company shall purchase, and, at all
times, subject to the Pledge Agreement, shall maintain Pledged Securities
pledged to the Trustee as security for the benefit of the Holders in such amount
as will be sufficient upon receipt of scheduled interest and/or principal
payments of such Pledged Securities, 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
outstanding Notes. The Pledged Securities shall be pledged by the Company to
the Trustee for the benefit of the Holders and shall be held by the Trustee in
the Pledge Account pending disposition pursuant to the Pledge Agreement.
(b) Each Holder, by its acceptance of a Note, consents and agrees to
the terms of the Pledge Agreement (including, without limitation, the provisions
providing for foreclosure and release of the Pledged Securities) as the same may
be in effect or may be amended from time to time in accordance with its terms,
and authorizes and directs the Trustee to enter into the Pledge Agreement and to
perform its respective obligations and exercise its respective rights thereunder
in accordance therewith. The Company shall do or cause to be done all such acts
and things as may be necessary or proper, or as may be required by the
provisions of the Pledge Agreement, to assure and confirm to the Trustee the
security interest in the Pledged Securities contemplated hereby, by the Pledge
Agreement or any part thereof, as from time to time constituted, so as to render
the same available for the security and benefit of this Indenture and of the
Notes secured hereby, according to the intent and purposes herein expressed.
The Company shall take, or shall cause to be taken, any and all actions
reasonably required (and any
<PAGE>
89
action reasonably requested by the Trustee) to cause the Pledge Agreement to
create and maintain, as security for the obligations of the Company under this
Indenture and the Notes, valid and enforceable first priority liens in and on
all the Pledged Securities, in favor of the Trustee, superior to and prior to
the rights of third Persons and subject to no other Liens.
(c) The release of any Pledged Securities pursuant to the Pledge
Agreement will not be deemed to impair the security under this Indenture in
contravention of the provisions hereof if and to the extent the Pledged
Securities are released pursuant to this Indenture and the Pledge Agreement. To
the extent applicable, the Company shall cause TIA Section 314(d) relating to
the release of property or securities from the Lien and security interest of the
Pledge Agreement (other than pursuant to Sections 7(e) and 7(g) thereof) and
relating to the substitution therefor of any property or securities to be
subjected to the Lien and security interest of the Pledge Agreement to be
complied with. Any certificate or opinion required by TIA Section 314(d) may be
made by an officer of the Company, except in cases where TIA Section 314(d)
requires that such certificate or opinion be made by an independent Person,
which Person shall be an independent engineer, appraiser or other expert
selected by the Company.
(d) The Trustee, in its sole discretion and without the consent of
the Holders, may, and at the request of the Holders of at least 25% in aggregate
principal amount of Notes then outstanding shall, on behalf of the Holders, take
all actions it deems necessary or appropriate in order to (i) enforce any of the
terms of the Pledge Agreement and (ii) collect and receive any and all amounts
payable in respect of the obligations of the Company thereunder. The Trustee
shall have power to institute and to maintain such suits and proceedings as the
Trustee may deem expedient to preserve or protect its interests and the
interests of the Holders in the Pledged Securities (including power to institute
and maintain suits or proceedings to restrain the enforcement of or compliance
with any legislative or other governmental enactment, rule or order that may be
unconstitutional or otherwise invalid if the enforcement of, or compliance with,
such enactment, rule or order would impair the security interest hereunder or be
prejudicial to the interests of the Holders or of the Trustee).
ARTICLE THIRTEEN
DEFEASANCE AND COVENANT DEFEASANCE
SECTION 1301. Company's Option to Effect Defeasance or Covenant
-------------------------------------------------
Defeasance.
- ----------
The Company may, at its option by Board Resolution, at any time, with
respect to the Notes, elect to have either Section 1302 or Section 1303 be
applied to all Outstanding Notes upon compliance with the conditions set forth
below in this Article Thirteen.
<PAGE>
90
SECTION 1302. Defeasance and Discharge.
------------------------
Upon the Company's exercise under Section 1301 of the option
applicable to this Section 1302, the Company shall be deemed to have been
discharged from its obligations with respect to all Outstanding Notes on the
date the conditions set forth in Section 1304 are satisfied (hereinafter,
"defeasance"). For this purpose, such defeasance means that the Company shall
----------
be deemed to have paid and discharged the entire indebtedness represented by the
Outstanding Notes, which shall thereafter be deemed to be "Outstanding" only for
the purposes of Section 1305 and the other Sections of this Indenture referred
to in (A) and (B) below, and to have satisfied all its other obligations under
such Notes and this Indenture insofar as such Notes are concerned (and the
Trustee, at the expense of the Company, shall execute proper instruments
acknowledging the same), except for the following which shall survive until
otherwise terminated or discharged hereunder: (A) 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, (B) the Company's
obligations with respect to such Notes under Sections 304, 305, 306, 1002 and
1003, (C) the rights, powers, trusts, duties and immunities of the Trustee
hereunder and (D) this Article Thirteen. Subject to compliance with this
Article Thirteen, the Company may exercise its option under this Section 1302
notwithstanding the prior exercise of its option under Section 1303 with respect
to the Notes.
SECTION 1303. Covenant Defeasance.
-------------------
Upon the Company's exercise under Section 1301 of the option
applicable to this Section 1303, the Company shall be released from its
obligations under any covenant contained in Section 801(3) and (4) and Section
803 and in Sections 1007 through 1022 with respect to the Outstanding Notes on
and after the date the conditions set forth below are satisfied (hereinafter,
"covenant defeasance"), and the Notes shall thereafter be deemed not to be
-------------------
"Outstanding" for the purposes of any direction, waiver, consent or declaration
or Act of Holders (and the consequences of any thereof) in connection with such
covenants, but shall continue to be deemed "Outstanding" for all other purposes
hereunder. For this purpose, such covenant defeasance means that, with respect
to the Outstanding Notes, the Company may omit to comply with and shall have no
liability in respect of any term, condition or limitation set forth in any such
covenant, whether directly or indirectly, by reason of any reference elsewhere
herein to any such covenant or by reason of any reference in any such covenant
to any other provision herein or in any other document and such omission to
comply shall not constitute a Default or an Event of Default under Section
501(6), but, except as specified above, the remainder of this Indenture and such
Notes shall be unaffected thereby.
<PAGE>
91
SECTION 1304. Conditions to Defeasance or Covenant Defeasance.
-----------------------------------------------
The following shall be the conditions to application of either Section
1302 or Section 1303 to the Outstanding Notes:
(1) The Company shall irrevocably have deposited or caused to be
deposited with the Trustee (or another trustee satisfying the requirements
of Section 607 who shall agree to comply with the provisions of this
Article Thirteen applicable to it) as trust funds in trust for the purpose
of making the following payments, specifically pledged as security for, and
dedicated solely to, the benefit of the Holders of such Notes, (A) cash in
United States dollars, or (B) U.S. Government Obligations or (C) a
combination thereof, in such amounts as will be sufficient, in the opinion
of a nationally recognized firm of independent public accountants expressed
in a written certification thereof delivered to the Trustee, to pay and
discharge, and which shall be applied by the Trustee (or other qualifying
trustee) to pay and discharge, (i) the principal of (and premium, if any),
interest and Liquidated Damages, if any, on the Outstanding Notes on the
Stated Maturity (or Redemption Date, if applicable) of such principal (and
premium, if any) or installment of interest and Liquidated Damages, if any,
and (ii) any mandatory sinking fund payments or analogous payments
applicable to the Outstanding Notes on the day on which such payments are
due and payable in accordance with the terms of this Indenture and of such
Notes; provided that the Trustee shall have been irrevocably instructed to
--------
apply such money or the proceeds of such U.S. Government Obligations to
said payments with respect to the Notes. Before such a deposit, the
Company may give to the Trustee, in accordance with Section 1103 hereof, a
notice of its election to redeem all of the Outstanding Notes at a future
date in accordance with Article Eleven hereof, which notice shall be
irrevocable. Such irrevocable redemption notice, if given, shall be given
effect in applying the foregoing. For this purpose, "U.S. Government
---------------
Obligations" means securities that are (x) direct obligations of the United
-----------
States of America 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 of America the
timely payment of which is unconditionally guaranteed as a full faith and
credit obligation by the United States of America, 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.
<PAGE>
92
(2) No Default or Event of Default with respect to the Notes shall
have occurred and be continuing on the date of such deposit or, insofar as
paragraph (9) or (10) of Section 501 hereof is concerned, at any time
during the period ending on the 123rd day after the date of such deposit.
(3) [Reserved]
(4) Such defeasance or covenant defeasance shall not result in a
breach or violation of, or constitute a default under any material
agreement or instrument (other than this Indenture) to which the Company is
a party or by which it is bound.
(5) In the case of an election under Section 1302, the Company shall
have delivered to the Trustee an Opinion of Counsel stating that (x) the
Company has received from, or there has been published by, the Internal
Revenue Service a ruling, or (y) since January 15, 1998, there has been a
change in the applicable federal income tax law, in either case to the
effect, and based thereon such opinion shall confirm, that Holders 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.
(6) In the case of an election under Section 1303, the Company shall
have delivered to the Trustee an Opinion of Counsel to the effect that the
Holders will not recognize income, gain or loss for federal income tax
purposes as a result of such covenant defeasance and will be subject to
federal income tax on the same amounts, in the same manner and at the same
times as would have been the case if such covenant defeasance had not
occurred.
(7) 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 under Section 1302
or the covenant defeasance under Section 1303 (as the case may be) have
been complied with.
SECTION 1305. Deposited Money and U.S. Government Obligations to Be
-----------------------------------------------------
Held in Trust; Other Miscellaneous Provisions.
- ---------------------------------------------
Subject to the provisions of the last paragraph of Section 1003, all
money and U.S. Government Obligations (including the proceeds thereof) deposited
with the Trustee (or other qualifying trustee, collectively for purposes of this
Section 1305, the "Trustee") pursuant to Section 1304 in respect of the
-------
Outstanding Notes shall be held in trust and applied by the Trustee, in
accordance with the provisions of such Notes and this Indenture, to the payment,
either directly or through any Paying Agent (including the Company acting as its
own Paying
<PAGE>
93
Agent) as the Trustee may determine, to the Holders of such Notes of all sums
due and to become due thereon in respect of principal (and premium, if any) and
interest, but such money need not be segregated from other funds except to the
extent required by law.
The Company shall pay and indemnify the Trustee against any tax, fee
or other charge imposed on or assessed against the U.S. Governmental Obligations
deposited pursuant to Section 1304 or the principal and interest received in
respect thereof other than any such tax, fee or other charge which by law is for
the account of the Holders.
Anything in this Article Thirteen to the contrary notwithstanding, the
Trustee shall deliver or pay to the Company from time to time upon Company
Request any money or U.S. Government Obligations held by it as provided in
Section 1304 which, in the opinion of a nationally recognized firm of
independent public accountants expressed in a written certification thereof
delivered to the Trustee, are in excess of the amount thereof which would then
be required to be deposited to effect an equivalent defeasance or covenant
defeasance, as applicable, in accordance with this Article.
SECTION 1306. Reinstatement.
-------------
If the Trustee or any Paying Agent is unable to apply any money in
accordance with Section 1305 by reason of any order or judgment of any court or
governmental authority enjoining, restraining or otherwise prohibiting such
application, then the Company's obligations under this Indenture and the Notes
shall be revived and reinstated as though no deposit had occurred pursuant to
Section 1302 or 1303, as the case may be, until such time as the Trustee or
Paying Agent is permitted to apply all such money in accordance with Section
1305; provided, however, that if the Company makes any payment of principal of
(or premium, if any) or interest on any Note following the reinstatement of its
obligations, the Company shall be subrogated to the rights of the Holders of
such Notes to receive such payment from the money held by the Trustee or Paying
Agent.
This Indenture may be signed in any number of counterparts each of
which so executed shall be deemed to be an original, but all such counterparts
shall together constitute but one and the same Indenture.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to
be duly executed as of the day and year first above written.
FACILICOM INTERNATIONAL, INC.
By: /s/ Christopher S. King
-----------------------------------------------
Name: Christopher S. King
Title: Chief Financial Officer
STATE STREET BANK AND TRUST COMPANY,
Trustee
By: /s/ Robert J. Dunn
-----------------------------------------------
Name: Robert J. Dunn
Title: Vice President
<PAGE>
Exhibit A
---------
FORM OF FACE OF NOTE
FACILICOM INTERNATIONAL, INC.
10 1/2% Senior Note due 2008
[CUSIP] [CINS]
--------------
No. $
------------- --------------
FACILICOM INTERNATIONAL, INC., a Delaware corporation (herein called
the "Company", which term includes any successor Person under the Indenture
hereinafter referred to), for value received, hereby promises to pay to
____________________ or registered assigns, the principal sum of ___ United
States dollars on January 15, 2008, at the office or agency of the Company
referred to below, and to pay interest thereon on July 15, 1998 and semi-
annually thereafter, on January 15 and July 15 in each year, from January 28,
1998 or from the most recent Interest Payment Date to which interest has been
paid or duly provided for, at the rate of 10 1/2% per annum, until the principal
hereof is paid or duly provided for, and (to the extent lawful) to pay on demand
interest on any overdue interest at the rate borne by the Notes from the date on
which such overdue interest becomes payable to the date payment of such interest
has been made or duly provided for. The interest so payable, and punctually
paid or duly provided for, on any Interest Payment Date will, as provided in
such Indenture, be paid to the Person in whose name this Note (or one or more
Predecessor Notes) is registered at the close of business on the Regular Record
Date for such interest, which shall be the January 1 or July 1 (whether or not a
Business Day), as the case may be, next preceding such Interest Payment Date.
Any such interest not so punctually paid or duly provided for shall forthwith
cease to be payable to the Holder on such Regular Record Date, and such
Defaulted Interest, and (to the extent lawful) interest on such defaulted
interest at the rate borne by the Notes, may be paid to the Person in whose name
this Note (or one or more Predecessor Notes) is registered at the close of
business on a Special Record Date for the payment of such Defaulted Interest to
be fixed by the Trustee, notice whereof shall be given to Holders of Notes not
less than 10 days prior to such Special Record Date, or may be paid at any time
in any other lawful manner not inconsistent with the requirements of any
securities exchange on which the Notes may be listed, and upon such notice as
may be required by such exchange, all as more fully provided in said Indenture.
[The Holder of this Note is entitled to the benefits of the
Registration Rights Agreement, dated as of January 28, 1998 (the "Registration
Rights Agreement"), between the Company and the Initial Purchasers named
therein. In the event that either (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
<PAGE>
A-2
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 declared effective
within such five business day period (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
(as defined in the Registration Rights Agreement), the accrual of Liquidated
Damages with respect to such Transfer Restricted Securities will cease.]*
The principal of (and premium and Liquidated Damages, if any) and
interest on the Notes shall be payable at the office or agency of the Company
maintained for such purpose (which shall initially be the Office of the Trustee
located at 61 Broadway, New York, New York 10006, unless the Company shall
designate and maintain some other office or agency for such purpose), and, at
the option of the Company, interest may be paid by check mailed to addresses of
the holders as such address appears in the Register; provided that all payments
with respect to the Global Notes and Certificated Notes, 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.
Reference is hereby made to the further provisions of this Note set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been duly executed
by the Trustee referred to on the reverse hereof by manual signature, this Note
shall not be entitled to any benefit under the Indenture, or be valid or
obligatory for any purpose.
- --------------------------
* To be included in Initial Notes.
<PAGE>
A-3
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed.
FACILICOM INTERNATIONAL, INC.
By:
------------------------------------
Name: Christopher S. King
Title: Chief Financial Officer
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
Dated:
--------------------------
This is one of the 10 1/2% Senior Notes due 2008 referred to in the within-
mentioned Indenture.
STATE STREET BANK AND TRUST COMPANY,
Trustee
By:
-------------------------------------------
Authorized Signatory
<PAGE>
A-4
FORM OF REVERSE SIDE OF NOTE
FACILICOM INTERNATIONAL, INC.
10 1/2% Senior Note due 2008
This Note is one of a duly authorized issue of securities of the
Company designated as its 10 1/2% Senior Notes due 2008 (herein called the
"Notes"), limited (except as otherwise provided in the Indenture referred to
below) in aggregate principal amount to $300,000,000, which may be issued under
an indenture (herein called the "Indenture") dated as of January 28, 1998
between the Company and State Street Bank and Trust Company, trustee (herein
called the "Trustee", which term includes any successor trustee under the
Indenture), to which Indenture and all indentures supplemental thereto reference
is hereby made for a statement of the respective rights, limitations of rights,
duties, obligations and immunities thereunder of the Company, the Trustee and
the Holders of the Notes, and of the terms upon which the Notes are, and are to
be, authenticated and delivered.
The Notes are subject to redemption upon not less than 30 nor more
than 60 days' prior notice, in whole or in part, at any time or from time to
time on or after January 15, 2003, at the election of the Company, at 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 Record Date to
receive interest due on an 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:
Redemption
Year Price
---- -----------
2003............................... 105.25%
2004............................... 103.50
2005............................... 101.75
2006 (and thereafter).............. 100.00%
Notwithstanding the foregoing, prior to January 15, 2001, the Company
may on any one or more occasions redeem up to 35% 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% of
the originally issued principal amount of the Notes remains outstanding
immediately after the
<PAGE>
A-5
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.
Upon the occurrence of a Change of Control, the Holder of this Note
may require the Company, subject to certain limitations provided in the
Indenture, to repurchase all or any part of this Note at a purchase price in
cash in an amount equal to 101% of the principal amount thereof plus accrued and
unpaid interest and Liquidated Damages, if any.
Under certain circumstances, in the event the Net Cash Proceeds
received by the Company from an Asset Sale, which proceeds are not used to (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 immediately following the date of receipt of the Net Cash
Proceeds from an Asset Sale) such excess Net Cash Proceeds (to the extent not
applied pursuant to clause (i)) in accordance with the Indenture, and which
proceeds equal or exceed a specified amount, the Company shall be required to
make an offer to all Holders to purchase the maximum principal amount of Notes,
in an integral multiple of $1,000, that may be purchased out of such amount at a
purchase price in cash equal to 100% of the principal amount thereof, plus
accrued, unpaid interest and Liquidated Damages, if any, to the date of
purchase, in accordance with the Indenture. Holders of Notes that are subject
to any offer to purchase shall receive an Excess Proceeds Offer from the Company
prior to any related Excess Proceeds Payment Date.
In the case of any redemption or repurchase of Notes, interest and
Liquidated Damages installments, if any, whose Stated Maturity is on or prior to
the Redemption Date or Excess Proceeds Payment Date will be payable to the
Holders of such Notes, or one or more Predecessor Notes, of record at the close
of business on the relevant Record Date referred to on the face hereof. Notes
(or portions thereof) for whose redemption and payment provision is made in
accordance with the Indenture shall cease to bear interest from and after the
Redemption Date or Excess Proceeds Payment Date, as the case may be.
In the event of redemption or repurchase of this Note in part only, a
new Note or Notes for the unredeemed portion hereof shall be issued in the name
of the Holder hereof upon the cancellation hereof.
<PAGE>
A-6
If an Event of Default shall occur and be continuing, the principal of
all the Notes may be declared due and payable in the manner and with the effect
provided in the Indenture.
The Indenture contains provisions for defeasance at any time of (a)
the entire Indebtedness of the Company on this Note and (b) certain restrictive
covenants and the related Defaults and Events of Default, upon compliance by the
Company with certain conditions set forth therein, which provisions apply to
this Note.
The Indenture permits, with certain exceptions as therein provided,
the amendment thereof and the modification of the rights and obligations of the
Company and the rights of the Holders under the Indenture at any time by the
Company and the Trustee with the consent of the Holders of a majority in
aggregate principal amount of the Notes at the time Outstanding. Additionally,
the Indenture permits that, without notice to or consent of any Holder, the
Company and the Trustee together may amend or supplement the Indenture or this
Note to: (i) evidence the succession of another Person to the Company and the
assumption by any such successor of the covenants of the Company contained
herein and in the Notes; (ii) add to the covenants of the Company for the
benefit of the Holders or to surrender any right or power herein conferred upon
the Company; (iii) add any additional Events of Default; (iv) evidence and
provide for the acceptance of appointment hereunder by a successor Trustee;
(v) cure any ambiguity, correct or supplement any provision herein which may be
inconsistent with any other provision herein, or make any other provisions with
respect to matters or questions arising under this Indenture; provided that such
action shall not adversely affect the interests of the Holders in any material
respect; or (vi) secure the Notes. The Indenture also contains provisions
permitting the Holders of specified percentages in aggregate principal amount of
the Notes at the time Outstanding, on behalf of the Holders of all the Notes, to
waive compliance by the Company with certain provisions of the Indenture and
certain past defaults under the Indenture and their consequences. Any such
consent or waiver by or on behalf of the Holder of this Note shall be conclusive
and binding upon such Holder and upon all future Holders of this Note and of any
Note issued upon the registration of transfer hereof or in exchange herewith or
in lieu hereof whether or not notation of such consent or waiver is made upon
this Note.
No reference herein to the Indenture and no provision of this Note or
of the Indenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal of, premium, if any, interest
and Liquidated Damages, if any, on this Note at the times, place, and rate, and
in the coin or currency, herein prescribed.
If less than all the Notes are to be redeemed, the particular Notes to
be redeemed shall be selected not more than 60 days prior to the Redemption Date
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 fair and appropriate and
which may provide for the selection for redemption of portions of the principal
of Notes.
<PAGE>
A-7
As provided in the Indenture and subject to certain limitations
therein set forth, the transfer of this Note is registrable on the Register of
the Company, upon surrender of this Note for registration of transfer at the
office or agency of the Company maintained for such purpose in The City of New
York or at the Corporate Trust Office of the Trustee, duly endorsed by, or
accompanied by a written instrument of transfer in form satisfactory to the
Company and the Registrar duly executed by, the Holder hereof or his attorney
duly authorized in writing, and thereupon one or more new Notes, of authorized
denominations and for the same aggregate principal amount, will be issued to the
designated transferee or transferees.
The Notes are issuable only in registered form without coupons in
denominations of $1,000 and any integral multiple thereof. As provided in the
Indenture and subject to certain limitations therein set forth, the Notes are
exchangeable for a like aggregate principal amount of Notes of a different
authorized denomination, as requested by the Holder surrendering the same.
No service charge shall be made for any registration of transfer or
exchange of Notes, but the Company may require payment of a sum sufficient to
cover any tax or other governmental charge payable in connection therewith.
Prior to the time of due presentment of this Note for registration of
transfer, the Company, the Trustee and any agent of the Company or the Trustee
may treat the Person in whose name this Note is registered on the Register as
the owner hereof for all purposes, whether or not this Note be overdue, and
neither the Company, the Trustee nor any agent shall be affected by notice to
the contrary.
THIS NOTE SHALL BE GOVERNED AND CONSTRUED IN ACCORDANCE WITH THE LAWS
OF THE STATE OF NEW YORK.
Interest on this Note shall be computed on the basis of a 360-day year
of twelve 30-day months. All capitalized terms used in this Note which are
defined in the Indenture shall have the meanings assigned to them in the
Indenture.
<PAGE>
A-8
FORM OF TRANSFER NOTICE
FOR VALUE RECEIVED the undersigned registered holder hereby sell(s),
assign(s) and transfer(s) unto
Insert Taxpayer Identification No.
- ----------------------------------
- --------------------------------------------------------------------------------
(Please print or typewrite name and address including zip code of assignee)
- --------------------------------------------------------------------------------
the within Note and all rights thereunder, hereby irrevocably constituting and
_______________________________________________ appointing attorney to transfer
such Note on the books of the Company with full power of substitution in the
premises.
[THE FOLLOWING PROVISION TO BE INCLUDED
ON ALL NOTES OTHER THAN EXCHANGE NOTES,
REGULATION S PERMANENT GLOBAL NOTES AND
REGULATION S PERMANENT CERTIFICATED NOTES]
In connection with any transfer of this Note occurring prior to the
date which is the earlier of the date of an effective Registration Statement or
the end of the period referred to in Rule 144(k) under the Securities Act, the
undersigned confirms that without utilizing any general solicitation or general
advertising that:
[Check One]
---------
[_] (a) this Note is being transferred in compliance with the exemption from
registration under the Securities Act of 1933, as amended, provided by
Rule 144A thereunder.
or
--
[_] (b) this Note is being transferred other than in accordance with (a) above
and documents are being furnished which comply with the conditions of
transfer set forth in this Note and the Indenture.
<PAGE>
A-9
If neither of the foregoing boxes is checked, the Trustee or other Registrar
shall not be obligated to register this Note in the name of any Person other
than the Holder hereof unless and until the conditions to any such transfer of
registration set forth herein and in Section 312 of the Indenture shall have
been satisfied.
Date: ____________________ ____________________________________________
NOTICE: The signature to this assignment
must correspond with the name as written
upon the face of the within-mentioned
instrument in every particular, without
alteration or any change whatsoever.
Signature Guarantee/1/ _______________________
TO BE COMPLETED BY PURCHASER IF (a) ABOVE IS CHECKED.
The undersigned represents and warrants that it is purchasing this
Note for its own account or an account with respect to which it exercises sole
investment discretion and that it and any such account is a "qualified
institutional buyer" within the meaning of Rule 144A under the Securities Act of
1933, as amended, and is aware that the sale to it is being made in reliance on
Rule 144A and acknowledges that it has received such information regarding the
Company as the undersigned has requested pursuant to Rule 144A or has determined
not to request such information and that it is aware that the transferor is
relying upon the undersigned's foregoing representations in order to claim the
exemption from registration provided by Rule 144A.
Dated:____________________ ____________________________________________
NOTICE: To be executed by an executive
officer
/1/ The Holder's signature must be guaranteed by an "eligible guarantor
institution" meeting the requirements of the Registrar which requirements
include membership or participation in the Security Transfer Agent
Medallion Program ("STAMP") or such other "signature guarantee program"
as may be determined by the Registrar in addition to or in substitution
for STAMP, all in accordance with the Securities Exchange Act of 1934, as
amended.
<PAGE>
A-10
OPTION OF HOLDER TO ELECT PURCHASE
If you wish to have this Note purchased by the Company pursuant to
Section 1010 or Section 1017 of the Indenture, check the Box: [_]
If you wish to have a portion of this Note purchased by the Company
pursuant to Section 1010 or Section 1017 of the Indenture, state the amount (in
original principal amount) below:
$_____________________.
Date:________________
Your Signature: __________________________________________________
(Sign exactly as your name appears on the other side of this Note)
Signature Guarantee/1/ _____________________
- -------------------------
/1/ The Holder's signature must be guaranteed by an "eligible guarantor
institution" meeting the requirements of the Registrar which requirements
include membership or participation in the Security Transfer Agent
Medallion Program ("STAMP") or such other "signature guarantee program"
as may be determined by the Registrar in addition to or in substitution
for STAMP, all in accordance with the Securities Exchange Act of 1934, as
amended.
<PAGE>
Exhibit B
---------
Form of Certificate
to Be Delivered upon
Termination of Restricted Period
--------------------------------
[DATE]
State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
Attention: Corporate Trust Department
Re: Facilicom International, Inc. (the "Company")
10 1/2% Senior Notes due 2008 (the "Notes")
-------------------------------------------
Ladies and Gentlemen:
This letter relates to $__________ principal amount of Notes
represented by the offshore global note certificate (the "Regulation S Global
Note"). Pursuant to Section 201 of the Indenture dated as of January 28, 1998
relating to the Notes (the "Indenture"), we hereby certify that (1) we are the
beneficial owner of such principal amount of Notes represented by the
Regulation S Global Note and (2) we are a Non-U.S. Person to whom the Notes
could be transferred in accordance with Rule 904 of Regulation S promulgated
under the Securities Act of 1933, as amended ("Regulation S"). Accordingly, you
are hereby requested to issue a Regulation S Permanent Global Note representing
the undersigned's interest in the principal amount of Notes represented by the
Global Note, all in the manner provided by the Indenture.
You and the Company are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any interested
party in any administrative or legal proceedings or official inquiry with
respect to the matters covered hereby. Terms used in this certificate have the
meanings set forth in Regulation S.
Very truly yours,
[Name of Holder]
By:
-------------------------------------------
Authorized Signature
<PAGE>
Exhibit C
---------
Form of Regulation S Certificate
--------------------------------
[DATE]
State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
Attention: Corporate Trust Department
Re: Facilicom International, Inc. (the "Company")
10 1/2% Senior Notes due 2008 (the "Notes")
-------------------------------------------
Ladies and Gentlemen:
This Certificate relates to our proposed transfer of $____ principal
amount of Notes issued under the Indenture dated as of January 28, 1998 relating
to the Notes. Terms are used in this Certificate as defined in Regulation S
under the Securities Act of 1933, as amended (the "Securities Act"). We hereby
certify as follows:
1. The offer of the Notes was not made to a person in the United
States (unless such person or the account held by it for which it is acting
is excluded from the definition of "U.S. person" pursuant to Rule 902(o) of
Regulation S under the circumstances described in Rule 902(i)(3) of
Regulation S) or specifically targeted at an identifiable group of U.S.
citizens abroad.
2. Either (a) at the time the buy order was originated, the buyer
was outside the United States or we and any person acting on our behalf
reasonably believed that the buyer was outside the United States or (b) the
transaction was executed in, on or through the facilities of a designated
offshore securities market, and neither we nor any person acting on our
behalf knows that the transaction was pre-arranged with a buyer in the
United States.
3. Neither we, any of our affiliates, nor any person acting on our
or their behalf, has made any directed selling efforts in the United
States.
4. The proposed transfer of Notes is not part of a plan or scheme
to evade the registration requirements of the Securities Act.
<PAGE>
C-2
5. If we are a dealer or a person receiving a selling concession or
other fee or remuneration in respect of the Notes, and the proposed
transfer takes place before the Regulation S Note Exchange Date referred to
in the Indenture, or we are an officer or director of the Company or a
distributor, we certify that the proposed transfer is being made in
accordance with the provisions of Rule 904(c) of Regulation S.
You and the Company are entitled to rely upon this Certificate and are
irrevocably authorized to produce this Certificate or a copy hereof to any
interested party in any administrative or legal proceeding or official inquiry
with respect to the matters covered hereby.
Very truly yours,
[NAME OF SELLER]
By:
-------------------------------------------
Authorized Signature
<PAGE>
Schedule A
----------
SCHEDULE A
----------
I. Arrangements with Armstrong and its subsidiaries
A. FaciliCom International, L.L.C. First Amended and Restated Limited
Liability Company Agreement dated as of September 30, 1997 between
Armstrong International Telecommunications, Inc. and FCI Management
Group
B. FCI (GP) LLC Limited Liability Company Agreement dated as of September
30, 1997 between Armstrong International Telecommunications, Inc. and
FCI Management Group
C. FaciliCom International, Inc. Tax Sharing Agreement dated as of
December 22, 1997 between Armstrong Holdings, Inc. and FaciliCom
International, Inc.
D. Services Agreement dated as of July 1, 1997 between Armstrong
Holdings, Inc. and FaciliCom International, L.L.C.
E. Billing and MIS Services Agreement dated as of July 1, 1997 between
Armstrong Holdings, Inc. and FaciliCom International, L.L.C.
II. Arrangements with TMG - There are no written arrangements between TMG and
the Company or any Restricted Subsidiary; however, TMG provides, and expects to
continue to provide, consulting services to the Company and its Restricted
Subsidiaries. See "Certain Relationships and Related Transactions" in the
Offering Memorandum dated January 23, 1998.
<PAGE>
Exhibit 4.3
FORM OF COMMON STOCK CERTIFICATE
OF FACILICOM INTERNATIONAL, INC.
Number Shares
- ----------------- -----------------
Incorporated under the Laws of Delaware
FACILICOM INTERNATIONAL, INC.
The Corporation is authorized to issue 300,000 Common Shares -- Par Value $.01
each.
This certifies that __________________________________ is the owner of
__________________________ fully paid and non-assessable Shares of the above
Corporation transferable only on the books of the Corporation by the holder
hereof in person or by duly authorized Attorney upon surrender of this
Certificate properly endorsed.
In Witness Whereof, the said Corporation has caused this Certificate to be
signed by its duly authorized officers and to be sealed with the Seal of the
Corporation.
Dated:
--------------------
<PAGE>
EXHIBIT 5.1
[SWIDLER & BERLIN LETTERHEAD]
March 20, 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. Except as
provided in the preceding paragraph, this opinion may not be relied upon by
any other person and 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 10.1
EXECUTION COPY
================================================================================
REGISTRATION RIGHTS AGREEMENT
Dated as of January 28, 1998
FACILICOM INTERNATIONAL, INC.,
and
LEHMAN BROTHERS INC.
================================================================================
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
1. Definitions........................................................ 1
2. Securities Subject to This Agreement............................... 3
3. Registered Exchange Offer.......................................... 4
4. Shelf Registration................................................. 5
5. Liquidated Damages................................................. 7
6. Registration Procedures............................................ 8
7. Participation of Broker-Dealers in Exchange Offer.................. 17
8. Registration Expenses.............................................. 19
9. Indemnification and Contribution................................... 20
10. Rule 144A.......................................................... 24
11. Participation in Underwritten Registrations........................ 24
12. Selection of Underwriters.......................................... 25
13. Miscellaneous...................................................... 25
<PAGE>
This Registration Rights Agreement (this "Agreement") is made and entered
into as of January 28, 1998 between FaciliCom International, Inc., a Delaware
corporation (the "Company"), and Lehman Brothers Inc., for itself and as
Representative of the other Initial Purchaser named in Schedule I to the
Purchase Agreement (defined below), (collectively with the Representative, the
"Initial Purchasers").
This Agreement is entered into in connection with the Purchase Agreement,
dated as of January 23, 1998, among the Company and the Initial Purchasers (the
"Purchase Agreement"), which provides for the sale by the Company to the Initial
Purchasers of $300,000,000 aggregate principal amount of the Company's 10 1/2%
Senior Notes due 2008 (the "Notes"), which Notes shall be senior obligations of
the Company and will rank pari passu in right of payment with all other existing
and future unsecured and unsubordinated obligations of the Company, including
trade payables, and will be effectively senior in right of payment to all
existing and future obligations of the Company expressly subordinated in right
of payment to the Notes. Capitalized terms used but not specifically defined
herein have the respective meanings ascribed thereto in the Purchase Agreement.
As an inducement to the Initial Purchasers to enter into the Purchase Agreement
and in satisfaction of a condition to the Initial Purchasers' obligations
thereunder, the Company agrees with the Initial Purchasers, and its direct and
indirect transferees, for the benefit of the holders of the Notes (including the
Initial Purchasers) (the "Holders"), as follows:
1. Definitions. As used in this Agreement, the following capitalized
terms shall have the following meanings:
Broker-Dealer: Any broker or dealer registered under the Exchange Act.
-------------
Closing Date: The date on which the Notes were sold to the Initial
------------
Purchasers.
Commission: The Securities and Exchange Commission.
----------
Damages Payment Date: With respect to the Notes, each Interest Payment
--------------------
Date (as defined in the Indenture) until the earlier of (i) the date on which
Liquidated Damages no longer are payable or (ii) maturity of the Notes.
Effectiveness Target Date: As defined in Section 5 hereof.
-------------------------
Exchange Act: The Securities Exchange Act of 1934, as amended.
------------
Exchange Notes: The Notes to be issued pursuant to the Indenture in the
--------------
Exchange Offer.
Exchange Offer: The registration by the Company under the Securities Act
--------------
of the Exchange Notes pursuant to a Registration Statement pursuant to which
the
<PAGE>
2
Company offers the Holders of all outstanding Transfer Restricted
Securities the opportunity to exchange all such outstanding Transfer
Restricted Securities held by such Holders for Exchange Notes in an
aggregate principal amount equal to the aggregate principal amount of the
Transfer Restricted Securities tendered in such exchange offer by such
Holders.
Exchange Offer Registration Statement: The Registration Statement
-------------------------------------
relating to the Exchange Offer, including the Prospectus which forms a part
thereof.
Exempt Resales: The transactions in which the Initial Purchasers
--------------
propose to sell the Notes to certain "qualified institutional buyers," as
such term is defined in Rule 144A under the Securities Act, and to certain
non-U.S. persons in offshore transactions meeting the requirements of Rule
903 of Regulation S under the Securities Act.
Holders: As defined in Section 2(b) hereof.
-------
Indenture: The Indenture, dated as of the date hereof, between the
---------
Company and State Street Bank and Trust Company, as trustee (the
"Trustee"), pursuant to which the Notes are to be issued, as such Indenture
is amended or supplemented from time to time in accordance with the terms
thereof.
Initial Purchasers: Lehman Brothers Inc. and BT Alex. Brown
------------------
Incorporated.
Liquidated Damages: As defined in Section 5(a) hereof.
------------------
NASD: National Association of Securities Dealers, Inc.
----
Person: An individual, partnership, corporation, limited liability
------
company, trust or unincorporated organization, or a government or agency or
political subdivision thereof.
Prospectus: The prospectus included in a Registration Statement,
----------
including any preliminary prospectus, and any such prospectus as amended or
supplemented by any prospectus supplement and by all other amendments and
supplements thereto, including post-effective amendments, and all exhibits
thereto and all material incorporated by reference into such Prospectus.
Registration Default: As defined in Section 5 hereof.
--------------------
Registration Statement: Any registration statement of the Company
----------------------
relating to (a) an offering of Exchange Notes pursuant to an Exchange Offer
or (b) the
<PAGE>
3
registration for resale of Transfer Restricted Securities pursuant to the
Shelf Registration Statement, which is filed pursuant to the provisions of
this Agreement, in either case, including the Prospectus included therein,
all amendments and supplements thereto (including post-effective
amendments) and all exhibits and material incorporated by reference
therein.
Related Transaction Documents: The Purchase Agreement, the Indenture
-----------------------------
and the Pledge Agreement, together with all exhibits and schedules thereto.
Securities Act: The Securities Act of 1933, as amended.
--------------
Shelf Filing Deadline: As defined in Section 4 hereof.
---------------------
Shelf Registration Statement: As defined in Section 4 hereof.
----------------------------
TIA: The Trust Indenture Act of 1939 (15 U.S.C. Section 77aaa-
---
77bbbb), as amended.
Transfer Restricted Securities: Each Note, until the earliest to
------------------------------
occur of (a) the date on which such Note has been exchanged by a person
other than a Broker-Dealer for Exchange Notes in the Exchange Offer, (b)
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, (c) 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 (d) the date on which
such Note is eligible to be distributed to the public pursuant to Rule 144
under the Securities Act.
Underwritten Registration or Underwritten Offering: A registration
------------------------- ---------------------
in which securities of the Company are sold to an underwriter for
reoffering to the public; provided, however, that the Company shall be
obligated to undertake no more than two such Underwritten Registrations or
Underwritten Offerings in the aggregate.
2. Securities Subject to This Agreement.
(a) Transfer Restricted Securities. The securities entitled to the
------------------------------
benefits of this Agreement are the Transfer Restricted Securities.
(b) Holders of Transfer Restricted Securities. A Person is deemed
-----------------------------------------
to be a holder of Transfer Restricted Securities whenever such Person owns
Transfer Restricted Securities.
<PAGE>
4
3. Registered Exchange Offer.
(a) Exchange Offer Registration Statement. Unless the Exchange
-------------------------------------
Offer shall not be permissible under applicable law or Commission policy (after
the procedures set forth in Section 6(a) below have been complied with) or one
of the events set forth in Section 4(a)(ii) has occurred, the Company shall (i)
cause to be filed with the Commission promptly after the Closing Date, but in no
event later than 60 days after the Closing Date, a Registration Statement under
the Securities Act relating to the Exchange Notes and the Exchange Offer, (ii)
use its reasonable best efforts to cause such Registration Statement to become
effective no later than 120 days after the Closing Date, (iii) in connection
with the foregoing, (A) file all pre-effective amendments to such Registration
Statement as may be necessary in order to cause such Registration Statement to
become effective, (B) if applicable, file a post-effective amendment to such
Registration Statement pursuant to Rule 430A under the Securities Act and (C)
cause all necessary filings in connection with the registration and
qualification 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,
(iv) use its reasonable best efforts to cause the Exchange Offer to be
consummated on the earliest practicable date after the Exchange Offer
Registration Statement has become effective, but in no event later than 30 days
thereafter and (v) deliver the Exchange Notes in the same aggregate principal
amount as the aggregate principal amount of Transfer Restricted Securities that
were validly tendered by Holders thereof pursuant to the Exchange Offer. The
Exchange Offer shall be on the appropriate form permitting registration of 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 Section 3(c) below. The time periods referred to in clauses (i), (ii) and
(iv) of this Section 3(a) shall not include any period during which the Company
is pursuing a Commission ruling pursuant to Section 6(a)(i) below.
(b) Consummation of the Exchange Offer. The Company shall use its
----------------------------------
reasonable best efforts to cause the Exchange Offer Registration Statement to be
effective continuously and shall keep the Exchange Offer open for a period of
not less than the minimum period required under applicable federal and state
securities laws to Consummate the Exchange Offer; provided, however, that in no
event shall such period be less than 20 business days. The Company shall cause
the Exchange Offer to comply in all material respects with all applicable
federal and state securities laws. No securities other than the Exchange Notes
shall be included in the Exchange Offer Registration Statement. The Exchange
Offer shall not be subject to any conditions, other than that the Exchange Offer
does not violate applicable law or any applicable interpretation of the
Commission. The Company shall inform the Initial Purchasers of the names and
addresses of the Holders to whom the Exchange Offer is made, and the Initial
Purchasers shall have the right, subject to applicable law, to contact such
Holders and otherwise facilitate the tender of Transfer Restricted Securities in
the Exchange Offer.
<PAGE>
5
(c) "Plan of Distribution" Section of the Prospectus. The Company
------------------------------------------------
shall indicate in a "Plan of Distribution" section contained in the Prospectus
contained in the Exchange Offer Registration Statement that any Broker-Dealer
who holds Notes that are Transfer Restricted Securities and that were acquired
for its own account as a result of market-making activities or other trading
activities (other than Transfer Restricted Securities acquired directly from the
Company), may exchange such Notes pursuant to the Exchange Offer; provided,
however, such Broker-Dealer may be deemed to be an "underwriter" within the
meaning of the Securities Act and must, therefore, deliver a prospectus meeting
the requirements of the Securities Act in connection with any resales of the
Exchange Notes received by such Broker-Dealer in the Exchange Offer, which
prospectus delivery requirement may be satisfied by the delivery by such Broker-
Dealer of the Prospectus contained in the Exchange Offer Registration Statement.
Such "Plan of Distribution" section shall also contain all other information
with respect to such resales by Broker-Dealers that the Commission may require
in order to permit such resales pursuant thereto, but such "Plan of
Distribution" shall not name any such Broker-Dealer or disclose the amount of
Exchange Notes held by any such Broker-Dealer except to the extent required by
the Commission as a result of a change in policy announced after the date of
this Agreement.
The Company shall use its reasonable best efforts to keep the
Exchange Offer Registration Statement continuously effective, supplemented and
amended as required by the provisions of Section 6(c) below to the extent
necessary to ensure that it is available for resales of Exchange Notes acquired
by Broker-Dealers for their own accounts as a result of market-making activities
or other trading activities, and to ensure that it conforms with the
requirements of this Agreement, the Securities Act and the policies, rules and
regulations of the Commission as announced from time to time, for a period of
180 days from the date on which the Exchange Offer Registration Statement is
declared effective.
The Company shall provide sufficient copies of the latest version of
such Prospectus to Broker-Dealers promptly upon their reasonable request at any
time during such 180-day period in order to facilitate such resales.
4. Shelf Registration.
(a) Shelf Registration. If (i) the Company is not permitted to
------------------
file the Exchange Offer Registration Statement or to consummate the Exchange
Offer because the Exchange Offer is not permitted by applicable law or
Commission policy (after the procedures set forth in Section 6(a) below have
been complied with), (ii) any Holder of Transfer Restricted Securities that is a
"qualified institutional buyer" (as defined in Rule 144A under the Securities
Act) shall notify the Company at least 20 business days prior to the
Consummation of the Exchange Offer (A) that such Holder is prohibited by
applicable law or Commission policy from participating in the Exchange Offer, or
(B) that such Holder may not resell the Exchange Notes acquired by it in the
Exchange Offer to the public without
<PAGE>
6
delivering a prospectus and that the Prospectus contained in the Exchange Offer
Registration Statement is not appropriate or available for such resales by such
Holder, or (C) that such Holder is a Broker-Dealer and holds Notes acquired
directly from the Company or one of its affiliates, (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, then the Company shall in lieu of or, in the event of
(ii) and (iv) above, in addition to effecting the registration of the Exchange
Notes pursuant to the Exchange Offer Registration Statement, use its reasonable
best efforts to:
(x) cause to be filed a shelf registration statement pursuant to
Rule 415 under the Securities Act which may be an amendment to the Exchange
Offer Registration Statement (in either event, the "Shelf Registration
Statement"), within 60 days of the earliest to occur of (1) the date on
which the Company determines that it is not required to file the Exchange
Offer Registration Statement, (2) the date on which the Company receives
notice from a Holder of Transfer Restricted Securities as contemplated by
clause (ii) above, (3) June 1, 1998 or (4) the receipt by the Company of
the opinion of counsel contemplated by clause (iv) above (the 60th day
following the earliest to occur of (1) through (4) being hereinafter
referred to as the "Shelf Filing Deadline"), which Shelf Registration
Statement shall provide for resales of all Transfer Restricted Securities
for which the Holders of such Transfer Restricted Securities shall have
provided the information required pursuant to Section 4(b) hereof; and
(y) cause such Shelf Registration Statement to be declared
effective by the Commission on or before the 120th day after the Shelf
Filing Deadline.
The Company shall use its reasonable best efforts to keep such Shelf
Registration Statement continuously effective, supplemented and amended as
required by the provisions of Sections 6(b) and (c) hereof to the extent
necessary to ensure that it is available for resales of Notes by the Holders of
Transfer Restricted Securities entitled to the benefit of this Section 4(a), and
to ensure that such Shelf Registration Statement conforms and continues to
conform with the requirements of this Agreement, the Securities Act and the
policies, rules and regulations of the Commission, as announced from time to
time, for a period ending on the second anniversary of the Closing Date.
(b) Provision by Holders of Certain Information in Connection with
--------------------------------------------------------------
the Shelf Registration Statement. No Holder of Transfer Restricted Securities
- --------------------------------
may include any of its Transfer Restricted Securities in any Shelf Registration
Statement pursuant to this Agreement unless and until such Holder furnishes to
the Company in writing, within 10 business days after receipt of a request
therefor, such information as the Company may
<PAGE>
7
reasonably request for use in connection with any Shelf Registration Statement
or Prospectus or preliminary prospectus included therein. No Holder of Transfer
Restricted Securities shall be entitled to Liquidated Damages pursuant to
Section 5 hereof unless and until such Holder shall have provided all such
reasonably requested information within the time period prescribed in this
Section 4(b). Each Holder as to which any Shelf Registration Statement is being
effected agrees to notify the Company promptly if any of the information
previously furnished is misleading or inaccurate in any material respect and to
furnish promptly to the Company all information required to be disclosed in
order to make the information previously furnished to the Company by such Holder
not materially misleading or inaccurate.
(c) Declaring Effective the Exchange Offer Registration Statement.
-------------------------------------------------------------
An Exchange Offer Registration Statement pursuant to Section 3(a) hereof or a
Shelf Registration Statement pursuant to Section 4(a) hereof will not be deemed
to have become effective unless it has been declared effective by the
Commission; provided, however, that if, after it has been declared effective,
the offering of Transfer Restricted Securities pursuant to a Shelf Registration
Statement is interfered with by any stop order, injunction or other order or
requirement of the Commission or any other governmental agency or court, such
Registration Statement will be deemed not to have become effective during the
period of such interference until the offering of Transfer Restricted Securities
pursuant to such Registration Statement may legally resume.
(d) Failure of the Company to Comply with its Obligations. Without
-----------------------------------------------------
limiting the remedies available to the Initial Purchasers and the Holders, the
Company acknowledges that any failure by the Company to comply with its
obligations under Section 3(a) and Section 4(a) hereof may result in material
irreparable injury to the Initial Purchasers or the Holders for which there is
no adequate remedy at law, that it will not be possible to measure damages for
such injuries precisely and that, in the event of any such failure, the Initial
Purchasers or any Holder may obtain such relief as may be required to
specifically enforce the Company's obligations under Section 3(a) and Section
4(a) hereof.
5. Liquidated Damages.
(a) Accrual and Amount of Liquidated Damages. If (i) any of the
----------------------------------------
Registration Statements required by this Agreement is not filed with the
Commission on or prior to the date specified for such filing in this Agreement,
(ii) any of such Registration Statements has not been declared effective by the
Commission on or prior to the date specified for such effectiveness as set forth
in Section 3(a)(ii) of this 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 this Agreement is filed
and declared effective but shall thereafter cease to be effective or fail to be
usable for its intended purpose without being succeeded within five business
days by a post-effective amendment to such
<PAGE>
8
Registration Statement that cures such failure and that is itself declared
effective within such five business day period (each such event referred to in
clauses (i) through (iv), 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 shall 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.
All obligations of the Company set forth in the preceding paragraph
that have accrued and are outstanding with respect to any Transfer Restricted
Security at the time such security ceases to be a Transfer Restricted Security
shall survive until such time as all such obligations with respect to such
Transfer Restricted Security shall have been satisfied in full.
(b) Notification of the Trustee. The Company shall notify the
---------------------------
Trustee within one business day after each and every date on which an event
occurs in respect of which Liquidated Damages are required to be paid (an "Event
Date"). Liquidated Damages shall be paid by depositing Liquidated Damages with
the Trustee, in trust, for the benefit of the Holders of the Notes, on or before
the applicable Interest Payment Date (whether or not any payment other than
Liquidated Damages is payable on such Notes), in immediately available funds in
sums sufficient to pay the Liquidated Damages then due to such Holders. Each
obligation to pay Liquidated Damages shall be deemed to accrue from the
applicable date of the occurrence of the Registration Default.
6. Registration Procedures.
(a) Exchange Offer Registration Statement. In connection with the
-------------------------------------
Exchange Offer, the Company shall comply with all of the provisions of Section
6(c) below and shall use its reasonable best efforts to effect such exchange to
permit the sale of Transfer Restricted Securities being sold in accordance with
the intended method or methods of distribution thereof. In addition, the
Company (with respect to (i) and (iii) of this Section 6(a)) and each Holder of
Transfer Restricted Securities (with respect to (ii) of this Section 6(a)) shall
comply with the following provisions:
(i) If in the reasonable opinion of counsel to the Company there is
a question as to whether the Exchange Offer is permitted by applicable law,
the Company hereby agrees to seek a no-action letter or other favorable
decision from the
<PAGE>
9
Commission allowing the Company to Consummate an Exchange Offer for such
Notes. The Company hereby agrees to pursue the issuance of such a decision
to the Commission staff level but shall not be required to take
commercially unreasonable action to effect a change of Commission policy.
The Company hereby agrees, however, to (A) participate in telephonic
conferences with the Commission, (B) deliver to the Commission staff an
analysis prepared by counsel to the Company setting forth the legal bases,
if any, upon which such counsel has concluded that such an Exchange Offer
should be permitted and (C) diligently pursue a resolution (which need not
be favorable) by the Commission staff of such submission.
(ii) As a condition to its participation in the Exchange Offer
pursuant to the terms of this Agreement, each Holder of Transfer Restricted
Securities shall furnish, upon the request of the Company, prior to the
Consummation thereof, a written representation to the Company (which may be
contained in the letter of transmittal contemplated by the Exchange Offer
Registration Statement) to the effect that (A) it is not an affiliate of
the Company, (B) it is not engaged in, and does not intend to engage in,
and has no arrangement or understanding with any person to participate in,
a distribution of the Exchange Notes to be issued in the Exchange Offer and
(C) it is acquiring the Exchange Notes in its ordinary course of business.
In addition, all such Holders of Transfer Restricted Securities shall
otherwise cooperate in the Company's preparations for the Exchange Offer.
Each Holder hereby acknowledges and agrees that any Broker-Dealer and any
such Holder using the Exchange Offer to participate in a distribution of
the securities to be acquired in the Exchange Offer (1) could not under
Commission policy as in effect on the date of this Agreement rely on the
position of the Commission enunciated in Morgan Stanley and Co., Inc.
(available June 5, 1991) and Exxon Capital Holdings Corporation (available
May 13, 1988), as interpreted in the Commission's letter to Shearman &
Sterling dated July 2, 1993, and similar no-action letters (including Brown
& Wood LLP (available February 7, 1997), and any no-action letter obtained
pursuant to clause (i) above), and (2) must comply with the registration
and prospectus delivery requirements of the Securities Act in connection
with a secondary resale transaction and that such a secondary resale
transaction should be covered by an effective registration statement
containing the selling security holder information required by Item 507 or
508, as applicable, of Regulation S-K if the resales are of Exchange Notes
obtained by such Holder in exchange for Notes acquired by such Holder
directly from the Company.
(iii) Prior to the effectiveness of the Exchange Offer Registration
Statement, the Company shall provide a supplemental letter to the
Commission (A) stating that the Company is registering the Exchange Offer
in reliance on the position of the Commission enunciated in Exxon Capital
Holdings Corporation (available May 13, 1988), Morgan Stanley and Co., Inc.
(available June 5, 1991), Brown & Wood LLP (available February 7, 1997)
and, if applicable, any no-action letter obtained pursuant
<PAGE>
10
to clause (i) above and (B) including a representation that the Company has
not entered into any arrangement or understanding with any Person to
distribute the Exchange Notes to be received in the Exchange Offer and that
to the best of the Company's information and belief, each Holder (other
than an Initial Purchaser) participating in the Exchange Offer is acquiring
the Exchange Notes in its ordinary course of business and has no
arrangement or understanding with any Person to participate in the
distribution of the Exchange Notes received in the Exchange Offer.
(b) Shelf Registration Statement. In connection with the Shelf
----------------------------
Registration Statement, the Company shall comply with all the provisions of
Section 6(c) below and shall use its reasonable best efforts to effect such
registration to permit the sale of the Transfer Restricted Securities being sold
in accordance with the intended method or methods of distribution thereof, and
pursuant thereto the Company shall as expeditiously as possible prepare and file
with the Commission a Registration Statement relating to the registration on any
appropriate form under the Securities Act, which form shall be available for the
sale of the Transfer Restricted Securities in accordance with the intended
method or methods of distribution thereof.
(c) General Provisions. In connection with any Registration
------------------
Statement and any Prospectus required by this Agreement to permit the sale or
resale of Transfer Restricted Securities (including, without limitation, any
Registration Statement and the related Prospectus required to permit resales of
Notes by Broker-Dealers), the Company shall:
(i) use its reasonable best efforts to keep such Registration
Statement continuously effective and provide all requisite financial
statements for the period specified in Section 3 or 4 of this Agreement, as
applicable; upon the occurrence of any event that would cause any such
Registration Statement or the Prospectus contained therein (A) to contain a
material misstatement or omission or (B) not to be effective and usable for
resale of Transfer Restricted Securities during the period required by this
Agreement, the Company shall file promptly an appropriate amendment to such
Registration Statement, in the case of clause (A), correcting any such
misstatement or omission, and, in the case of either clause (A) or (B), use
its reasonable best efforts to cause such amendment to be declared
effective and such Registration Statement and the related Prospectus to
become usable for their intended purpose(s) as soon as practicable
thereafter;
(ii) prepare and file with the Commission such amendments and post-
effective amendments to the Registration Statement as may be necessary to
keep the Registration Statement effective for the applicable period set
forth in Section 3 or 4 hereof, as applicable, or such shorter period as
will terminate when all Transfer Restricted Securities covered by such
Registration Statement have been sold; cause the Prospectus to be
supplemented by any required Prospectus supplement and as so
<PAGE>
11
supplemented to be filed pursuant to Rule 424 under the Securities Act and
to comply fully with the applicable provisions of Rules 424 and 430A under
the Securities Act in a timely manner; and comply with the provisions of
the Securities Act with respect to the disposition of all securities
covered by such Registration Statement during the applicable period in
accordance with the intended method or methods of distribution by the
sellers thereof set forth in such Registration Statement or supplement to
the Prospectus;
(iii) in the case of a Shelf Registration Statement, advise the
underwriter(s), if any, and selling Holders promptly and, if requested by
such Persons, to confirm such advice in writing, (A) when the Prospectus or
any Prospectus supplement or post-effective amendment has been filed, and,
with respect to any Registration Statement or any post-effective amendment
thereto, when the same has become effective, (B) of any request by the
Commission or any state securities authority for amendments to the
Registration Statement or amendments or supplements to the Prospectus or
for additional information relating thereto, (C) of the issuance by the
Commission of any stop order suspending the effectiveness of the
Registration Statement under the Securities Act or of the suspension by any
state securities commission of the qualification of the Transfer Restricted
Securities for offering or sale in any jurisdiction, or the initiation of
any proceeding for any of the preceding purposes, (D) if, between the
effective date of a Registration Statement and the closing of any sale of
Transfer Restricted Securities covered thereby, the representations and
warranties of the Company contained in any underwriting agreement,
securities sales agreement or other similar agreement, if any, relating to
the offering cease to be true and correct in all material respects or if
the Company receives any notification with respect to the suspension of the
qualification of the Transfer Restricted Securities for sale in any
jurisdiction or the initiation of any proceeding for such purpose, (E) of
the existence of any fact or the happening of any event that makes any
statement of a material fact made in the Registration Statement, the
Prospectus, any amendment or supplement thereto, or any document
incorporated by reference therein untrue, or that requires the making of
any additions to or changes in the Registration Statement or the Prospectus
in order to make the statements therein not misleading and (F) of any
determination by the Company that a post-effective amendment to a
Registration Statement would be appropriate. If at any time the Commission
shall issue any stop order suspending the effectiveness of the Registration
Statement, or any state securities commission or other regulatory authority
shall issue an order suspending the qualification or exemption from
qualification of the Transfer Restricted Securities under state securities
or Blue Sky laws, the Company shall use its reasonable best efforts to
obtain the withdrawal or lifting of such order at the earliest possible
time and shall provide immediate notice to each of the selling or
exchanging Holders of the withdrawal of any such order;
<PAGE>
12
(iv) in the case of a Shelf Registration Statement, furnish to each
of the selling or exchanging Holders and each of the underwriter(s), if
any, before filing with the Commission, copies of any Registration
Statement or any Prospectus included therein or any amendments or
supplements to any such Registration Statement or Prospectus (including all
documents incorporated by reference after the initial filing of such
Registration Statement), which documents will be subject to the review of
such Holders and underwriter(s), if any, for a period of at least two
business days, and the Company will not file any such Registration
Statement or Prospectus or any amendment or supplement to any such
Registration Statement or Prospectus (including all such documents
incorporated by reference) to which selling Holders of a majority in
aggregate principal amount of Transfer Restricted Securities covered by
such Registration Statement or the underwriter(s), if any, shall reasonably
object within two business days after the receipt thereof. A selling Holder
or underwriter, if any, shall be deemed to have reasonably objected to such
filing if such Registration Statement, amendment, Prospectus or supplement,
as applicable, as proposed to be filed, contains a material misstatement or
omission;
(v) in the case of a Shelf Registration Statement, promptly prior
to the filing of any document that is to be incorporated by reference into
a Registration Statement or Prospectus, provide copies of such document to
the selling Holders and to the underwriter(s), if any, make the Company's
representatives available for discussion of such document and other
customary due diligence matters, and include such information in such
document prior to the filing thereof as such selling Holders or
underwriter(s), if any, reasonably may request;
(vi) in the case of a Shelf Registration Statement, make available
at reasonable times for inspection by a representative of the selling
Holders, any underwriter participating in any disposition pursuant to such
Registration Statement, and any attorney or accountant retained by such
selling Holders or any of the underwriter(s), all financial and other
records, pertinent corporate documents and properties of the Company and
cause the Company's officers, directors, managers and employees to supply
all information reasonably requested by any such Holder, underwriter,
attorney or accountant in connection with such Registration Statement
subsequent to the filing thereof and prior to its effectiveness;
(vii) in the case of a Shelf Registration Statement, if requested by
any selling Holders or the underwriter(s), if any, promptly incorporate in
any Registration Statement or Prospectus, pursuant to a supplement or post-
effective amendment if necessary, such information as such selling Holders
and underwriter(s), if any, may reasonably request to have included
therein, including, without limitation, information relating to the "Plan
of Distribution" of the Transfer Restricted Securities, information with
respect to the principal amount of Transfer Restricted Securities being
sold to
<PAGE>
13
such underwriter(s), the purchase price being paid therefor and any other
terms of the offering of the Transfer Restricted Securities to be sold in
such offering; and make all required filings of such Prospectus supplement
or post-effective amendment as soon as practicable after the Company is
notified of the matters to be incorporated in such Prospectus supplement or
post-effective amendment;
(viii) in the case of a Shelf Registration Statement, furnish to each
selling Holder and each of the underwriter(s), if any, without charge, at
least one conformed copy of the Registration Statement, as first filed with
the Commission, and of each amendment thereto, including all documents
incorporated by reference therein and all exhibits (including exhibits
incorporated therein by reference);
(ix) in the case of a Shelf Registration Statement, deliver to each
selling Holder and each of the underwriter(s), if any, without charge, as
many conformed copies of the Prospectus (including each preliminary
prospectus) and any amendment or supplement thereto as such Persons
reasonably may request; the Company hereby consents to the use of the
Prospectus and any amendment or supplement thereto by each of the selling
Holders and each of the underwriter(s), if any, in connection with the
offering and the sale of the Transfer Restricted Securities covered by the
Prospectus or any amendment or supplement thereto;
(x) in the case of a Shelf Registration Statement, enter into such
agreements (including an underwriting agreement), and make such
representations and warranties, and take all such other actions in
connection therewith in order to expedite or facilitate the disposition of
the Transfer Restricted Securities pursuant to any Registration Statement
contemplated by this Agreement, all to such extent as may be reasonably
requested by any Holder of Transfer Restricted Securities or underwriter in
connection with any sale or resale pursuant to any Registration Statement
contemplated by this Agreement; and in connection with an Underwritten
Registration, the Company shall:
(A) upon request, furnish to each selling Holder and each
underwriter, if any, in such substance and scope as they may request
and as are customarily made by issuers to underwriters in primary
underwritten offerings, upon the date of the effectiveness of the
Shelf Registration Statement:
(1) a certificate, dated the date of the effectiveness
of the Shelf Registration Statement, signed by (y) the Chairman
of the Board, its President or a Vice President and (z) the
Chief Financial Officer of the Company, confirming, as of the
date thereof, such matters as such parties may reasonably
request;
<PAGE>
14
(2) an opinion, dated the date of the effectiveness of the Shelf
Registration Statement, of counsel for the Company, covering such
matters as such parties may reasonably request, and in any event
including a statement to the effect that such counsel has participated
in conferences with officers and other representatives of the Company,
representatives of the independent public accountants for the Company,
the Initial Purchasers' representatives and the Initial Purchasers'
counsel in connection with the preparation of such Registration
Statement and the related Prospectus and have considered the matters
required to be stated therein and the statements contained therein,
although such counsel has not independently verified the accuracy,
completeness or fairness of such statements; and that such counsel
advises that, on the basis of the foregoing (relying as to materiality
to a large extent upon facts provided to such counsel by officers and
other representatives of the Company and without independent
investigation or verification), no facts came to such counsel's
attention that caused such counsel to believe that the applicable
Registration Statement, at the time such Registration Statement or any
post-effective amendment thereto became effective, contained an untrue
statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading, or that the Prospectus included in such
Registration Statement as of its date, contained an untrue statement
of a material fact or omitted to state a material fact necessary in
order to make the statements therein, in light of the circumstances
under which they were made, not misleading. Without limiting the
foregoing, such counsel may state further that such counsel assumes no
responsibility for, and has not independently verified, the accuracy,
completeness or fairness of the financial statements, notes and
schedules and other statistical and financial data included in any
Registration Statement contemplated by this Agreement or the related
Prospectus; and
(3) a customary comfort letter, dated the date of the
effectiveness of the Shelf Registration Statement from the Company's
independent accountants, in the customary form and covering matters of
the type customarily covered in comfort letters by underwriters in
connection with primary underwritten offerings.
(B) set forth in full or incorporate by reference in the underwriting
agreement, if any, the indemnification provisions and procedures of Section
9 hereof with respect to all parties to be indemnified pursuant to said
Section; and
<PAGE>
15
(C) deliver such other documents and certificates as may be
reasonably requested by such parties to evidence compliance with
clause (A) above and with any customary conditions contained in the
underwriting agreement or other agreement entered into by the Company
pursuant to this clause (x), if any.
If at any time the representations and warranties of the Company contemplated in
clause (A)(1) above cease to be true and correct, the Company shall so advise
the Initial Purchasers and the underwriter(s), if any, and each selling Holder
promptly and, if requested by such Persons, shall confirm such advice in writing
delivered to such Persons;
(xi) in the case of a Shelf Registration Statement, prior to any
public offering of Transfer Restricted Securities, cooperate with the
selling Holders, the underwriter(s), if any, and their respective counsel
in connection with the registration and qualification of the Transfer
Restricted Securities under the securities or Blue Sky laws of such
jurisdictions as the selling Holders or underwriter(s), if any, may
reasonably request and do any and all other acts or things as may be
reasonably necessary or advisable to enable the disposition in such
jurisdictions of the Transfer Restricted Securities covered by the Shelf
Registration Statement; provided, however, that the Company shall not be
required to register or qualify as a foreign corporation or as a dealer in
securities in any jurisdiction where it is not now so qualified or to take
any action that would subject it to the service of process in suits or to
taxation, other than as to matters and transactions relating to the
Registration Statement in any jurisdiction where it is not now so subject;
(xii) in the case of a Shelf Registration Statement, shall issue,
upon the request of any Holder of Notes covered by the Shelf Registration
Statement, Exchange Notes in the same amount as the Notes surrendered to
the Company by such Holder in exchange therefor or being sold by such
Holder; such Exchange Notes to be registered in the name of such Holder or
in the name of the purchaser(s) of such Exchange Notes, as the case may be;
in return, the Notes held by such Holder shall be surrendered to the
Company for cancellation;
(xiii) in the case of a Shelf Registration Statement, cooperate with
the selling Holders and the underwriter(s), if any, to facilitate the
timely preparation and delivery of certificates representing Transfer
Restricted Securities to be sold and not bearing any restrictive legends;
and enable such Transfer Restricted Securities to be in such denominations
(consistent with the provisions of the Indenture) and registered in such
names as the selling Holders or the underwriter(s), if any, may reasonably
request at least two business days prior to any sale of Transfer Restricted
Securities made by such underwriter(s);
<PAGE>
16
(xiv) use its reasonable best efforts to cause the Transfer
Restricted Securities covered by the Registration Statement to be
registered with or approved by such other governmental agencies or
authorities as may be necessary to enable the seller or sellers thereof or
the underwriter(s), if any, to consummate the disposition of such Transfer
Restricted Securities, subject to the proviso contained in clause (xi)
above;
(xv) if any fact or event contemplated by clause (c)(iii)(E) above
shall exist or have occurred, prepare and file with the Commission a
supplement or post-effective amendment to the Registration Statement or
related Prospectus or any document incorporated therein by reference or
file any other required document so that, as thereafter delivered to the
purchasers of Transfer Restricted Securities, such Prospectus will not
contain an untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading;
(xvi) provide CUSIP numbers for all Transfer Restricted Securities
not later than the effective date of the Registration Statement and provide
certificates for the Transfer Restricted Securities;
(xvii) cooperate and assist in any filings required to be made with
the NASD and in the performance of any due diligence investigation by any
underwriter (including any "qualified independent underwriter") that is
required to be retained in accordance with the rules and regulations of the
NASD, and use its reasonable best efforts to cause such Registration
Statement to become effective and approved by such governmental agencies or
authorities as may be necessary to enable the Holders selling Transfer
Restricted Securities to consummate the disposition of such Transfer
Restricted Securities; provided, however, that the Company shall not be
required to register or qualify as a foreign corporation or as a dealer in
securities in any jurisdiction where it is not now so qualified or to take
any action that would subject it to the service of process in suits or to
taxation, other than as to matters and transactions relating to the
Registration Statement in any jurisdiction where it is not now so subject;
(xviii) otherwise use its reasonable best efforts to comply with all
applicable rules and regulations of the Commission, and make generally
available to the Holders, as soon as practicable, a consolidated earnings
statement meeting the requirements of Rule 158 (which need not be audited)
for the twelve-month period (A) commencing at the end of any fiscal quarter
in which Transfer Restricted Securities are sold to underwriters in a firm
or reasonable best efforts Underwritten Offering or (B) if not sold to
underwriters in such an offering, beginning with the first month of the
Company's first fiscal quarter commencing after the effective date of the
Registration Statement;
<PAGE>
17
(xix) cause the Indenture to be qualified under the TIA not later
than the effective date of the first Registration Statement required by
this Agreement, and, in connection therewith, cooperate with the Trustee
and the Holders of Notes to effect such changes to the Indenture as may be
required for such Indenture to be so qualified in accordance with the terms
of the TIA; and execute and use its reasonable best efforts to cause the
Trustee to execute all documents that may be required to effect such
changes and all other forms and documents required to be filed with the
Commission to enable such Indenture to be so qualified in a timely manner;
and
(xx) provide promptly to each Holder upon reasonable request each
document filed with the Commission pursuant to the requirements of Section
13 and Section 15 of the Exchange Act.
Each Holder agrees by acquisition of a Transfer Restricted Security
that, upon receipt of any notice from the Company of the existence of any fact
of the kind described in Section 6(c)(iii)(E) hereof, such Holder will forthwith
discontinue disposition of Transfer Restricted Securities pursuant to the
applicable Registration Statement until such Holder's receipt of the copies of
the supplemented or amended Prospectus contemplated by Section 6(c)(xv) hereof,
or until such Holder is advised in writing (the "Advice") by the Company that
the use of the Prospectus may be resumed, and has received copies of any
additional or supplemental filings that are incorporated by reference in the
Prospectus. If so directed by the Company, each Holder will deliver to the
Company (at the Company's expense) all copies, other than permanent file copies
then in such Holder's possession, of the Prospectus covering such Transfer
Restricted Securities that was current at the time of receipt of such notice.
In the event that the Company shall give any such notice, the time period
regarding the effectiveness of such Registration Statement set forth in Section
3 or 4 hereof, as applicable, shall be extended by the number of days during the
period from and including the date of the giving of such notice pursuant to
Section 6(c)(iii)(E) hereof to and including the date when each selling Holder
covered by such Registration Statement shall have received the copies of the
supplemented or amended Prospectus contemplated by Section 6(c)(xv) hereof or
shall have received the Advice.
7. Participation of Broker-Dealers in Exchange Offer.
(a) Participating Broker-Dealer May Be Deemed an "Underwriter".
----------------------------------------------------------
The Commission has taken the position that any Broker-Dealer that receives
Exchange Notes for its own account in the Exchange Offer in exchange for Notes
that were acquired by such Broker-Dealer as a result of market-making or other
trading activities (a "Participating Broker-Dealer") may be deemed to be an
"underwriter" within the meaning of the Securities Act and must deliver a
prospectus meeting the requirements of the Securities Act in connection with any
resale of such Exchange Notes.
<PAGE>
18
The Company understands that it is the Commission's position that if
the Prospectus contained in the Exchange Offer Registration Statement includes a
"Plan of Distribution" containing a statement to the above effect and the means
by which Participating Broker-Dealers may resell the Exchange Notes, without
naming the Participating Broker-Dealers or specifying the amount of Exchange
Notes owned by them, such Prospectus may be delivered by Participating Broker-
Dealers to satisfy their prospectus delivery obligation under the Securities Act
in connection with resales of Exchange Notes for their own accounts, so long as
the Prospectus otherwise meets the requirements of the Securities Act.
(b) Provisions Regarding Shelf Registration Statement to Apply to
-------------------------------------------------------------
Exchange Offer Registration. In light of the above, notwithstanding the other
- ---------------------------
provisions of this Agreement, the Company agrees that the provisions of this
Agreement as they relate to a Shelf Registration Statement shall also apply to
an Exchange Offer Registration to the extent, and with such reasonable
modifications thereto, as may be reasonably requested by the Initial Purchasers
or by one or more Participating Broker-Dealers, in each case as provided in
clause (ii) below, in order to expedite or facilitate the disposition of any
Exchange Notes by Participating Broker-Dealers consistent with the positions of
the Commission recited in Section 7(a) above; provided, however, that:
(i) the Company shall not be required to amend or supplement the
Prospectus contained in the Exchange Offer Registration Statement, as would
otherwise be contemplated by Section 6(c)(xv), for a period exceeding 180
days after the last date of acceptance for exchange (as such period may be
extended pursuant to the last paragraph of Section 6 of this Agreement) and
Participating Broker-Dealers shall not be authorized by the Company to
deliver and shall not deliver such Prospectus after such period in
connection with the resales contemplated by this Section 7; and
(ii) the application of the Shelf Registration Statement procedures
set forth in Section 4 of this Agreement to an Exchange Offer Registration,
to the extent not required by the positions of the Commission or the
Securities Act and the rules and regulations thereunder, will be in
conformity with the reasonable request to the Company by the Initial
Purchasers or with the reasonable request in writing to the Company by one
or more broker-dealers who certify to the Initial Purchasers and the
Company in writing that they anticipate that they will be Participating
Broker-Dealers;
provided further that, in connection with such application of the Shelf
Registration Statement procedures set forth in Section 4 to an Exchange Offer
Registration, the Company shall be obligated (x) to deal only with one entity
representing the Participating Broker-Dealers, which shall be the Representative
unless it elects not to act as such representative, (y) to pay the fees and
expenses of only one counsel representing the Participating Broker-Dealers,
which shall be counsel selected by the Representative and reasonably acceptable
to the
<PAGE>
19
Company (unless such counsel elects not to so act), and (z) to cause to be
delivered only one, if any, "cold comfort" letter with respect to the Prospectus
in the form existing on the last date of acceptance for exchange and with
respect to each subsequent amendment or supplement, if any, effected during the
period specified in clause (i) above.
(c) Liability of the Initial Purchasers. The Initial Purchasers
-----------------------------------
shall have no liability to the Company or any Holder with respect to any request
that they may make pursuant to Section 7(b) above.
8. Registration Expenses.
(a) All expenses incident to the Company's performance of or
compliance with this Agreement will be borne by the Company, regardless of
whether a Registration Statement becomes effective, including without
limitation: (i) all registration and filing fees and expenses (including
filings made by any Initial Purchaser or Holder with the NASD (and, if
applicable, the reasonable fees and expenses of any "qualified independent
underwriter") and its counsel that may be required by the rules and regulations
of the NASD); (ii) all fees and expenses of compliance with federal securities
and state Blue Sky or securities laws; (iii) all expenses of printing (including
printing certificates for the Exchange Notes to be issued in the Exchange Offer
and printing of Prospectuses), and associated messenger and delivery services
and telecommunications usage; (iv) all fees and disbursements of counsel for the
Company and, subject to Section 8(b) below, the Holders of Transfer Restricted
Securities; (v) all application and filing fees in connection with listing Notes
on a national securities exchange or automated quotation system; and (vi) all
fees and disbursements of independent certified public accountants of the
Company (including the expenses of any special audit and comfort letters
required by or incident to such performance).
The Company will, in any event, bear its internal expenses (including,
without limitation, all salaries and expenses of its officers and employees
performing legal or accounting duties), the expenses of any annual audit and the
fees and expenses of any Person, including special experts, retained by the
Company.
(b) In connection with any Registration Statement required by this
Agreement (including, without limitation, the Exchange Offer Registration
Statement and the Shelf Registration Statement), the Company will reimburse the
Initial Purchasers and the Holders of Transfer Restricted Securities being
tendered in the Exchange Offer and/or resold pursuant to the "Plan of
Distribution" contained in the Exchange Offer Registration Statement or
registered pursuant to the Shelf Registration Statement, as applicable, for the
reasonable fees and disbursements, which shall not exceed $10,000 in the
aggregate, of not more than one counsel, who shall be counsel selected by the
Representative and reasonably acceptable to the Company (unless such counsel
elects not to so act).
<PAGE>
20
9. Indemnification and Contribution.
(a) The Company to Indemnify Holders. In connection with a Shelf
--------------------------------
Registration Statement or in connection with any delivery of a Prospectus
contained in an Exchange Offer Registration Statement by any Participating
Broker-Dealer or Initial Purchaser, as applicable, who seeks to sell Exchange
Notes, the Company shall indemnify and hold harmless each Holder of Transfer
Restricted Securities included within any such Shelf Registration Statement and
each Participating Broker-Dealer or Initial Purchaser selling Exchange Notes
(each, a "Participant"), such Participant's officers and directors and each
person, if any, who controls any Participant within the meaning of Section 15 of
the Securities Act from and against any loss, claim, damage or liability, joint
or several, or any action in respect thereof (including, but not limited to, any
loss, claim, damage, liability or action relating to purchases and sales of
Notes), to which such Participant, officer, director or controlling person may
become subject, under the Securities Act or otherwise, insofar as such loss,
claim, damage, liability or action arises out of, or is based upon, (i) any
untrue statement or alleged untrue statement of a material fact contained in (A)
any preliminary Prospectus, Registration Statement or Prospectus or in any
amendment or supplement thereto or (B) any blue sky application or other
document prepared or executed by the Company (or based upon any written
information furnished by the Company) specifically for the purpose of qualifying
any or all of the Exchange Notes under the securities laws of any state or other
jurisdiction (any such application, document or information being hereinafter
called a "Blue Sky Application"), (ii) the omission or alleged omission to state
in any preliminary Prospectus, Registration Statement or Prospectus or in any
amendment or supplement thereto, or in any Blue Sky Application any material
fact required to be stated therein or necessary to make the statements therein
not misleading or (iii) any act or failure to act, or any alleged act or failure
to act, by any Participant in connection with, or relating in any manner to, the
Notes or the offering contemplated hereby, and which is included as part of or
referred to in any loss, claim, damage, liability or action arising out of or
based upon matters covered in (i) or (ii) above (provided that the Company shall
not be liable in the case of any matter covered by this clause (iii) to the
extent that it is determined in a final judgment by a court of competent
jurisdiction that such loss, claim, damage, liability or action resulted
directly from any such act or failure to act undertaken or omitted to be taken
by such Participant through its gross negligence or wilful misconduct), and
shall reimburse each Participant and each such officer, director or controlling
person promptly upon demand for any legal or other expenses reasonably incurred
by that Participant, officer, director or controlling person in connection with
investigating or defending or preparing to defend against any such loss, claim,
damage, liability or action as such expenses are incurred; provided, however,
that the Company shall not be liable in any such case to the extent that any
such loss, claim, damage, liability or action arises out of, or is based upon,
any untrue statement or alleged untrue statement or omission or alleged omission
made in any preliminary Prospectus, Registration Statement or Prospectus or in
any amendment or supplement thereto, or in any Blue Sky Application in reliance
upon and in conformity with
<PAGE>
21
written information concerning such Participant furnished to the Company by or
on behalf of any Participant specifically for inclusion therein; provided
further that as to any preliminary Prospectus, this indemnity agreement shall
not inure to the benefit of any Participant or any officer, director or
controlling person of that Participant on account of any loss, claim, damage,
liability or action arising from the sale of the Exchange Notes to any person by
such Participant if (i) that Participant failed to send or give a copy of the
Prospectus, as the same may be amended or supplemented, to that person within
the time required by the Securities Act and (ii) the untrue statement or alleged
untrue statement of a material fact or omission or alleged omission to state a
material fact in such preliminary Prospectus was corrected in the Prospectus or
a supplement or amendment thereto, as the case may be, unless in each case, such
failure resulted from noncompliance by the Company with Section 6(c). The
foregoing indemnity agreement is in addition to any liability which the Company
may otherwise have to any Participant or to any officer, director or controlling
person of that Participant. In connection with any Underwritten Offering
permitted by Section 6(c) hereof, the Company will also indemnify the
underwriters, if any, selling brokers, dealers and similar securities industry
professionals participating in the distribution, their officers and directors
and each Person who controls such Persons (within the meaning of the Securities
Act and the Exchange Act) to the same extent as provided above with respect to
the indemnification of the Holders, if requested in connection with any
Registration Statement.
(b) Participants to Indemnify the Company and its Directors, Officers
-----------------------------------------------------------------
and Controlling Persons. Each Participant, severally and not jointly, shall
- -----------------------
indemnify and hold harmless the Company, its directors and officers, and each
person, if any, who controls the Company within the meaning of Section 15 of the
Securities Act, from and against any loss, claim, damage or liability, joint or
several, or any action in respect thereof, to which the Company or any such
director, officer or controlling person may become subject, under the Securities
Act or otherwise, insofar as such loss, claim, damage, liability or action
arises out of, or is based upon, (i) any untrue statement or alleged untrue
statement of a material fact contained in (A) any preliminary Prospectus,
Registration Statement or Prospectus or in any amendment or supplement thereto
or (B) any Blue Sky Application or (ii) the omission or alleged omission to
state in any preliminary Prospectus, Registration Statement or Prospectus or in
any amendment or supplement thereto, or in any Blue Sky Application, any
material fact required to be stated therein or necessary to make the statements
therein not misleading, but in the case of clauses (i) and (ii) only to the
extent that the untrue statement or alleged untrue statement or omission or
alleged omission was made in reliance upon and in conformity with the written
information concerning such Participant furnished to the Company or the Trustee
by or on behalf of that Participant specifically for inclusion therein, and
shall reimburse the Company and any such director, officer or controlling person
for any legal or other expenses reasonably incurred by the Company or any such
director, officer or controlling person in connection with investigating or
defending or preparing to defend against any such loss, claim, damage, liability
or action as such expenses are incurred. The
<PAGE>
22
foregoing indemnity agreement is in addition to any liability which any
Participant may otherwise have to the Company or any such director, officer or
controlling person.
(c) Notification of Indemnifying Party; Counsel; Settlement.
-------------------------------------------------------
Promptly after receipt by an indemnified party under this Section 9 of notice of
any claim or the commencement of any action, the indemnified party shall, if a
claim in respect thereof is to be made against the indemnifying party under this
Section 9, notify the indemnifying party in writing of the claim or the
commencement of that action; provided, however, that the failure to notify the
indemnifying party shall not relieve it from any liability which it may have
under this Section 9 except to the extent the indemnifying party has been
materially prejudiced by such failure and provided further that the failure to
notify the indemnifying party shall not relieve it from any liability which it
may have to an indemnified party otherwise than under this Section 9. If any
such claim or action shall be brought against an indemnified party, and it shall
notify the indemnifying party thereof, the indemnifying party shall be entitled
to participate therein and, to the extent that it wishes, jointly with any other
similarly notified indemnifying party, to assume the defense thereof with
counsel reasonably satisfactory to the indemnified party. After notice from the
indemnifying party to the indemnified party of its election to assume the
defense of such claim or action, the indemnifying party shall not be liable to
the indemnified party under this Section 9 for any legal or other expenses
subsequently incurred by the indemnified party in connection with the defense
thereof other than reasonable costs of investigation; provided, however, that
the indemnified party shall have the right to employ counsel to represent
jointly the indemnified party and its respective directors, officers and
controlling persons who may be subject to liability arising out of any claim in
respect of which indemnity may be sought by the indemnified party against the
indemnifying party under this Section 9 if such indemnified party shall have
been advised in writing that the representation of such indemnified party and
those directors, officers and controlling persons by the same counsel would be
inappropriate under applicable standards of professional conduct due to actual
or potential differing interests between them, and in that event the fees and
expenses of such separate counsel shall be paid by the indemnifying party. It is
understood that the indemnifying party shall not be liable for the fees and
expenses of more than one separate firm (in addition to local counsel in each
jurisdiction) for all indemnified parties in connection with any proceeding or
related proceedings. Each indemnified party, as a condition of the indemnity
agreements contained in Sections 9(a) and 9(b), shall use its reasonable best
efforts to cooperate with the indemnifying party in the defense of any such
action or claim. No indemnifying party shall (i) without the prior written
consent of the indemnified parties (which consent shall not be unreasonably
withheld), settle or compromise or consent to the entry of any judgment with
respect to any pending or threatened claim, action, suit or proceeding in
respect of which indemnification or contribution may be sought hereunder
(whether or not the indemnified parties are actual or potential parties to such
claim or action) unless such settlement, compromise or consent includes an
unconditional release of each indemnified party from all liability arising out
of such claim, action, suit or proceeding, or (ii) be liable for any
<PAGE>
23
settlement of any such action effected without its written consent (which
consent shall not be unreasonably withheld), but if settled with its written
consent or if there be a final judgment of the plaintiff in any such action, the
indemnifying party agrees to indemnify and hold harmless any indemnified party
from and against any loss or liability by reason of such settlement or judgment
in accordance with this Section 9.
(d) Indemnification Unavailable. If the indemnification provided for
---------------------------
in this Section 9 shall for any reason be unavailable to or insufficient to hold
harmless an indemnified party under Section 9(a) or 9(b) in respect of any loss,
claim, damage or liability, or any action in respect thereof, referred to
therein, then each indemnifying party shall, in lieu of indemnifying such
indemnified party, contribute to the amount paid or payable by such indemnified
party as a result of such loss, claim, damage or liability, or action in respect
thereof, (i) in such proportion as shall be appropriate to reflect the relative
benefits received by the Company, on the one hand, and the Participants, on the
other hand, from the offering of the Exchange Notes or (ii) if the allocation
provided by clause (i) above is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits referred
to in clause (i) above but also the relative fault of the Company, on the one
hand, and the Participants, on the other hand, with respect to the statements or
omissions which resulted in such loss, claim, damage or liability, or action in
respect thereof, as well as any other relevant equitable considerations. The
relative benefits received by the Company, on the one hand, and the
Participants, on the other hand, with respect to such offering shall be deemed
to be in the same proportion as the total net proceeds from the offering of the
Exchange Notes purchased under this Agreement (before deducting expenses)
received by the Company, on the one hand, and the total underwriting commissions
and discounts received by the Participants with respect to the Notes purchased
under the Purchase Agreement, on the other hand, bear to the total gross
proceeds from the offering of the Exchange Notes under this Agreement, in each
case as set forth in the table on the cover page of the Memorandum. The
relative fault shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or omission or alleged
omission to state a material fact relates to information supplied by the
Company, on the one hand, or the Participants, on the other hand, the intent of
the parties and their relative knowledge, access to information and opportunity
to correct or prevent such statement or omission. Each of the Company and the
Participants agrees that it would not be just and equitable if contributions
pursuant to this Section 9(d) were to be determined by pro rata allocation (even
if either the Participants or the Company, as the case may be, were treated as
one entity for such purpose) or by any other method of allocation which does not
take into account the equitable considerations referred to herein. The amount
paid or payable by an indemnified party as a result of the loss, claim, damage
or liability, or action in respect thereof, referred to above in this Section
9(d) shall be deemed to include, subject to the limitations set forth above, any
legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 9(d), no Participant shall be
required to
<PAGE>
24
indemnify or contribute any amount in excess of the amount by which proceeds
received by the Participants from an offering of the Exchange Notes exceeds the
amount of any damages which such Participant has otherwise paid or become liable
to pay by reason of any untrue or alleged untrue statement or omission or
alleged omission. No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The remedies provided for in this Section 9 are not
exclusive and shall not limit any rights or remedies which may otherwise be
available to any indemnified party at law or in equity. The Participants'
obligations to contribute as provided in this Section 9(d) are several in
proportion to their respective underwriting obligations and not joint.
(e) Each of the Initial Purchasers confirms and the Company
acknowledges that (i) the last paragraph on the cover page, (ii) the
stabilization legend on page (iii) and (iv) the fifth paragraph, the sixth
paragraph and the first two sentences of the eleventh paragraph under the
caption "Plan of Distribution" constitute the only information concerning the
Initial Purchasers furnished in writing to the Company by or on behalf of the
Initial Purchasers specifically for inclusion in the Registration Statement.
(f) The indemnity and contribution provisions contained in this
Section 9 shall remain operative and in full force and effect regardless of (i)
any termination of this Agreement, (ii) any investigation made by or on behalf
of any Initial Purchaser, any Holder or any person controlling any Initial
Purchaser or any Holder, or by or on behalf of the Company, its officers or
directors or any person controlling the Company, (iii) acceptance of any of the
Exchange Notes and (iv) any sale of Transfer Restricted Securities pursuant to a
Shelf Registration Statement.
10. Rule 144A.
The Company hereby agrees with each Holder, for so long as any
Transfer Restricted Securities remain outstanding, to make available to any
Holder or beneficial owner of Transfer Restricted Securities in connection with
any sale thereof and any prospective purchaser of such Transfer Restricted
Securities from such Holder or beneficial owner, the information required by
Rule 144A(d)(4) under the Securities Act in order to permit resales of such
Transfer Restricted Securities pursuant to Rule 144A.
11. Participation in Underwritten Registrations.
No Holder may participate in any Underwritten Registration hereunder
unless such Holder (a) agrees to sell such Holder's Transfer Restricted
Securities on the basis provided in any underwriting arrangements approved by
the Persons entitled hereunder to approve such arrangements and (b) completes
and executes all questionnaires, powers of
<PAGE>
25
attorney, indemnities, underwriting agreements, lockup letters and other
documents reasonably required under the terms of such underwriting arrangements.
12. Selection of Underwriters.
The Holders of Transfer Restricted Securities covered by the Shelf
Registration Statement who desire to do so may sell such Transfer Restricted
Securities in an Underwritten Offering. In any such Underwritten Offering, the
investment banker or investment bankers and manager or managers that will
administer the offering will be selected by the Holders of a majority in
aggregate principal amount of the Transfer Restricted Securities included in
such offering; provided that such investment bankers and managers must be
reasonably satisfactory to the Company.
13. Miscellaneous.
(a) Remedies. The Company agrees that monetary damages (including
--------
Liquidated Damages) would not be adequate compensation for any loss incurred by
reason of a breach by it of the provisions of this Agreement and hereby agrees
to waive the defense in any action for specific performance that a remedy at law
would be adequate.
(b) No Inconsistent Agreements. The Company will not on or after the
--------------------------
date of this Agreement enter into any agreement with respect to its securities
that is inconsistent with the rights granted to the Holders in this Agreement or
otherwise conflicts with the provisions hereof. The Company has not previously
entered into any agreement granting any registration rights with respect to its
securities to any Person. The rights granted to the Holders hereunder do not in
any way conflict with and are not inconsistent with the rights granted to the
holders of the Company's securities under the provisions of any agreement in
effect on the date hereof.
(c) Adjustments Affecting the Notes. The Company will not take any
-------------------------------
action, or permit any change to occur, with respect to Notes that would
materially and adversely affect the ability of the Holders to Consummate any
Exchange Offer unless such action or change is required by applicable law.
(d) Amendments and Waivers. The provisions of this Agreement,
----------------------
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to or departures from the provisions
hereof may not be given unless the Company has obtained the written consent of
Holders of at least a majority of the outstanding principal amount of Transfer
Restricted Securities; provided, however, that no amendment, modification,
supplement, waiver or consent to or departure from the provisions of Section 8
hereof shall be effective as against any Holder of Transfer Restricted
Securities unless consented to in writing by such Holder. Notwithstanding the
foregoing, a waiver or
<PAGE>
26
consent to departure from the provisions hereof that relates exclusively to the
rights of Holders whose securities are being tendered pursuant to the Exchange
Offer and that does not affect directly or indirectly the rights of other
Holders whose securities are not being tendered pursuant to such Exchange Offer
may be given by the Holders of a majority of the outstanding principal amount of
Transfer Restricted Securities being tendered or registered.
(e) Notices. All notices and other communications provided for or
-------
permitted hereunder shall be made in writing by hand delivery, first-class mail
(registered or certified, return receipt requested), telecopier, or air courier
guaranteeing overnight delivery:
(i) if to a Holder, at the address of such Holder maintained by the
Registrar under the Indenture; and
(ii) if to the Company:
1401 New York Avenue, N.W.
Eighth Floor
Washington, DC 20005
Attention: Christopher S. King
Facsimile: (202) 496-1109
With a copy to:
Swidler & Berlin, Chartered
3000 K Street, N.W.
Suite 300
Washington, DC 20007-5116
Attention: Morris F. DeFeo, Jr., Esq.
Facsimile: (202) 424-7643
(iii) if to the Initial Purchasers:
Lehman Brothers Inc.
Three World Financial Center
New York, New York 10285
Attention: Syndicate Department
Facsimile: (212) 528-6395; and
<PAGE>
Exhibit 10.2
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
-3-
<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
-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
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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
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<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 10.3
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.
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<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
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<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)
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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
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<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 10.4
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 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
</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 Registration Statement of FaciliCom
International, Inc. on Form S-4 of our report dated March 19, 1998, 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
March 19, 1998
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the use in this Registration Statement 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
March 19, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 3-MOS YEAR
<FISCAL-YEAR-END> SEP-30-1998 SEP-30-1997
<PERIOD-END> DEC-31-1997 SEP-30-1997
<CASH> 7,353 1,016
<SECURITIES> 0 0
<RECEIVABLES> 25,889 19,646
<ALLOWANCES> 429 161
<INVENTORY> 0 0
<CURRENT-ASSETS> 35,251 22,238
<PP&E> 31,332 23,278
<DEPRECIATION> 3,778 3,034
<TOTAL-ASSETS> 66,000 44,017
<CURRENT-LIABILITIES> 41,374 32,465
<BONDS> 21,179 22,589
0 0
0 0
<COMMON> 2 0
<OTHER-SE> 5,452 (9,421)
<TOTAL-LIABILITY-AND-EQUITY> 66,000 44,017
<SALES> 35,808 70,187
<TOTAL-REVENUES> 35,808 70,187
<CGS> 32,809 65,718
<TOTAL-COSTS> 32,809 65,718
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 268 1,263
<INTEREST-EXPENSE> 535 1,336
<INCOME-PRETAX> (4,956) (14,031)
<INCOME-TAX> (393) 0
<INCOME-CONTINUING> (5,349) (14,031)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (5,349) (14,031)
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
</TABLE>
<PAGE>
EXHIBIT 99.1
LETTER OF TRANSMITTAL
TO TENDER FOR EXCHANGE
10 1/2% SENIOR NOTES DUE 2008
OF
FACILICOM INTERNATIONAL, INC.
- --------------------------------------------------------------------------------
PURSUANT TO THE PROSPECTUS DATED . , 1998 THE EXCHANGE OFFER WILL
EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON . , 1998 UNLESS
EXTENDED.
- --------------------------------------------------------------------------------
To: State Street Bank and Trust Company (the "Exchange Agent")
By Registered or By Facsimile: By Hand or Overnight
Certified Mail: (617) 664-5395 Courier:
State Street Bank and State Street Bank and
Trust Company Corporate Confirm by telephone: Trust Company Corporate
Trust Department (617) 664-5587 Trust Department
P.O. Box 778 4th floor
Boston, MA 02102-0078 Two International Place
Attn: Sandra Szczponik Boston, MA 02110
Attn: Sandra Szczponik
Delivery of this instrument to an address other than as set forth above or
transmission of instructions via a facsimile number other than the one listed
above will not constitute a valid delivery. The instructions accompanying this
Letter of Transmittal should be read carefully before this Letter of
Transmittal is completed.
The undersigned acknowledges that he or she has received the Prospectus,
dated . , 1998 (the "Prospectus"), of FACILICOM INTERNATIONAL, Inc. (the
"Company") and this Letter of Transmittal (the "Letter of Transmittal"), which
together constitute the Company's offer (the "Exchange Offer") to exchange its
10 1/2% Series B Senior Discount Notes due 2008 (the "Exchange Notes") for an
equal principal amount of its 10 1/2% Senior Notes due 2008 (the "Old Notes"
and, together with the Exchange Notes, the "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 of 1933, as
amended (the "Securities Act"), and, therefore, will not bear legends
restricting their transfer and will not contain certain provisions relating to
an increase in the interest rate which were included in the Old Notes under
certain circumstances relating to the timing of the Exchange Offer. 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 shall mean the latest date and time to which the Exchange
Offer is extended. Capitalized terms used but not defined herein have the
meaning given to them in the Prospectus.
The Letter of Transmittal is to be used by holders of Old Notes if
certificates are to be forwarded herewith. Holders of Old Notes whose
certificates are not immediately available, or who are unable to deliver their
certificates and all other documents required by this Letter of Transmittal to
the Exchange Agent on or 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" section of the Prospectus. See
Instruction 1.
The term "holder" with respect to the Exchange Offer means any person in
whose name Old Notes are registered on the books of the Company or any other
person who has obtained a properly completed bond power from the registered
holder. The undersigned has completed, executed and delivered this Letter of
Transmittal to indicate the action the undersigned desires to take with
respect to the Exchange Offer. Holders who wish to tender their Old Notes must
complete this Letter of Transmittal in its entirety.
The undersigned acknowledges that if it is a broker-dealer holding Old Notes
acquired for its own account as a result of market-making activities or other
trading activities (other than Old Notes acquired directly from the Company),
such holder may be deemed to be an "underwriter" within the meaning of the
Securities Act and, therefore, must deliver a prospectus meeting the
requirements of the Securities Act in connection with any resale of Exchange
Notes received in respect of such
<PAGE>
Old Notes pursuant to the Exchange Offer. Notwithstanding the foregoing, the
undersigned shall not be deemed to admit that it is an "underwriter" within
the meaning of such term under the Securities Act.
PLEASE READ THE ENTIRE LETTER OF TRANSMITTAL
CAREFULLY BEFORE COMPLETING THE LETTER OF TRANSMITTAL
DESCRIPTION OF 10 1/2% SENIOR NOTES DUE 2008
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL PRINCIPAL AMOUNT
NAMES AND ADDRESS(ES) OF AMOUNT TENDERED (MUST BE IN
REGISTERED HOLDER(S) CERTIFICATE REPRESENTED BY INTEGRAL MULTIPLES
(PLEASE FILL IN, IF BLANK) NUMBER(S) CERTIFICATE(S) OF $1,000)*
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
-------------------------------------------------------
-------------------------------------------------------
-------------------------------------------------------
-------------------------------------------------------
</TABLE>
- -------------------------------------------------------------------------------
* Unless indicated in the column labeled "Principal Amount Tendered," any
tendering holder of 10 1/2% Senior Notes due 2008 will be deemed to have
tendered the entire aggregate principal amount represented by the column
labeled "Aggregate Principal Amount Represented by Certificate(s)." If the
space provided above is inadequate, list the certificate numbers and
principal amounts on a separate signed schedule and affix the list to this
Letter of Transmittal. The minimum permitted tender is $1,000 in principal
amount. All other tenders must be integral multiples of $1,000.
[_] CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE
OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND COMPLETE
THE FOLLOWING (SEE INSTRUCTION 1):
Name(s) of Registered Holder(s)
----------------------------------------------------------------------------
Window Ticket Number (if any)
----------------------------------------------------------------------------
Date of Execution of Notice of Guaranteed Delivery
----------------------------------------------------------------------------
Name of Institution which Guaranteed Delivery
----------------------------------------------------------------------------
[_] CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO:
Name:
----------------------------------------------------------------------------
Address:
----------------------------------------------------------------------------
----------------------------------------------------------------------------
2
<PAGE>
- ------------------------------------- -----------------------------------
SPECIAL REGISTRATION INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 4, 5 AND 6) (SEE INSTRUCTIONS 4, 5 AND 6)
To be completed ONLY if certifi- To be completed ONLY if certifi-
cates for Old Notes in a princi- cates for Old Notes in a princi-
pal amount not tendered, or Ex- pal amount not tendered, or Ex-
change Notes issued in exchange change Notes issued in exchange
for Old Notes accepted for ex- for Old Notes accepted for ex-
change are to be issued in the change, are to be sent to someone
name of someone other than the other than the undersigned, or to
undersigned. the undersigned at an address
other than that shown above.
Issue certificates(s) to:
Deliver certificate(s) to:
Name _____________________________
(PLEASE PRINT) Name _____________________________
Address __________________________ (PLEASE PRINT)
Address __________________________
__________________________________
(INCLUDE ZIP CODE) __________________________________
__________________________________ (INCLUDE ZIP CODE)
(TAX IDENTIFICATION OR SOCIAL __________________________________
SECURITY NO.) (TAX IDENTIFICATION OR SOCIAL
SECURITY NO.)
- ------------------------------------- -----------------------------------
Ladies and Gentlemen:
Subject to the terms and conditions of the Exchange Offer, the undersigned
hereby tenders to the Company the principal amount of Old Notes indicated
above. Subject to and effective upon the acceptance for exchange of the
principal amount of Old Notes tendered in accordance with this Letter of
Transmittal, the undersigned sells, assigns and transfers to, or upon the
order of, the Company all right, title and interest in and to the Old Notes
tendered hereby. The undersigned hereby irrevocably constitutes and appoints
the Exchange Agent its agent and attorney-in-fact (with full knowledge that
the Exchange Agent also acts as the agent of the Company) with respect to the
tendered Old Notes with full power of substitution to (i) deliver certificates
for such Old Notes to the Company and deliver all accompanying evidences of
transfer and authenticity to, or upon the order of, the Company and (ii)
present such Old Notes for transfer on the books of the Company and receive
all benefits and otherwise exercise all rights of beneficial ownership of such
Old Notes, all in accordance with the terms of the Exchange Offer. The power
of attorney granted in this paragraph shall be deemed to be irrevocable and
coupled with an interest.
The undersigned hereby represents and warrants that he or she has full power
and authority to tender, sell, assign and transfer the Old Notes tendered
hereby and that the Company will acquire good and unencumbered title thereto,
free and clear of all liens, restrictions, charges and encumbrances and not
subject to any adverse claim, when the same are acquired by the Company. The
undersigned and any beneficial owner of Old Notes hereby further represent
that any Exchange Notes acquired in exchange for Old Notes tendered hereby
will have been acquired in the ordinary course of business of the undersigned
and any such beneficial owner of Old Notes receiving such Exchange Notes, that
neither the holder nor any 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 that neither the
holder nor any such beneficial owner is an "affiliate," as defined in Rule 405
under the Securities Act, of the Company. The undersigned and each beneficial
owner acknowledge and agree that any person participating in the Exchange
Offer for the purpose of distributing the Exchange Notes must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any secondary resale transactions of the Exchange Notes
acquired by such person and may not rely on the position of the Staff of the
Securities and Exchange Commission set forth in the no-action letters
discussed in the Prospectus under the caption "The Exchange Offer." If the
undersigned is not a broker-dealer, the undersigned represents that it is not
engaged in, and does not intend to engage in, a public distribution of
Exchange Notes. The undersigned and each beneficial owner will, upon request,
execute and deliver any additional documents deemed by the Exchange Agent or
the Company to be necessary or desirable to complete the assignment, transfer
and purchase of the Old Notes tendered hereby.
3
<PAGE>
For purposes of the Exchange Offer, 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.
If any tendered Old Notes are not accepted for exchange pursuant to the
Exchange Offer for any reason, certificates for any such unaccepted Old Notes
will be returned, without expense, to the undersigned at the address shown
below or at a different address as may be indicated herein under "Special
Delivery Instructions" as promptly as practicable after the Expiration Date.
All authority conferred or agreed to be conferred by this Letter of
Transmittal shall survive the death, incapacity or dissolution of the
undersigned, and every obligation of the undersigned under this Letter of
Transmittal shall be binding upon the undersigned's heirs, personal
representatives, successors and assigns.
The undersigned understands that tenders of Old Notes pursuant to the
procedures described under the caption "The Exchange Offer--Procedures for
Tendering" in the Prospectus and in the instructions hereto will constitute a
binding agreement between the undersigned and the Company upon the terms and
subject to the conditions of the Exchange Offer, subject only to withdrawal of
such tenders on the terms set forth in the Prospectus under the caption "The
Exchange Offer--Withdrawal of Tenders."
Unless otherwise indicated under "Special Registration Instructions," please
issue the certificates representing the Exchange Notes issued in exchange for
the Old Notes accepted for exchange and any certificates for Old Notes not
tendered or not exchanged, in the name(s) of the undersigned. Similarly,
unless otherwise indicated under "Special Delivery Instructions," please send
the certificates representing the Exchange Notes issued in exchange for the
Old Notes accepted for exchange and any certificates for Old Notes not
tendered or not exchanged (and accompanying documents, as appropriate) to the
undersigned at the address shown below the undersigned's signature(s). In the
event that both "Special Registration Instructions" and "Special Delivery
Instructions" are completed, please issue the certificates representing the
Exchange Notes issued in exchange for the Old Notes accepted for exchange in
the name(s) of, and return any certificates for Old Notes not tendered or not
exchanged to, the person(s) so indicated. The undersigned understands that the
Company has no obligation pursuant to the "Special Registration Instructions"
and "Special Delivery Instructions" to transfer any Old Notes from the name of
the registered holder(s) thereof if the Company does not accept for exchange
any of the Old Notes so tendered.
Holders who wish to tender their Old Notes and whose Old Notes are not
immediately available or who cannot deliver their certificates and all other
documents required by this Letter of Transmittal to the Exchange Agent prior
to the Expiration Date, may tender their Old Notes according to the guaranteed
delivery procedures set forth in the Prospectus under the caption "The
Exchange Offer--Guaranteed Delivery Procedures." See Instruction 1 regarding
the completion of this Letter of Transmittal printed below.
4
<PAGE>
- --------------------------------------------------------------------------------
PLEASE SIGN HERE WHETHER OR NOT
OLD NOTES ARE BEING PHYSICALLY TENDERED HEREBY
[X] ________________________________________________________________________
Date: _____________
[X] ________________________________________________________________________
Date: _____________
Signature(s) of Registered Holder(s) or Authorized Signatory _______________
Area Code and Telephone Number: ______
The above lines must be signed by the registered holder(s) as their
name(s) appear(s) on the Old Notes or by person(s) authorized to become
registered holder(s) by a properly completed bond power from the registered
holder(s), a copy of which must be transmitted with this Letter of
Transmittal. If the Old Notes to which this Letter of Transmittal relate
are held of record by two or more joint holders, then all such holders must
sign this Letter of Transmittal. If signature is by a trustee, executor,
administrator, guardian, attorney-in-fact, officer of a corporation or
other person acting in a fiduciary or representative capacity, then such
person must (i) set forth his or her full title below and (ii) unless
waived by the Company, submit evidence satisfactory to the Company of such
person's authority so to act. See Instruction 4 regarding the completion of
this Letter of Transmittal printed below.
Name(s): ___________________________________________________________________
(PLEASE PRINT)
Capacity: __________________________________________________________________
(PLEASE PRINT)
Address: ___________________________________________________________________
(INCLUDE ZIP CODE)
Signature(s) Guaranteed by an Eligible Institution: (If required by
Instruction 4)
(Authorized Signature) _____________________________________________________
(Title) ____________________________________________________________________
(Name of Firm) _____________________________________________________________
Date: ______________________________________________________________________
- --------------------------------------------------------------------------------
5
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS
OF THE EXCHANGE OFFER
1. DELIVERY OF THIS LETTER OF TRANSMITTAL AND OLD NOTES; GUARANTEED DELIVERY
PROCEDURES. The tendered Old Notes as well as a properly completed and duly
executed copy of this Letter of Transmittal or facsimile hereof and any other
documents required by this Letter of Transmittal must be received by the
Exchange Agent at its address set forth herein prior to 5:00 p.m., New York
City time, on the Expiration Date. The method of delivery of the tendered Old
Notes, this Letter of Transmittal and all other required documents to the
Exchange Agent is at the election and risk of the holder and, except as
otherwise provided below, the delivery will be deemed made only when actually
received by the Exchange Agent. Instead of delivery by mail, it is recommended
that the holder use an overnight or hand delivery service. In all cases,
sufficient time should be allowed to assure timely delivery. No Letter of
Transmittal or Old Notes should be sent to the Company.
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, this Letter
of Transmittal or any other documents required hereby to the Exchange Agent
prior to the Expiration Date must tender their Old Notes according to the
guaranteed delivery procedures set forth in the Prospectus. Pursuant to such
procedure: (a) such tender must be made by or through an Eligible Institution
(defined below); (b) prior to the Expiration Date, the Exchange Agent must
have received from the Eligible Institution a properly completed and duly
executed Notice of Guaranteed Delivery (by facsimile transmission, mail or
hand delivery) setting forth the name and address of the holder, the
certificate number or numbers of such Old Notes and the principal amount of
Old Notes tendered, stating that the tender is being made thereby and
guaranteeing that, within three New York Stock Exchange trading days after the
Expiration Date, this Letter of Transmittal (or facsimile hereof) together
with the certificate(s) representing the Old Notes and any other required
documents will be deposited by the Eligible Institution with the Exchange
Agent; and (c) such properly completed and executed Letter of Transmittal (or
facsimile hereof), as well as the certificate(s) representing all tendered Old
Notes in proper form for transfer and all other documents required by this
Letter of Transmittal must be received by the Exchange Agent within three New
York Stock Exchange trading days after the Expiration Date, all as provided in
the Prospectus under the caption "The Exchange Offer--Guaranteed Delivery
Procedures." Any holder who wishes to tender his or her Old Notes pursuant to
the guaranteed delivery procedures described above must ensure that the
Exchange Agent receives the Notice of Guaranteed Delivery prior to 5:00 p.m.,
New York City time, on the Expiration Date. Upon request to the Exchange
Agent, a Notice of Guaranteed Delivery will be sent to holders who wish to
tender their Old Notes according to the guaranteed delivery procedures set
forth above.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance of tendered Old Notes, 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
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 this Letter of Transmittal) shall be firm 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. Neither the Company, the Exchange Agent nor any other
person shall be under any duty to give notification of defects or
irregularities with respect to tenders of Old Notes, nor shall any of them
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. Any Old Notes received by the
Exchange Agent that are not properly tendered and as to which the defects or
irregularities have not been cured or waived will be returned by the Exchange
Agent to the tendering holders, unless otherwise provided in this Letter of
Transmittal, as soon as practicable following the Expiration Date.
2. TENDER BY HOLDER. Only a holder of Old Notes may tender such Old Notes in
the Exchange Offer. Any beneficial owner of Old Notes who is not the
registered holder and who wishes to tender should arrange with such registered
holder to execute and deliver this Letter of Transmittal on such owner's
behalf or must, prior to completing and executing this Letter of Transmittal
and delivering his or her 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.
6
<PAGE>
3. PARTIAL TENDERS. Tenders of Old Notes will be accepted only in integral
multiples of $1,000. If less than the entire principal amount of any Old Notes
is tendered, the tendering holder should fill in the principal amount tendered
in the fourth column of the box entitled "Description of 10 1/2% Senior
Discount Notes due 2004" above. The entire principal amount of any Old Notes
delivered to the Exchange Agent will be deemed to have been tendered unless
otherwise indicated. If the entire principal amount of all Old Notes is not
tendered, then Old Notes for the principal amount of Old Notes not tendered
and a certificate or certificates representing Exchange Notes issued in
exchange for any Old Notes accepted will be sent to the holder at his or her
registered address, unless a different address is provided in the appropriate
box on this Letter of Transmittal, promptly after the Old Notes are accepted
for exchange.
4. SIGNATURES ON THE LETTER OF TRANSMITTAL; BOND POWERS AND ENDORSEMENTS;
GUARANTEE OF SIGNATURES. If this Letter of Transmittal (or facsimile hereof)
is signed by the registered holder(s) of the Old Notes tendered hereby, the
signature must correspond with the name(s) as written on the face of the Old
Notes without alteration, enlargement or any change whatsoever.
If this Letter of Transmittal (or facsimile hereof) is signed by the
registered holder or holders of Old Notes tendered and the certificate or
certificates for Exchange Notes issued in exchange therefor is to be issued
(or any untendered principal amount of Old Notes is to be reissued) to the
registered holder and neither the "Special Delivery Instructions" nor the
"Special Registration Instructions" has been completed, then such holder need
not and should not endorse any tendered Old Notes, nor provide a separate bond
power. In any other case, such holder must either properly endorse the Old
Notes tendered or transmit a properly completed separate bond power with this
Letter of Transmittal with the signatures on the endorsement or bond power
guaranteed by an Eligible Institution.
If this Letter of Transmittal (or facsimile hereof) is signed by a person
other than the registered holder or holders of any Old Notes listed, such Old
Notes must be endorsed or accompanied by appropriate bond powers in each case
signed as the name of the registered holder or holders appears on the Old
Notes.
If this Letter of Transmittal (or facsimile hereof) or any Old Notes or bond
powers are signed by trustees, executors, administrators, guardians,
attorneys-in-fact, or 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 so to act must be submitted with this Letter of Transmittal.
Endorsements on Old Notes or signatures on bond powers required by this
Instruction 4 must be guaranteed by an Eligible Institution which is a member
of (a) the Securities Transfer Agents Medallion Program, (b) the New York
Stock Exchange Medallion Signature Program or (c) the Stock Exchange Medallion
Program.
Except as otherwise provided below, all signatures on this Letter of
Transmittal must be guaranteed by a firm that is a member of a registered
national securities exchange or the National Association of Securities
Dealers, Inc., a commercial bank or trust company having an office or
correspondent in the United States or an "eligible guarantor institution"
within the meaning of Rule 17Ad-15 under the Securities Exchange Act of 1934,
as amended (an "Eligible Institution"). Signatures on this Letter of
Transmittal need not be guaranteed if (a) this Letter of Transmittal is signed
by the registered holder(s) of the Old Notes tendered herewith and such
holder(s) have not completed the box set forth herein entitled "Special
Registration Instructions" or the box entitled "Special Delivery Instructions"
or (b) such Old Notes are tendered for the account of an Eligible Institution.
5. SPECIAL REGISTRATION AND DELIVERY INSTRUCTIONS. Tendering holders should
indicate, in the applicable box or boxes, the name and address to which
Exchange Notes or substitute Old Notes for principal amounts not tendered or
not accepted for exchange are to be issued or sent, if different from the name
and address of the person signing this Letter of Transmittal. In the case of
issuance in a different name, the taxpayer identification or social security
number of the person named must also be indicated.
6. TRANSFER TAXES. The Company will pay all transfer taxes, if any,
applicable to the exchange of Old Notes pursuant to the Exchange Offer. If,
however, certificates representing Exchange Notes or Old Notes for principal
amounts not tendered or accepted for exchange are to be delivered to, or are
to be registered in the name of, any person other than the registered
7
<PAGE>
holder of the Old Notes tendered hereby, or if tendered Old Notes are
registered in the name of any person other than the person signing this Letter
of Transmittal, or if 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 on 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 this Letter
of Transmittal, the amount of such transfer taxes will be billed directly to
such tendering holder.
Except as provided in this Instruction 6, it will not be necessary for
transfer tax stamps to be affixed to the Old Notes listed in this Letter of
Transmittal.
7. WAIVER OF CONDITIONS. The Company reserves the right, in its sole
discretion, to amend, waive or modify specified conditions in the Exchange
Offer in the case of any Old Notes tendered.
8. MUTILATED, LOST, STOLEN OR DESTROYED OLD NOTES. Any tendering holder
whose Old Notes have been mutilated, lost, stolen or destroyed should contact
the Exchange Agent at the address indicated herein for further instructions.
9. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions and requests for
assistance and requests for additional copies of the Prospectus or this Letter
of Transmittal may be directed to the Exchange Agent at the address specified
in the Prospectus. Holders may also contact their broker, dealer, commercial
bank, trust company or other nominee for assistance concerning the Exchange
Offer.
(DO NOT WRITE IN SPACE BELOW)
CERTIFICATE SURRENDERED _______________________________________________________
OLD NOTES TENDERED ____________________________________________________________
OLD NOTES ACCEPTED ____________________________________________________________
Delivery Prepared by __________________________________________________________
Checked by ____________________________________________________________________
Date ______________
8
<PAGE>
EXHIBIT 99.2
FACILICOM INTERNATIONAL, INC.
NOTICE OF GUARANTEED DELIVERY
OF
10 1/2% SENIOR NOTES DUE 2008
As set forth in the Prospectus, dated . , 1998 (as the same may be
amended from time to time, the "Prospectus"), of FACILICOM INTERNATIONAL, Inc.
(the "Company") under the caption ("The Exchange Offer--Guaranteed Delivery
Procedures") this form or one substantially equivalent hereto must be used to
accept the Company's offer (the "Exchange Offer") to exchange its 10 1/2%
Series B Senior Notes due 2008 (the "Exchange Notes"), which have been
registered under the Securities Act of 1933, as amended (the "Securities
Act"), for an equal principal amount of its 10 1/2% Senior Notes due 2008 (the
"Old Notes"), if (i) certificates representing the Old Notes to be exchanged
are not lost but are not immediately available or (ii) time will not permit
all required documents to reach the Exchange Agent prior to the Expiration
Date. This form may be delivered by an Eligible Institution by mail or hand
delivery or transmitted, via facsimile, to the Exchange Agent at its address
set forth below not later than 5:00 p.m., New York City time, on . , 1998.
All capitalized terms used herein but not defined herein shall have the
meanings ascribed to them in the Prospectus.
THE EXCHANGE AGENT IS:
STATE STREET BANK AND TRUST COMPANY
By Registered or Certified Mail: By Hand or Overnight Courier:
State Street Bank and Trust Company State Street Bank and Trust Company
Corporate Trust Department Corporate Trust Deparment
P.O. Box 778 4th Floor
Boston, MA 02102-0078 Two International Place
Attn: Sandra Szczponik Boston, MA 02110
Attn: Sandra Szczponik
By Facsimile:
(617) 664-5395
Confirm by Telephone:
(617) 664-5587
DELIVERY, OR TRANSMISSION VIA FACSIMILE, OF THIS INSTRUMENT TO AN ADDRESS
OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
Ladies and Gentlemen:
The undersigned hereby tender(s) for exchange to the Company, upon the terms
and subject to the conditions set forth in the Prospectus and Letter of
Transmittal, receipt of which is hereby acknowledged, the principal amount of
Old Notes set forth below pursuant to the guaranteed delivery procedures set
forth in the Prospectus under the caption "The Exchange Offer--Guaranteed
Delivery Procedures."
The undersigned understands and acknowledges that the Exchange Offer will
expire at 5:00 p.m., New York City time, on . , 1998, unless extended by
the Company. With respect to the Exchange Offer, "Expiration Date" means such
time and date, or if the Exchange Offer is extended, the latest time and date
to which the Exchange Offer is so extended by the Company.
All authority herein conferred or agreed to be conferred by this Notice of
Guaranteed Delivery shall survive the death or incapacity of the undersigned
and every obligation of the undersigned under this Notice of
<PAGE>
Guaranteed Delivery shall be binding upon the heirs, personal representatives,
executors, administrators, successors, assigns, trustees in bankruptcy and
other legal representatives of the undersigned.
Principal Amount of Old Notes
Exchanged:
$
----------------------------
SIGNATURES CERTIFICATE NOS. OF OLD
NOTES
(IF AVAILABLE)
- ------------------------------------- ------------------------------
Signature of Owner
- ------------------------------------- ------------------------------
- -------------------------------------
Signature of Owner (if more than one)
- -------------------------------------
Total $
---------------------------
Dated:
IF OLD NOTES WILL BE BOOK-ENTRY TRANSFER,
Names(s): PROVIDE THE DEPOSITORY TRUST COMPANY
("DTC") ACCOUNT NO.:
- ------------------------------------- ------------------------------
(Please Print)
Address (Include Zip Code):
- -------------------------------------
- -------------------------------------
- -------------------------------------
Area Code and Telephone No.
- -------------------------------------
Capacity (full title), if signing in a representative
capacity
------------------------------------------------------
Taxpayer Identification or Social Security No.:
<PAGE>
GUARANTEE OF DELIVERY
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a firm which is a member of a registered national
securities exchange or of the National Association of Securities Dealers,
Inc., or is a commercial bank or trust company having an office or
correspondent in the United States, or is otherwise an "eligible guaranteed
institution" within the meaning of Rule 17Ad-15 under the Securities Exchange
Act of 1934, as amended, guarantees deposit with the Exchange Agent of the
Letter of Transmittal (or facsimile thereof), together with the Old Notes
tendered hereby in proper form for transfer (or confirmation of the book-entry
transfer of such Old Notes into the Exchange Agent's account at the Book-Entry
Transfer Facility described in the Prospectus under the caption "The Exchange
Offer--Guaranteed Delivery Procedures" and in the Letter of Transmittal) and
any other required document, all by 5.00 p.m., New York City time, on the
third New York Stock Exchange trading day following the Expiration Date.
AUTHORIZED SIGNATURE
Name of Firm:
Name:
Address:
Title:
- --------------------------------
Date:
- --------------------------------
Area Code and Telephone No.:
NOTE: DO NOT SEND OLD NOTES WITH THIS FORM. ACTUAL SURRENDER OF OLD NOTES
MUST BE MADE PURSUANT TO, AND BE ACCOMPANIED BY, THE LETTER OF TRANSMITTAL.
<PAGE>
EXHIBIT 99.3
FACILICOM INTERNATIONAL, INC.
OFFER TO EXCHANGE ITS
10 1/2% SERIES B SENIOR NOTES DUE 2008
FOR ANY AND ALL OF ITS OUTSTANDING
10 1/2% SENIOR NOTES DUE 2008
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M. NEW YORK CITY TIME, ON . , 1998
UNLESS EXTENDED.
To Brokers, Dealers, Commercial Banks,Trust Companies and Other Nominees:
FACILICOM INTERNATIONAL, Inc. (the "Company") is offering upon the terms and
conditions set forth in the Prospectus, dated . , 1998 (as the same may be
amended from time to time, the "Prospectus"), and in the related Letter of
Transmittal enclosed herewith, to exchange (the "Exchange Offer") its 10 1/2%
Series B Senior Notes due 2008 (the "Exchange Notes") for an equal principal
amount of its 10 1/2% Senior Notes due 2008 (the "Old Notes" and together with
the Exchange Notes, the "Notes"). As set forth in the Prospectus, the terms of
the Exchange Notes are identical in all material respects to the Old Notes,
except for certain transfer restrictions relating to the Old Notes and except
that the Exchange Notes will not contain certain provisions relating to an
increase in the interest rate which were included in the Old Notes under
certain circumstances relating to the timing of the Exchange Offer. Old Notes
may only be tendered in integral multiples of $1,000.
THE EXCHANGE OFFER IS SUBJECT TO CERTAIN CONDITIONS. SEE "THE EXCHANGE OFFER--
CONDITIONS" IN THE PROSPECTUS.
Enclosed herewith for your information and forwarding to your clients are
copies of the following documents:
1. The Prospectus, dated . , 1998.
2. The Letter of Transmittal to exchange Notes for your use and for the
information of your clients. Facsimile copies of the Letter of Transmittal
may be used to exchange Notes.
3. A form of letter which may be sent to your clients for whose accounts
you hold Old Notes registered in your name or in the name of your nominee,
with space provided for obtaining such client's instructions with regard to
the Exchange Offer.
4. A Notice of Guaranteed Delivery.
5. Guidelines of the Internal Revenue Service for Certification of
Taxpayer Identification Number on Substitute Form W-9.
YOUR PROMPT ACTION IS REQUESTED. WE URGE YOU TO CONTACT YOUR CLIENTS AS
PROMPTLY AS POSSIBLE. PLEASE NOTE THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME, ON . , 1998, UNLESS EXTENDED. PLEASE FURNISH COPIES OF
THE ENCLOSED MATERIALS TO THOSE OF YOUR CLIENTS FOR WHOM YOU HOLD OLD NOTES
REGISTERED IN YOUR NAME OR IN THE NAME OF YOUR NOMINEE AS QUICKLY AS POSSIBLE.
In all cases, exchanges of Old Notes accepted for exchange pursuant to the
Exchange Offer will be made only after timely receipt by the Exchange Agent of
(a) certificates representing such Old Notes, (b) the Letter of Transmittal
(or facsimile thereof) properly completed and duly executed with any required
signature guarantees, and (c) any other documents required by the Letter of
Transmittal.
<PAGE>
If holders of Old Notes wish to tender, but it is impracticable for them to
forward their certificates for Old Notes prior to the expiration of the
Exchange Offer or to comply with the book-entry transfer procedures on a
timely basis, a tender may be offered by following the guaranteed delivery
procedure described in the Prospectus under "The Exchange Offer--Guaranteed
Delivery Procedures."
The Exchange Offer is not being made to (nor will tenders be accepted from
or on behalf of) holders of Old Notes residing in any jurisdiction in which
the making of the Exchange Offer or the acceptance thereof would not be in
compliance with the laws of such jurisdiction.
The Company will not pay any fees or commissions to brokers, dealers or
other persons for soliciting exchanges of Notes pursuant to the Exchange
Offer. The Company will, however, upon request, reimburse you for customary
clerical and mailing expenses incurred by you in forwarding any of the
enclosed materials to your clients. The Company will pay or cause to be paid
any transfer taxes payable on the transfer of Notes to it, except as otherwise
provided in Instruction 6 of the Letter of Transmittal.
Questions and requests for assistance with respect to the Exchange Offer or
for copies of the Prospectus and Letter of Transmittal may be directed to the
Exchange Agent at its address set forth in the Prospectus or at (617) 664-
5587.
Very truly yours,
FACILICOM INTERNATIONAL, INC.
NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU
OR ANY OTHER PERSON TO ACT AS THE AGENT OF THE COMPANY, OR ANY AFFILIATE
THEREOF, OR AUTHORIZE YOU OR ANY OTHER PERSON TO MAKE ANY STATEMENT OR USE ANY
DOCUMENT ON BEHALF OF ANY OF THEM IN CONNECTION WITH THE OFFER OTHER THAN THE
ENCLOSED DOCUMENTS AND THE STATEMENTS CONTAINED THEREIN.
2
<PAGE>
EXHIBIT 99.4
FACILICOM INTERNATIONAL, INC.
OFFER TO EXCHANGE ITS
10 1/2% SERIES B SENIOR NOTES DUE 2008
FOR ANY AND ALL OF ITS OUTSTANDING
10 1/2% SENIOR NOTES DUE 2008
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON, . , 1998
(THE "INITIAL EXPIRATION DATE"), UNLESS EXTENDED.
To Our Clients:
Enclosed for your consideration is a Prospectus, dated . , 1998 (as the
same may be amended from time to time, the "Prospectus"), and a Letter of
Transmittal (the "Letter of Transmittal") relating to the offer by FaciliCom
International, Inc. (the "Company") to exchange (the "Exchange Offer") its 10
1/2% Series B Senior Notes due 2008 (the "Exchange Notes") for an equal
principal amount of its 10 1/2% Senior Notes due 2008 (the "Old Notes") upon
the terms and conditions set forth in the Prospectus and in the related Letter
of Transmittal. As set forth in the Prospectus, the terms of the Exchange
Notes are identical in all material respects to the Old Notes, except for
certain transfer restrictions relating to the Old Notes and except that the
Exchange Notes will not contain certain provisions relating to an increase in
the interest rate which were included in the Old Notes under certain
circumstances relating to the timing of the Exchange Offer. The Exchange Offer
is subject to certain customary conditions. See "The Exchange Offer" in the
Prospectus. Old Notes may be tendered only in integral multiples of $1,000.
The material is being forwarded to you as the beneficial owner of Old Notes
carried by us for your account or benefit but not registered in your name. An
exchange of any Old Notes may only be made by us as the registered holder and
pursuant to your instructions. Therefore, the Company urges beneficial owners
of Old Notes registered in the name of a broker, dealer, commercial bank,
trust company or other nominee to contact such holder promptly if they wish to
exchange Old Notes in the Exchange Offer.
Accordingly, we request instructions as to whether you wish us to exchange
any or all such Old Notes held by us for your account or benefit, pursuant to
the terms and conditions set forth in the Prospectus and Letter of
Transmittal. We urge you to read carefully the Prospectus and Letter of
Transmittal before instructing us to exchange your Old Notes.
Your instructions to us should be forwarded as promptly as possible in order
to permit us to exchange Old Notes on your behalf in accordance with the
provisions of the Exchange Offer. The Exchange Offer expires at 5:00 p.m., New
York City time, on . , 1998, unless extended. With respect to the Exchange
Offer, "Expiration Date" means the Initial Expiration Date, or if the Exchange
Offer is extended, the latest time and date to which the Exchange Offer is so
extended by the Company. Tender of Old Notes may be withdrawn at any time
prior to 5:00 p.m., New York City time, on the Expiration Date.
Your attention is directed to the following:
1. The Exchange Offer is for the exchange of $1,000 principal amount of
the Exchange Notes for each $1,000 principal amount of the Old Notes, of
which $300,000,000 aggregate principal amount of the Old Notes was
outstanding as of January 28, 1998. The terms of the Exchange Notes are
identical in all material respects to the Old Notes, except for certain
transfer restrictions relating to the Old Notes and except that the
Exchange Notes will not contain certain provisions relating to an increase
in the interest rate which were included in the Old Notes under certain
circumstances relating to the timing of the Exchange Offer.
2. THE EXCHANGE OFFER IS SUBJECT TO CERTAIN CONDITIONS. SEE "THE EXCHANGE
OFFER--CONDITIONS" IN THE PROSPECTUS.
<PAGE>
3. The Exchange Offer and withdrawal rights will expire at 5:00 p.m., New
York City time, on . , 1998, unless extended.
4. The Company has agreed to pay the expenses of the Exchange Offer.
5. Any transfer taxes incident to the transfer of Notes from the
tendering holder to the Company will be paid by the Company, except as
provided in the Prospectus and the Letter of Transmittal.
The Exchange Offer is not being made to, nor will exchanges be accepted from
or on behalf of, holders of Old Notes residing in any jurisdiction in which
the making of the Exchange Offer or acceptance thereof would not be in
compliance with the laws of such jurisdiction.
If you wish us to exchange any or all of your Old Notes held by us for your
account or benefit, please so instruct us by completing, executing and
returning to us the instruction form that appears below.
<PAGE>
THE ACCOMPANYING LETTER OF TRANSMITTAL IS FURNISHED TO YOU FOR INFORMATIONAL
PURPOSES ONLY AND MAY NOT BE USED BY YOU TO EXCHANGE OLD NOTES HELD BY US AND
REGISTERED IN YOUR NAME FOR YOUR ACCOUNT OR BENEFIT.
INSTRUCTIONS
The undersigned acknowledge(s) receipt of your letter and the enclosed
material referred to therein relating to the Exchange Offer of FaciliCom
International, Inc.
This will instruct you to exchange the aggregate principal amount of Old
Notes indicated below (or, if no aggregate principal amount is indicated
below, all Old Notes) held by you for the account or benefit of the
undersigned, pursuant to the terms of and conditions set forth in the
Prospectus and the Letter of Transmittal.
Aggregate Principal Amount of Old Notes to be exchanged
$ *
* I (WE) UNDERSTAND THAT IF I (WE) SIGN THESE INSTRUCTION FORMS WITHOUT
INDICATING AN AGGREGATE PRINCIPAL AMOUNT OF OLD NOTES IN THE SPACE ABOVE, ALL
OLD NOTES HELD BY YOU FOR MY (OUR) ACCOUNT WILL BE EXCHANGED.
____________________________________________________
____________________________________________________
____________________________________________________
(PLEASE PRINT NAME(S) AND ADDRESS HERE)
____________________________________________________
____________________________________________________
____________________________________________________
DATED: _____________________________________________
(AREA CODE AND TELEPHONE NUMBER)
____________________________________________________
(TAXPAYER IDENTIFICATION OR SOCIAL SECURITY NUMBER)
____________________________________________________
* UNLESS OTHERWISE INDICATED, IT WILL BE ASSUMED THAT ALL OF YOUR OLD NOTES
ARE TO BE EXCHANGED.
<PAGE>
EXHIBIT 99.5
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE
PAYER.-- Social Security numbers have nine digits separated by two hyphens:
i.e. 000-00-0000. Employer identification numbers have nine digits separated by
only one hyphen: i.e. 00-0000000. The table below will help determine the
number to give the payer.
- ------------------------------------------------
GIVE THE
SOCIAL SECURITY
FOR THIS TYPE OF ACCOUNT: NUMBER OF--
- ------------------------------------------------
1. An Individual The individual's
account
2. Two or more individuals The actual owner
(joint account) of the account
or, if combined
funds, any one
of the
individuals(1)
3. Husband and wife (joint The actual owner
account) of the account
or, if joint
funds, either
person(1)
4. Custodian account of a The minor(2)
minor (Uniform Gift to
Minors Act)
5. Adult and minor (joint The adult or, if
account) the minor is the
only
contributor, the
minor(1)
6. Account in the name of The ward, minor,
guardian or
committee for a
or incompetent
designated ward,
minor, or
person(3)
incompetent
person
7.a.The usual revocable The grantor-
savings trust account trustee(1)
(grantor is also
trustee)
b.So-called trust account The actual
that is not a legal or owner(1)
valid trust under State
law
8. Sole proprietorship The owner(4)
account
- ------------------------------------------------
- ------------------------------------------------
GIVE THE EMPLOYER
IDENTIFICATION
FOR THIS TYPE OF ACCOUNT: NUMBER OF--
- ------------------------------------------------
9. A valid trust, estate, The legal entity
or pension trust (Do not furnish
the identifying
number of the
personal
representative
or trustee
unless the legal
entity itself is
not designated
in the account
title.)(5)
10. Corporate account The corporation
11. Religious, charitable, The organization
or educational
organization account
12. Partnership account The partnership
held in the name of the
business
13. Association, club, or The organization
other tax-exempt
organization
14. A broker or registered The broker or
nominee nominee
15. Account with the The public
Department of entity in the
Agriculture name of public
entity (such as
a State or local
a government,
school district,
or prison) that
receives
agricultural
program payments
- -----------------------------------------------
(1) List first and circle the name of the person whose number you furnish.
(2) Circle the minor's name and furnish the minor's social security number.
(3) Circle the ward's, minor's or incompetent person's name and furnish such
person's social security number.
(4) Show the name of the owner.
(5) List first and circle the name of the legal trust, estate, or pension
trust.
NOTE: If no name is circled when there is more than one name, the number will
be considered to be that of the first name listed.
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
PAGE 2
OBTAINING A NUMBER
If you don't have a taxpayer identification number or you don't know your
number, obtain Form SS-5, Application for a Social Security Number Card, or
Form SS-4, Application for Employer Identification Number, at the local office
of the Social Security Administration or the Internal Revenue Service and
apply for a number.
PAYEES EXEMPT FROM BACKUP WITHHOLDING
Payees specifically exempted from backup withholding on ALL payments include
the following:
. A corporation.
. A financial institution.
. An organization exempt from tax under section 501(a), or an individual
retirement plan.
. The United States or any agency or instrumentality thereof.
. A State, the District of Columbia, a possession of the United States, or
any subdivision or instrumentality thereof.
. A foreign government, a political subdivision of a foreign government, or
any agency or instrumentality thereof.
. An international organization or any agency, or instrumentality thereof.
. A registered dealer in securities or commodities registered in the U.S. or
a possession of the U.S.
. A real estate investment trust.
. A common trust fund operated by a bank under section 584(a).
. An exempt charitable remainder trust, or a non-exempt trust described in
section 4947(a)(1).
. An entity registered at all times under the investment Company Act of
1940.
. A foreign central bank of issue.
Payments of dividends and patronage dividends not generally subject to backup
withholding include the following:
. Payments to nonresident aliens subject to withholding under section 1441.
. Payments to partnerships not engaged in a trade or business in the U.S.
and which have at least one nonresident partner.
. Payments of patronage dividends where the amount received is not paid in
money.
. Payments made by certain foreign organizations.
. Payments made to a nominee.
Payments of interest not generally subject to backup withholding include the
following:
. Payments of interest on obligations issued by individuals. Note: You may
be subject to backup withholding if this interest is $600 or more and is
paid in the course of the payer's trade or business and you have not
provided your correct taxpayer identification number to the payer.
. Payments of tax-exempt interest (including exempt-interest dividends under
section 852).
. Payments described in section 6049(b)(5) to nonresident aliens.
. Payments on tax-free covenant bonds under section 1451.
. Payments made by certain foreign organizations.
. Payments made to a nominee.
Exempt payees described above should file Form W-9 to avoid possible erroneous
backup withholding. FILE THIS FORM WITH THE PAYER, FURNISH YOUR TAXPAYER
IDENTIFICATION NUMBER, WRITE "EXEMPT" ON THE FACE OF THE FORM, AND RETURN IT
TO THE PAYER. IF THE PAYMENTS ARE INTEREST, DIVIDENDS, OR PATRONAGE DIVIDENDS,
ALSO SIGN AND DATE THE FORM.
Certain payments other than interest dividends, and patronage dividends, that
are not subject to information reporting are also not subject to backup
withholding. For details, see the regulations under sections 6041, 6041A(a),
6045, and 6050A.
PRIVACY ACT NOTICE.--Section 6109 requires most recipients of dividend,
interest, or other payments to give taxpayer identification numbers to payers
who must report the payments to IRS. IRS uses the numbers for identification
purposes. Payers must be given the numbers whether or not recipients are
required to file tax returns. Beginning January 1, 1984, payers must generally
withhold 31% of taxable interest, dividend, and certain other payments to a
payee who does not furnish a taxpayer identification number to a payer.
Certain penalties may also apply.
PENALTIES
(1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER.--If you
fail to furnish your taxpayer identification number to a payer, you are
subject to a penalty of $50 for each such failure unless your failure is due
to reasonable cause and not to willful neglect.
(2) FAILURE TO REPORT CERTAIN DIVIDEND AND INTEREST PAYMENTS.--If you fail to
include any portion of an includible payment for interest, dividends, or
patronage dividends in gross income, such failure will be treated as being due
to negligence and will be subject to a penalty of 5% on any portion of an
under-payment attributable to that failure unless there is clear and
convincing evidence to the contrary.
(3) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING.--If you
make a false statement with no reasonable basis which results in no imposition
of backup withholding, you are subject to a penalty of $500.
(4) CRIMINAL PENALTY FOR FALSIFYING INFORMATION.--Falsifying certifications or
affirmations may subject you to criminal penalties including fines and/or
imprisonment.
FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL REVENUE
SERVICE.
