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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO .
COMMISSION FILE NUMBER: 0-24509
ALLEGIANCE TELECOM, INC.
(Exact name of registrant as specified in its charter)
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DELAWARE 75-2721491
(State of Incorporation) (IRS Employer Identification No.)
1950 STEMMONS FREEWAY SUITE 3026 75207
DALLAS, TEXAS (Zip Code)
(Address of Principal Executive Offices)
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(Registrant's Telephone Number, Including Area Code)(214) 261-7100
Securities Registered Pursuant to Section 12(b) of the Act: NONE
Securities Registered Pursuant to Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $.01, QUOTED ON
THE NASDAQ NATIONAL MARKET
Indicate by check mark whether Allegiance (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that it was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Allegiance's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
Based on the average of the bid and asked prices on the Nasdaq National
Market on March 24, 2000 of $87.281, the aggregate market value of our voting
stock held by non-affiliates on such date was approximately $7,131,158,383.
Shares of common stock held by directors and certain executive officers and by
each person who owns or may be deemed to own 10% or more of our outstanding
common stock have been excluded, since such persons may be deemed to be
affiliates. This determination of affiliate status is not necessarily a
conclusive determination for other purposes. As of March 24, 2000, Allegiance
Telecom, Inc. had 108,100,404 shares of common stock issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
- - Portions of Allegiance's annual report to stockholders for fiscal year ended
December 31, 1999 are incorporated by reference into Parts II and IV of this
report. This annual report shall be deemed "filed" with the SEC only with
respect to those portions specifically incorporated by reference in this
report.
- - Portions of Allegiance's definitive proxy statement for the annual meeting of
stockholders for the fiscal year ended December 31, 1999, which will be filed
with the SEC within 120 days after the end of the fiscal year to which this
annual report relates, are incorporated by reference into Part III of this
report.
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TABLE OF CONTENTS
TO
ALLEGIANCE TELECOM, INC.'S ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDING DECEMBER 31, 1999
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RECENT DEVELOPMENTS..................................................... 1
PART I.................................................................. 1
Item 1. Business.................................................... 1
Item 2. Properties.................................................. 25
Item 3. Legal Proceedings........................................... 25
Item 4. Submission of Matters to a Vote of Security Holders......... 25
Item 4A. Executive Officers of Allegiance............................ 26
PART II................................................................. 29
Item 5. Market for Allegiance's Common Stock and Related Stockholder
Matters..................................................... 29
Item 6. Selected Financial Data..................................... 29
Item 7. Management's Discussion & Analysis of Financial Condition &
Results of Operations....................................... 29
Item 7A. Quantitative and Qualitative Disclosures About Market
Risk........................................................ 29
Item 8. Consolidated Financial Statements and Supplementary Data.... 30
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 30
PART III................................................................ 30
Item 10. Directors and Executive Officers of Allegiance.............. 30
Item 11. Executive Compensation...................................... 30
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 30
Item 13. Certain Relationships and Related Transactions.............. 30
PART IV................................................................. 30
Item 14. Exhibits, Financial Statement Schedules and Reports on Form
8-K......................................................... 30
Index to Exhibits....................................................... E-1
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RECENT DEVELOPMENTS
Allegiance declared a 3-for-2 stock split, in the form of a 50% stock
dividend, to record holders as of February 18, 2000. The payment date of this
stock dividend was February 28, 2000. The share numbers and stock price numbers
in this annual report on Form 10-K have been adjusted to reflect this stock
split.
Allegiance sold 9,900,000 shares of common stock in an underwritten
offering at a price of $70 per share on January 27, 2000. On that date, certain
of Allegiance's stockholders sold an additional 5,100,000 shares of common stock
in the offering at a price of $70 per share. On February 29, 2000, the
underwriters exercised their option to purchase an additional 803,109 shares of
common stock, at a price of $70 per share. Goldman, Sachs & Co., Salomon Smith
Barney Inc., and Bear, Stearns & Co. Inc., were representatives of the several
underwriters in this transaction.
Allegiance closed its senior secured credit facilities with a syndicate of
lenders led by Goldman Sachs Credit Partners L.P., Toronto Dominion (Texas)
Inc., BankBoston, N.A. and Morgan Stanley Senior Funding, Inc. on February 15,
2000. The banks have committed $500 million under these facilities, subject to
the satisfaction of certain terms and conditions, for general corporate purposes
including working capital financing and to provide purchase money financing for
the cost of design, development, acquisition, construction, installation,
improvement, transportation or integration of equipment, inventory and network
assets. The credit facilities consist of a seven-year $350 million revolving
credit facility and a $150 million delayed draw term loan facility, which $150
million must be drawn within 24 months of closing. These facilities will mature
on December 31, 2006. The borrower under the new credit facilities is Allegiance
Telecom Company Worldwide, a wholly-owned subsidiary of Allegiance Telecom, Inc.
The lenders are secured by a first priority security interest in substantially
all of the assets of Allegiance's subsidiaries, including the capital stock and
assets of the borrower and all of its subsidiaries. Drawn pricing on the new
credit facilities will be tied to leverage and is initially expected to be
London Interbank Offered Rate + 3.25%. The commitment fee on the unused portion
will be 1.50% and will step down based on utilization.
PART I
ITEM 1. BUSINESS
OVERVIEW
Allegiance is a leading competitive provider of telecommunications services
to small and medium-sized business, government and other institutional users in
major metropolitan areas across the United States. We offer an integrated set of
telecommunications services including local exchange, local access, domestic and
international long distance, enhanced voice, data and a full suite of Internet
services. We were operating in the following 19 markets as of December 31, 1999:
Atlanta, Baltimore, Boston, Chicago, Dallas, Detroit, Fort Worth, Houston, Long
Island, Los Angeles, New York, Northern New Jersey, Oakland, Orange County,
Philadelphia, San Diego, San Francisco, San Jose and Washington, D.C.
Allegiance was founded in April 1997 by a management team led by Royce J.
Holland, the former President, Chief Operating Officer and co-founder of MFS
Communications, and Thomas M. Lord, a former Managing Director of Bear, Stearns
& Co. Inc., where he specialized in the telecommunications, information services
and technology industries.
Allegiance believes that the Telecommunications Act, by opening the local
exchange market to competition, has created an attractive opportunity for
facilities-based competitive local exchange carriers like Allegiance that were
created after the enactment of this legislation and specifically designed to
take advantage of the opportunity it created. Most importantly, the
Telecommunications Act stated that competitive local exchange carriers, known as
CLECs, should be able to lease the various elements of the incumbent local
exchange carrier's ("ILEC") networks, which are necessary for the cost-effective
provision of service. This aspect of the Telecommunications Act, which is
referred to as "unbundling" the ILEC networks, has enabled Allegiance to deploy
digital switches with local and long distance capability, and lease copper wires
and fiber optic lines from the ILECs, other CLECs, and other telecommunications
companies, so that Allegiance can
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directly serve its customers. Once traffic volume growth justifies further
capital investment, Allegiance leases dark fiber or otherwise acquires its own
fiber network.
Allegiance has developed procedures, together with its back office systems
vendors, including MetaSolv, DSET and Lucent, that it believes will provide it
with a competitive advantage in terms of reducing costs, processing large order
volumes and providing customer service. Back office systems enable a phone
company to enter, schedule and track a customer's order from the point of sale
to the installation and testing of service. These systems also include or
interface with trouble management, inventory, billing, collection and customer
service systems.
Allegiance is determined to achieve electronic bonding, the on-line and
real-time connection of Allegiance's operations support systems with those of
the ILECs, with each of the incumbent telecommunications companies in most of
its markets by the end of 2000. Allegiance has electronically bonded with Bell
Atlantic in New York City, Boston and Long Island and with Southwestern Bell in
Dallas, Fort Worth and Houston. Testing with SBC Communications and Pacific Bell
in California was completed during the third quarter 1999 on the electronic data
interface which is now in use there. Local service requests for Allegiance's
Texas and California markets are now processed electronically with SBC
Communications. We have recently completed electronic bonding testing with
Ameritech, and currently we are processing data for local service requests
electronically with Ameritech. This electronic interface allows Allegiance to
create service requests on-line, leading to faster installations of customer
orders through a reduction in errors associated with multiple manual inputs.
Allegiance expects electronic bonding to improve productivity by decreasing the
period between the time of sale and the time a customer's line is installed in
the Allegiance network. In addition, Allegiance expects that the simplified
process will reduce selling, general and administrative costs.
Allegiance intends to continue network deployment of its 36 target markets.
With a strategy focusing on the central business districts and suburban
commercial districts in these areas, Allegiance plans to address a majority of
the non-residential access lines in most of its targeted markets.
ALLEGIANCE'S TELECOMMUNICATIONS SERVICES
Allegiance tailors its service offerings to meet the specific needs of the
business, government, and other institutional customers in its target markets.
Management believes that Allegiance's close contact with customers from its
direct sales force and customer care personnel enable Allegiance to tailor its
service offerings to meet customers' needs and to creatively package its
services to provide "one-stop shopping" solutions for those customers.
Local Exchange Services. Allegiance offers local telephone services,
including local dial tone as well as other features such as:
- call forwarding;
- call waiting;
- caller number identification and/or calling name identification;
- call transfer;
- distinctive ringing;
- station-to-station four-digit dialing without a private branch exchange;
and
- voice mail.
By offering dial tone service, Allegiance also receives originating and
terminating access charges for interexchange calls placed or received by its
subscribers. Allegiance offers local voice services over unbundled local loops
as well as high capacity lines such as T-1 connections. Allegiance also combines
voice and data offerings over T-1 and digital subscriber line connections.
Allegiance believes that digital subscriber line technology offers an attractive
opportunity for offering local voice services at lower costs and higher gross
profit margins.
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High Speed Data Services and Other Internet Services. Allegiance offers
high speed data transmission services, such as:
- wide area network interconnection, which are remote computer
communications systems that allow file sharing among geographically
distributed workgroups; wide area networks typically use links provided
by local telephone companies; and
- broadband Internet access, also known as "wideband," which allows large
quantities of data to be transmitted simultaneously.
These services may be provided via frame relay and dedicated point-to-point
connections. In order to provide these services, Allegiance leases high capacity
connections, such as multiple DS-1, DS-3, T1 or T3 connections, to medium- and
large-sized business, government and other institutional customers. In 1999,
Allegiance rolled out digital subscriber line ("DSL") services to its customers.
DSL allows high-speed digital connectivity over traditional copper telephone
lines and thereby provides an economic alternative to high-speed cable, T1 and
integrated service digital networks. Allegiance is now offering symmetric (equal
download and upload speeds) DSL service, facilitating the convergence of the
customer's voice, high-speed data and Internet traffic on one unbundled loop.
Allegiance has deployed DSL equipment to over 100 total collocations in central
offices throughout its operational markets. Allegiance has also deployed
asymmetric DSL equipment to collocations in Chicago, New York, Philadelphia and
Washington, D.C. Also, during the third quarter of 1999, Allegiance deployed
what we believe to be the industry's first commercial HDSL2 circuit, a new
standard of high-bit-rate digital subscriber line. HDSL2 allows the equivalent
of 1.544 megabits T1 service over a single copper wire pair rather than the two
unbundled loops required under older high-bit rate digital subscriber line
standards.
Many of Allegiance's current and future target small and medium-sized
business customers do not use data or Internet access services in their
businesses. It is expected that small and medium-sized businesses will
increasingly find the need to use these services as e-commerce and other
Internet-based products develop. To facilitate this expected trend and to assist
its customers in taking advantage of the opportunities offered by e-commerce and
related Internet developments, on December 16, 1999, Allegiance formally
announced an alliance with Go2Net, Inc. to jointly develop a customized Internet
portal and a customized small business resource center for Allegiance customers.
The customized Internet portal is designed to offer Allegiance customers
communications (calendar, e-mail, contacts, instant messenger), general
resources (search, weather/maps, yellow pages, knowledge links), community
access (forums, discussion database), current information (news, stock
portfolio) and customer care (link to Allegiance's customer support). The
Allegiance customized small business resource center, which will be made
available through the customized portal, will allow Allegiance customers to gain
direct access to many resources that serve this segment of the business market,
including office supplies, information about incorporating, trademark
registration, chambers of commerce, communications services, financial services
and government agencies. The Allegiance customized small business resource
center will also connect customers to transaction services, such as real-time
credit card processing, on-line payroll and on-line educational courses.
Allegiance is independently working on expanding its Internet-based service
offering to include a web-based platform for software applications hosting.
Allegiance expects this aspect of its Internet initiative to provide its typical
small and medium-sized business customer with software applications at a more
affordable price.
Interexchange/Long Distance Services. Allegiance offers a full range of
domestic and international long distance services. These services include "1+"
outbound calling, inbound toll free service and such complementary services as
calling cards, operator assistance and conference calling.
Web Hosting Services. During 1999, Allegiance started offering Web site
hosting on its own computer servers to provide customers with a complete, easy
to use turnkey solution that gives them a presence on the World Wide Web.
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Wholesale Services to Internet Service Providers. Allegiance believes that
with the recent growth in demand for Internet services, numerous Internet
service providers are unable to obtain network capacity rapidly enough to meet
customer demand and eliminate network congestion problems. Allegiance
supplements its core customer product offerings by providing a full array of
local services to Internet service providers, including telephone numbers,
managed modem switch ports and switched and dedicated access to the Internet.
SALES AND CUSTOMER SUPPORT
Allegiance offers an integrated package of local exchange, local access,
domestic and international long distance, enhanced voice, data, and a full suite
of Internet services to small and medium-sized businesses. Unlike large
corporate, government, or other institutional users, small and medium-sized
businesses often have no in-house telecommunications manager. Based on
management's previous experience, Allegiance believes that a direct sales and
customer care program focusing on complete, "one-stop shopping" solutions will
have a competitive advantage in capturing this type of customer's total
telecommunications traffic.
Although the vast majority of Allegiance's sales force is focused primarily
on the small and medium-sized business segment, Allegiance also provides
services to, and receives a material portion of its revenue from, large
business, government, and other institutional users, as well as Internet service
providers. Therefore, Allegiance has organized its sales and customer care
organizations to serve each of these three market segments. Sales and marketing
approaches in the telecommunications market are market-segment specific, and
Allegiance believes the following are the most effective approaches with respect
to its three targeted market segments:
- Small and medium-sized businesses -- Allegiance uses direct sales with
sales forces based locally in each target market and plans to offer its
customized Internet portal and small business resource center to
facilitate Internet access sales to this market;
- National accounts, government, and other institutional
users -- Allegiance uses account teams, established business
relationships and applications sales; and
- Wholesale carriers, primarily Internet service providers -- Allegiance
uses direct sales, established business relationships, competitive
pricing and integrated services.
Allegiance organizes account executives into teams of eight persons with a
team manager and a sales support specialist for each market. These teams utilize
telemarketing to "qualify" leads and set up initial appointments. Allegiance
closely manages the number of sales calls that account executives make per week,
with the goal of eventually calling on every prospective business customer in an
account executive's sales territory. Allegiance uses commission plans and
incentive programs to reward and retain the top performers and encourage strong
customer relationships. The sales team managers for each market report to a city
sales vice president who in turn reports to a regional vice president.
Allegiance's national account teams focus on multi-location, national
companies. Through consultative selling, Allegiance is able to offer these
companies one-stop shopping by leveraging the Allegiance nationwide network
footprint. Allegiance's national account managers report to national account
directors, who in turn report to national account division vice presidents.
Allegiance's wholesale sales to Internet service providers are performed by
regional sales managers reporting to the director of wholesale accounts, who in
turn reports to the vice president of wholesale accounts. The vice president of
wholesale accounts also has responsibility for government and other
institutional accounts. Unlike the small and medium-sized business segment, the
wholesale account program is being built by recruiting experienced account
managers. The wholesale account program is supported by pre-sales engineers,
program managers and service coordinators, who proactively manage the account
before and after the sale.
Allegiance has focused its efforts on developing a personalized customer
care program. Allegiance's customer service representatives are available seven
days a week, 24 hours a day. In addition, Allegiance has
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separate customer care specialists to support its national accounts. Allegiance
monitors and seeks to continuously reduce the time to answer each call into its
customer care department. All customer service issues are tracked and escalated
to appropriate network personnel through software interfaces as well as personal
management of each issue by an Allegiance customer care representative.
INFORMATION SYSTEMS AND ORDER PROVISIONING
Allegiance is continuing to develop its customized information systems and
procedures for operations support and other back office systems that it believes
will provide a significant competitive advantage in terms of cost, processing
large order volumes and customer service. Allegiance believes that the ability
to successfully manage the process of converting customers from ILEC and other
networks to the Allegiance network, especially with respect to local loops
leased from ILECs, is one of the key functions required to succeed as a
competitive local exchange carrier. As a result, Allegiance has devoted
significant resources to this aspect of its operations and continues to develop
its information systems to facilitate this function. These systems are required
to enter, schedule, provision, and track a customer's order from the point of
sale to the installation and testing of service and also include or interface
with trouble management, inventory, billing, collection and customer service
systems. The existing systems currently employed by most ILECs, CLECs and long
distance carriers, which were developed prior to the passage of the
Telecommunications Act, generally require multiple entries of customer
information to accomplish order management, provisioning, switch administration
and billing. This process is not only labor intensive, but it creates numerous
opportunities for errors in provisioning service and billing, delays in
installing orders, service interruptions, poor customer service, increased
customer turnover, and significant added expenses due to duplicated efforts and
decreased customer satisfaction.
Allegiance believes that the practical problems and costs of upgrading
existing systems are often prohibitive for companies whose existing systems
support a large number of customers with ongoing service. Because Allegiance
does not have systems designed prior to the expanded interaction between CLECs
and ILECs introduced by the Telecommunications Act, Allegiance's team of
engineering and information technology professionals experienced in the CLEC
industry is free to develop operations support and other back office systems
designed to facilitate a smooth, efficient order management, provisioning,
trouble management, billing and collection and customer care process.
Order Management. Allegiance has used MetaSolv's order management software
to develop processes that allow the sales team not only to enter customer orders
onsite, via computer and/or over the Internet, but also to monitor the status of
an order as it progresses through the service initiation process.
Provisioning Management. The licensed order management software, together
with the proprietary processes developed by Allegiance to optimize the
usefulness of this software, supports the design and management of the process
by which Allegiance converts a customer to the Allegiance network from the local
exchange network of an ILEC or other carrier, including circuit design and work
flow management. The system has been designed to permit programming into the
system of a standard schedule of tasks that must be accomplished to initiate
service to a customer, as well as the standard time intervals during which each
such task must be completed. This way, when a standard order is selected in the
system, each required task in the service initiation process can be efficiently
managed to its assigned time interval.
External Interfaces. Several external interfaces are required to initiate
service for a customer. While some of these are automated via gateways from the
order management software, the most important interfaces, those to the ILEC,
have generally been accomplished via fax or e-mail. In an effort to make this
process more efficient, Allegiance and Bell Atlantic announced on January 8,
1999, the first implementation of electronic bonding between the operations
support system of a facilities-based CLEC and an ILEC. Without electronic
bonding, confirmation of receipt and installation of orders has taken from two
business days to one month. Electronic bonding is expected to improve
productivity by decreasing the period between the time of sale and the time a
customer's line is installed. Allegiance has electronically bonded with Bell
Atlantic in New York City, Boston and Long Island and with Southwestern Bell in
Dallas, Fort Worth and Houston. Testing with SBC Communications and Pacific Bell
in California was completed during the third quarter 1999
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on the electronic data interface which is now in use there. Local service
requests for Allegiance's Texas and California markets are now processed
electronically with SBC Communications. We have recently completed electronic
bonding testing with Ameritech, and currently we are processing data for local
service requests electronically with Ameritech. In all of these markets, we are
also working towards the electronic bonding of that portion of the billing
process in which we gather customer specific information, including their
current service options, and the process of identifying and resolving customer
service problems.
Electronic bonding allows Allegiance to access data from the ILEC, submit
service requests electronically, and more quickly attend to errors in the local
service request form because an order is bounced back immediately if the ILEC
determines that there is a mistake. As a result, Allegiance expects to be able
to eventually reduce the time frame required to switch service to Allegiance
from approximately 25 business days to as low as five business days, as compared
to three days currently required to switch to a new long distance carrier.
Electronic bonding should also enable Allegiance to improve its ability to
provide better customer care since Allegiance will more readily be able to
pinpoint where any problems may have occurred with a customer's order.
Network Element Administration. Allegiance has automated each element of
its network. Allegiance continues to develop an interface between its order
management system and the network element manager to integrate data integrity
and eliminate redundant data entry.
Customer Billing. Allegiance has selected a billing service provider that
credits the collections made from Allegiance's lock-box. Customer information is
electronically interfaced with this provider from Allegiance's order management
system via a gateway, thereby integrating all repositories of information. We
are continuing to develop other enhancements to the gateway.
Billing Records. Local and intraLATA billing records are generated by our
Lucent Series 5ESS(R)-2000 switches to record customer calling activity. The
long distance carrier with whom Allegiance has a resale agreement generates
InterLATA billing records for Allegiance so that it can record customer calling
activity. The billing service provider will automatically process these records
in order to calculate and produce bills in a customer-specified billing format.
NETWORK DEPLOYMENT AND TRAFFIC MANAGEMENT
As of December 31, 1999, we were operating in 19 markets: Atlanta,
Baltimore, Boston, Chicago, Dallas, Detroit, Fort Worth, Houston, Long Island,
Los Angeles, New York, Northern New Jersey, Oakland, Orange County,
Philadelphia, San Diego, San Francisco, San Jose and Washington, D.C.
The following table sets forth the markets targeted by Allegiance and the
current buildout schedule. The order and timing of network deployment may vary
and will depend on a number of factors, including recruiting city management,
the regulatory environment, Allegiance's results of operations and the existence
of specific market opportunities, such as acquisitions. Allegiance may also
elect not to deploy networks in each such market. Those markets designated for
deployment in 2001 are preliminary and one or more of these may be replaced by
other comparable markets.
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ESTIMATED TOTAL % OF TOTAL U.S.
NON-RESIDENTIAL NON-RESIDENTIAL INITIAL FACILITIES BASED
MARKET ACCESS LINES(1) ACCESS LINES(2) SERVICE DATE(3)
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(IN THOUSANDS)
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New York City........................ 3,298(4) 6.7%(4) March 1998
Dallas, TX........................... 867(5) 1.8%(5) April 1998
Atlanta, GA.......................... 612 1.2% April 1998
Fort Worth, TX....................... --(5) --(5) July 1998
Chicago, IL.......................... 1,951 4.0% September 1998
Los Angeles, CA...................... 3,430(6) 7.0%(6) October 1998
San Francisco, CA.................... 2,148(7) 4.4%(7) November 1998
Boston, MA........................... 649 1.3% December 1998
Oakland, CA.......................... --(7) --(7) December 1998
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ESTIMATED TOTAL % OF TOTAL U.S.
NON-RESIDENTIAL NON-RESIDENTIAL INITIAL FACILITIES BASED
MARKET ACCESS LINES(1) ACCESS LINES(2) SERVICE DATE(3)
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(IN THOUSANDS)
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Philadelphia, PA..................... 1,754 3.6% February 1999
Washington, D.C...................... 871 1.8% March 1999
San Jose, CA......................... --(7) --(7) March 1999
Houston, TX.......................... 765 1.6% April 1999
Northern New Jersey.................. --(4) --(4) May 1999
San Diego, CA........................ 790 1.6% July 1999
Long Island, NY...................... --(4) --(4) August 1999
Orange County, CA.................... --(6) --(6) September 1999
Baltimore, MD........................ 639 1.3% October 1999
Detroit, MI.......................... 821 1.7% November 1999
Denver, CO........................... 632 1.3% February 2000
St. Louis, MO........................ 449 0.9% March 2000
Seattle, WA.......................... 779 1.6% May 2000
Cleveland, OH........................ 654 1.3% May 2000
Miami, FL............................ 769 1.6% First Half 2000
Phoenix, AZ.......................... 466 1.0% Second Half 2000
Minneapolis/St. Paul, MN............. 562 1.1% Second Half 2000
Tampa/St. Petersburg, FL............. 435 0.9% Second Half 2000
Pittsburgh, PA(8).................... 512 1.0% 2001
Sacramento, CA(8).................... 449 0.9% 2001
Portland, OR(8)...................... 408 0.8% 2001
Cincinnati, OH(8).................... 381 0.8% 2001
Orlando, FL(8)....................... 367 0.7% 2001
Milwaukee, WI(8)..................... 355 0.7% 2001
Charlotte/Gastonia, NC(8)............ 327 0.7% 2001
Indianapolis, IN(8).................. 292 0.6% 2001
San Antonio, TX(8)................... 272 0.6% 2001
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Total...................... 26,704 54.5%
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(1) Data as of December 31, 1996.
(2) Based on an estimated 49.0 million U.S. non-residential access lines as of
December 31, 1996.
(3) Refers to the first month during which Allegiance could offer
facilities-based service or the year during which Allegiance expects to be
able to offer facilities-based service based on its expanded business plan.
(4) Data for New York City also includes Northern New Jersey and Long Island,
NY.
(5) Data for Dallas, TX also includes Fort Worth, TX.
(6) Data for Los Angeles, CA also includes Orange County, CA.
(7) Data for San Francisco, CA also includes San Jose, CA and Oakland, CA.
(8) Represents markets currently under evaluation for 2001. There can be no
assurance that we will actually initiate services in these markets; we may
select alternative markets.
In the majority of its targeted markets, Allegiance initially deploys
switches and collocates transmission equipment in ILEC central offices with
heavy concentrations of non-residential access lines. Over time, Allegiance
plans to expand its networks throughout the metropolitan areas to address the
majority of the business market in each area. In some markets, such as Northern
New Jersey, Allegiance does not initially deploy its own switch, but deploys
transmission equipment in major central offices and routes traffic to an
existing Allegiance switch until traffic growth warrants the addition of a
switch to service that market. Given
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current traffic growth, Allegiance plans to deploy additional switches in 2000
in the following existing Allegiance markets: Northern New Jersey, Orange County
and San Jose.
After the initial implementation activities are completed in a market,
Allegiance follows an ongoing capacity management plan to ensure that adequate
quantities of network facilities, such as interconnection trunks are in place,
and a contingency plan must be devised to address spikes in demand caused by
events such as a larger-than-expected customer sale in a relatively small
geographic area.
NETWORK ARCHITECTURE
An important element of Allegiance's smart build strategy is the
installation of Lucent Series 5ESS(R)-2000 digital switches and related
equipment at a central location in each market. As of December 31, 1999,
Allegiance had deployed 15 switches to serve nineteen markets. The switches are
located in: Dallas (two switches), New York City (two switches), Atlanta,
Baltimore, Boston, Chicago, Detroit, Houston, Los Angeles, Philadelphia, San
Diego, San Francisco and Washington, D.C. The Allegiance nationwide network is
controlled and monitored by a state of the art network operations control center
located in Dallas. Locally based switch engineers and technicians also manage
each switch.
Allegiance generally leases local network trunking facilities from the ILEC
and/or one or more CLECs in order to connect Allegiance's switch to major ILEC
central offices serving the central business district and outlying areas of
business concentrations in each market. The switch is also connected to ILEC
tandem switches and certain interexchange carrier points-of-presence, the
equivalent of a local phone company's central office. To access the largest
number of customers possible without having to lay fiber to each of their
premises, Allegiance locates access equipment such as integrated digital loop
carriers and related equipment in each of the ILEC central offices in which it
is connected.
As each customer is signed up, service is provided by leasing unbundled
loops from the ILEC to connect Allegiance's integrated digital loop carriers
located in the serving central office to the customer premise equipment. For
large business, government, or other institutional customers or for numerous
customers located in large buildings, it can be more cost-effective for
Allegiance to use leased ILEC or CLEC capacity in the 1.5 to 150 megabit range,
or a wireless local loop leased from one of the emerging wireless CLECs, to
connect the customer(s) to the Allegiance network. In this case, Allegiance will
locate its integrated digital loop carriers or other equipment in the customer's
building.
Although Allegiance initially leases its local network transmission
facilities from other carriers, Allegiance replaces leased capacity with fiber
optic facilities, such as dark fiber, as and when it experiences sufficient
traffic volume growth between its switch and specific ILEC central offices or as
other factors make these arrangements more attractive. Allegiance has already
implemented this next phase by operating on fiber rings obtained under long-term
leases from Metropolitan Fiber Networks, Inc. in Dallas, Houston and New York.
On January 3, 2000, Allegiance announced that it had entered into commitments to
obtain similar fiber rings in 16 additional markets. These fiber rings are
expected to provide Allegiance with a reliable diverse connection to most of its
central office collocations throughout a market.
IMPLEMENTATION OF SERVICES
To offer services in a market, Allegiance generally must secure
certification from the state regulator and typically must file tariffs or price
lists for the services that it will offer. The certification process varies from
state to state; however, the fundamental requirements are largely the same.
State regulators require new entrants to demonstrate that they have secured
adequate financial resources to establish and maintain good customer service.
New entrants must also show that they possess the knowledge and ability required
to establish and operate a telecommunications network. Allegiance has made such
demonstrations in California, Colorado, Florida, Georgia, Illinois, Maryland,
Massachusetts, Michigan, Missouri, New Jersey, New York, Pennsylvania, Texas,
Virginia, Washington, D.C., and Washington where Allegiance has obtained
certificates to provide local exchange and intrastate toll services. Allegiance
has similar applications pending in Arizona and Ohio.
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Before providing local service, a new entrant must negotiate and execute an
interconnection agreement with the ILEC. While such agreements can be voluminous
and may take months to negotiate, most of the key interconnection issues have
now been thoroughly addressed and commissions in most states have ruled on
arbitrations between the ILECs and new entrants. However, interconnection rates
and conditions may be subject to change as the result of future commission
actions or other changes in the regulatory environment. Under a United States
Supreme Court ruling, new entrants may adopt either all or portions of an
interconnection agreement already entered into by the ILEC and another carrier.
Such an approach is selectively adopted by Allegiance to enable it to enter
markets quickly while at the same time preserving its right to replace the
adopted agreement with a customized interconnection agreement that can be
negotiated once service has already been established.
While such interconnection agreements include key terms and prices for
interconnection, a significant joint implementation effort must be made with the
ILEC in order to establish operationally efficient and reliable traffic
interchange arrangements. Such interchange arrangements must include those
between the new entrant's network and the facilities of other service providers
as well as public service agencies. For example, Allegiance worked closely with
Southwestern Bell to devise and implement an efficient 911 call routing plan
that will meet the requirements of each individual 911 service bureau in
Southwestern Bell areas that Allegiance will serve using its own switches.
Allegiance meets with key personnel from 911 service bureaus to obtain their
acceptance and to establish dates for circuit establishment and joint testing.
Other examples of traffic interchange and interconnection arrangements utilizing
the ILEC's network include connectivity to its out-of-band signaling facilities,
interconnectivity to the ILEC's operator services and directory assistance
personnel, and access through the ILEC to the networks of wireless companies and
interexchange carriers.
Allegiance has entered into interconnection agreements with the ILECs in
each of the states in which its current geographic markets are located. In
Maryland, New Jersey, New York, Pennsylvania, Virginia and Washington, D.C.,
however, the original interconnection agreements have expired. Allegiance is
operating under the terms of these agreements while negotiating new
interconnection agreements.
REGULATION
Allegiance's telecommunications services business is subject to federal,
state and local regulation.
Federal Regulation
The FCC regulates interstate and international telecommunications services,
including the use of local telephone facilities to originate and terminate
interstate and international calls. Allegiance provides such services on a
common carrier basis. The FCC imposes certain regulations on common carriers
such as the ILECs that have some degree of market power. The FCC imposes less
regulation on common carriers without market power including, to date, CLECs
like Allegiance. The FCC requires common carriers to receive an authorization to
construct and operate telecommunications facilities, and to provide or resell
telecommunications services, between the United States and international points.
Under the Telecommunications Act, any entity, including cable television
companies and electric and gas utilities, may enter any telecommunications
market, subject to reasonable state regulation of safety, quality and consumer
protection. Because implementation of the Telecommunications Act is subject to
numerous federal and state policy rulemaking proceedings and judicial review
there is still uncertainty as to what impact such legislation will have on
Allegiance.
The Telecommunications Act is intended to increase competition. The Act
opens the local services market by requiring ILECs to permit interconnection to
their networks and establishing ILEC obligations with respect to:
Reciprocal Compensation. Requires all local exchange carriers to
complete calls originated by competing local exchange carriers under
reciprocal arrangements at prices based on tariffs or negotiated prices.
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Resale. Requires all ILECs and CLECs to permit resale of their
telecommunications services without unreasonable restrictions or
conditions. In addition, ILECs are required to offer wholesale versions of
all retail services to other telecommunications carriers for resale at
discounted rates, based on the costs avoided by the ILEC in the wholesale
offering.
Interconnection. Requires all ILECs and CLECs to permit their
competitors to interconnect with their facilities. Requires all ILECs to
permit interconnection at any technically feasible point within their
networks, on nondiscriminatory terms, at prices based on cost, which may
include a reasonable profit. At the option of the carrier seeking
interconnection, collocation of the requesting carrier's equipment in the
ILECs' premises must be offered, except where an ILEC can demonstrate space
limitations or other technical impediments to collocation.
Unbundled Access. Requires all ILECs to provide nondiscriminatory
access to unbundled network elements including, network facilities,
equipment, features, functions, and capabilities, at any technically
feasible point within their networks, on nondiscriminatory terms, at prices
based on cost, which may include a reasonable profit.
Number Portability. Requires all ILECs and CLECs to permit users of
telecommunications services to retain existing telephone numbers without
impairment of quality, reliability or convenience when switching from one
telecommunications carrier to another.
Dialing Parity. Requires all ILECs and CLECs to provide "1+" equal
access to competing providers of telephone exchange service and toll
service, and to provide nondiscriminatory access to telephone numbers,
operator services, directory assistance, and directory listing, with no
unreasonable dialing delays.
Access to Rights-of-Way. Requires all ILECs and CLECs to permit
competing carriers access to poles, ducts, conduits and rights-of-way at
regulated prices.
ILECs are required to negotiate in good faith with carriers requesting any
or all of the above arrangements. If the negotiating carriers cannot reach
agreement within a prescribed time, either carrier may request binding
arbitration of the disputed issues by the state regulatory commission. Where an
agreement has not been reached, ILECs remain subject to interconnection
obligations established by the FCC and state telecommunication regulatory
commissions.
In August 1996, the FCC released a decision establishing rules implementing
the ILEC interconnection obligations described above. On July 18, 1997, the
Eighth Circuit vacated certain portions of this decision and narrowly
interpreted the FCC's power to prescribe and enforce rules implementing the
Telecommunications Act. On January 25, 1999, the United States Supreme Court
reversed the Eighth Circuit decision and reaffirmed the FCC's broad authority to
issue rules implementing the Telecommunications Act, although it did vacate a
rule determining which network elements the incumbent local exchange carriers
must provide to competitors on an unbundled basis. On November 5, 1999, the FCC
issued revised rules that largely reaffirmed, and in some respects expanded, the
duty of incumbent carriers to offer unbundled network elements. These rules may
be subject to further court appeals, and we cannot predict the outcome of such
proceedings. Allegiance, however, leases only the basic unbundled network
elements from the ILEC and therefore does not expect reconsideration of the
unbundling rules to have an adverse effect on its smart build strategy.
On December 9, 1999, the FCC released an order requiring the incumbent
carriers to offer "line sharing" arrangements that will permit competitors like
Allegiance to offer DSL service over the same copper wires used by the incumbent
to provide voice service. The specific prices and terms of these arrangements
will be determined by future decisions of state utility commissions, and cannot
be predicted at this time. The FCC's ruling may also be challenged in court.
Allegiance expects, however, that this order, if implemented, will allow
Allegiance to offer DSL services at a lower cost than is now possible.
On March 17, 2000, the U.S. Court of Appeals for the District of Columbia
Circuit vacated certain FCC rules relating to collocation of competitors'
equipment in ILEC central offices. This decision requires the FCC
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to limit collocation to equipment that is "necessary" for interconnection with
the ILEC or access to the ILEC's unbundled network elements. Allegiance believes
that all of the equipment it currently places in collocation arrangements is
necessary for these purposes, and therefore its collocation arrangements should
not be adversely affected by the court decision. However, any disputes over the
"necessary" status of particular items of equipment may have to be resolved by
the FCC or by state commissions, and such disputes could adversely affect
Allegiance's collocation plans.
While these court and FCC proceedings were pending, Allegiance entered into
interconnection agreements with a number of ILECs through negotiations or, in
some cases, adoption of another CLEC's approved agreement. These agreements
remain in effect, although in some cases one or both parties may be entitled to
demand renegotiation of particular provisions based on intervening changes in
the law. However, it is uncertain whether Allegiance will be able to obtain
renewal of these agreements on favorable terms when they expire.
The Telecommunications Act codifies the ILECs' equal access and
nondiscrimination obligations and preempts inconsistent state regulation. The
Telecommunications Act also contains special provisions that replace prior
antitrust restrictions that prohibited the regional Bell operating companies
from providing long distance services and engaging in telecommunications
equipment manufacturing. The Telecommunications Act permits the regional Bell
operating companies to enter the out-of-region long distance market immediately
upon its enactment. Further, provisions of the Telecommunications Act permit a
regional Bell operating company to enter the long distance market in its
in-region states if it satisfies several procedural and substantive
requirements, including:
- obtaining FCC approval upon a showing that the regional Bell operating
company has entered into interconnection agreements or, under some
circumstances, has offered to enter into such agreements in those states
in which it seeks long distance relief;
- the interconnection agreements satisfy a 14-point "checklist" of
competitive requirements; and
- the FCC is satisfied that the regional Bell operating company's entry
into long distance markets is in the public interest.
The FCC recently granted approval to Bell Atlantic to provide in-region
long distance service in New York. In addition, SBC Communications has filed a
petition to offer such service in Texas. It is possible that other regional Bell
operating companies may petition and receive approval to offer long distance
services in one or more states. This may have an unfavorable effect on
Allegiance's business. Allegiance is legally able to offer its customers both
long distance and local exchange services, which the regional Bell operating
companies, other than Bell Atlantic in New York, currently may not do. This
ability to offer "one-stop shopping" gives Allegiance a marketing advantage that
it would no longer enjoy. See "-- Competition".
On May 8, 1997, the FCC released an order establishing a significantly
expanded federal universal service subsidy regime. For example, the FCC
established new subsidies for telecommunications and information services
provided to qualifying schools and libraries with an annual cap of $2.25 billion
and for services provided to rural health care providers with an annual cap of
$400 million, and expanded the federal subsidies for local exchange telephone
services provided to low-income consumers. The FCC more recently adopted rules
for subsidizing service provided to consumers in high cost areas, which may
result in further substantial increases in the overall cost of the subsidy
program. Providers of interstate telecommunications service, such as Allegiance
must pay for a portion of these programs. Allegiance's share of these federal
subsidy funds will be based on its share of certain defined interstate
telecommunications end user gross revenues. Currently, the FCC is assessing such
payments on the basis of a provider's revenue for the previous year.
Under authority granted by the FCC, Allegiance will resell the
international telecommunications services of other common carriers between the
United States and international points. In connection with such authority,
Allegiance's subsidiary, Allegiance Telecom International, Inc., has filed
tariffs with the FCC stating the rates, terms and conditions for its
international services.
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With respect to its domestic service offerings, various subsidiaries of
Allegiance have filed tariffs with the FCC stating the rates, terms and
conditions for their interstate services. Allegiance's tariffs are generally not
subject to pre-effective review by the FCC, and can be amended on one day's
notice. However, the FCC does have jurisdiction to require changes in these
tariffs. See "Risk Factors -- The Regulation of Access Charges Involves
Uncertainties, and the Resolution of These Uncertainties Could Adversely Affect
Our Business". Allegiance's interstate services are provided in competition with
interexchange carriers and, with respect to access services, the ILECs. With
limited exceptions, the current policy of the FCC for most interstate access
services dictates that ILECs charge all customers the same price for the same
service. Thus, the ILECs generally cannot lower prices to those customers likely
to contract for their services without also lowering charges for the same
service to all customers in the same geographic area, including those whose
telecommunications requirements would not justify the use of such lower prices.
The FCC has, however, adopted rules that significantly lessen the regulation of
ILECs that are subject to competition in their service areas and provide such
ILECs with additional flexibility in pricing some interstate switched and
special access services on a central office specific or customer specific basis.
ILECs around the country have been contesting whether the obligation to pay
reciprocal compensation to competitive local exchange carriers should apply to
local telephone calls from an ILEC's customers to Internet service providers
served by competitive local exchange carriers. The ILECs claim that this traffic
is interstate in nature and therefore should be exempt from compensation
arrangements applicable to local, intrastate calls. Competitive local exchange
carriers have contended that the interconnection agreements provide no exception
for local calls to Internet service providers and reciprocal compensation is
therefore applicable. Currently, over 30 state commissions and several federal
and state courts have ruled that reciprocal compensation arrangements do apply
to calls to Internet service providers, while four jurisdictions have ruled to
the contrary. A number of these rulings are subject to appeal. Additional
disputes over the appropriate treatment of Internet service provider traffic are
pending in other states.
On February 26, 1999, the FCC released a Declaratory Ruling determining
that Internet service provider traffic is interstate for jurisdictional
purposes, but that its current rules neither require nor prohibit the payment of
reciprocal compensation for such calls. In the absence of a federal rule, the
FCC determined that state commissions have authority to interpret and enforce
the reciprocal compensation provisions of existing interconnection agreements,
and to determine the appropriate treatment of Internet service provider traffic
in arbitrating new agreements. The FCC also requested comment on alternative
federal rules to govern compensation for such calls in the future. In response
to the FCC ruling, some regional Bell operating companies have asked state
commissions to reopen previous decisions requiring the payment of reciprocal
compensation on Internet service provider calls. Some Bell companies have also
appealed the FCC's Declaratory Ruling to the United States Court of Appeals for
the District of Columbia Circuit, which issued a decision on March 24, 2000,
vacating the Ruling. The court held that the FCC had not adequately explained
its conclusion that calls to Internet service providers should not be treated as
"local" traffic. Allegiance views this decision as favorable, but the court's
direction to the FCC to re-examine the issue will likely result in further delay
in the resolution of pending compensation disputes, and there can be no
assurance as to the ultimate outcome of these proceedings or as to the timing of
such outcome.
Internet service providers are among Allegiance's target customers, and
adverse decisions in state proceedings could limit its ability to service this
group of customers profitably. Given the uncertainty as to whether reciprocal
compensation should be payable in connection with calls to Internet service
providers, Allegiance recognizes such revenue only when realization of it is
certain, which in most cases will be upon receipt of cash. See "Risk
Factors -- We Could Lose Revenue if Calls to Internet Service Providers Are
Treated As Long Distance Interstate Calls".
State Regulation
The Telecommunications Act is intended to increase competition in the
telecommunications industry, especially in the local exchange market. With
respect to local services, ILECs are required to allow interconnection to their
networks and to provide unbundled access to network facilities, as well as a
number of other pro-competitive measures. Because the implementation of the
Telecommunications Act is subject to
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numerous state rulemaking proceedings on these issues, it is currently difficult
to predict how quickly full competition for local services, including local dial
tone, will be introduced.
State regulatory agencies have regulatory jurisdiction when Allegiance
facilities and services are used to provide intrastate services. A portion of
Allegiance's current traffic may be classified as intrastate and therefore
subject to state regulation. Allegiance expects that it will offer more
intrastate services, including intrastate switched services, as its business and
product lines expand and state regulations are modified to allow increased local
services competition. To provide intrastate services, Allegiance generally must
obtain a certificate of public convenience and necessity from the state
regulatory agency and comply with state requirements for telecommunications
utilities, including state tariffing requirements.
State agencies, like the FCC, require Allegiance to file periodic reports,
pay various fees and assessments, and comply with rules governing quality of
service, consumer protection, and similar issues. Although the specific
requirements vary from state to state, they tend to be more detailed than the
FCC's regulation because of the strong public interest in the quality of basic
local exchange service. Allegiance intends to comply with all applicable state
regulations, and as a general matter does not expect that these requirements of
industry-wide applicability will have a material adverse effect on its business.
However, no assurance can be given that the imposition of new regulatory burdens
in a particular state will not affect the profitability of Allegiance's services
in that state.
Local Regulation
Allegiance's networks are subject to numerous local regulations such as
building codes and licensing. Such regulations vary on a city by city and county
by county basis. If Allegiance decides in the future to install its own fiber
optic transmission facilities, it will need to obtain rights-of-way over private
and publicly owned land. There can be no assurance that such rights-of-way will
be available to Allegiance on economically reasonable or advantageous terms.
COMPETITION
The telecommunications industry is highly competitive. Allegiance believes
that the principal competitive factors affecting its business are pricing levels
and clear pricing policies, customer service, accurate billing and, to a lesser
extent, variety of services. The ability of Allegiance to compete effectively
depends upon its continued ability to maintain high quality, market-driven
services at prices generally equal to or below those charged by its competitors.
To maintain its competitive posture, Allegiance believes that it must be in a
position to reduce its prices in order to meet reductions in rates, if any, by
others. Any such reductions could materially adversely affect Allegiance. Many
of Allegiance's current and potential competitors have financial, personnel and
other resources, including brand name recognition, substantially greater than
those of Allegiance, as well as other competitive advantages over Allegiance.
Local Exchange Carriers. In each of the markets targeted by Allegiance,
Allegiance will compete principally with the ILEC serving that area, such as
Ameritech, BellSouth, Southwestern Bell, Bell Atlantic or US WEST. Allegiance
believes that one of the objectives of the regional Bell operating companies is
to be able to offer long distance service in their service territories. The
independent telephone companies have already achieved this goal with good early
returns. Many experts expect the regional Bell operating companies to be
successful in entering the long distance market in a few states sometime in
2000. On December 23, 1999, Bell Atlantic was granted permission by the FCC to
provide in-region long distance service in New York. Allegiance believes the
regional Bell operating companies expect to offset share losses in their local
markets by capturing a significant percentage of the in-region long distance
market, especially in the residential segment where the regional Bell operating
companies' strong regional brand names and extensive advertising campaigns may
be very successful.
As a recent entrant in the integrated telecommunications services industry,
Allegiance has not achieved and does not expect to achieve a significant market
share for any of its services. In particular, the ILECs have long-standing
relationships with their customers, have financial, technical and marketing
resources substantially greater than those of Allegiance, have the potential to
subsidize competitive services with revenues from
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a variety of businesses and currently benefit from certain existing regulations
that favor the ILECs over Allegiance in certain respects. While recent
regulatory initiatives, which allow CLECs such as Allegiance to interconnect
with ILEC facilities, provide increased business opportunities for Allegiance,
such interconnection opportunities have been and likely will continue to be
accompanied by increased pricing flexibility for and relaxation of regulatory
oversight of the ILECs.
ILECs have long-standing relationships with regulatory authorities at the
federal and state levels. While recent FCC administrative decisions and
initiatives provide increased business opportunities to telecommunications
providers such as Allegiance, they also provide the ILECs with increased pricing
flexibility for their private line and special access and switched access
services. In addition, with respect to competitive access services as opposed to
switched access services, the FCC recently adopted a rule that would provide for
increased ILEC pricing flexibility and deregulation for such access services
either automatically or after certain competitive levels are reached. If the
ILECs are allowed by regulators to offer discounts to large customers through
contract tariffs, engage in aggressive volume and term discount pricing
practices for their customers, and/or seek to charge competitors excessive fees
for interconnection to their networks, the income of competitors to the ILECs,
including Allegiance, could be materially adversely affected. If future
regulatory decisions afford the ILECs increased access services pricing
flexibility or other regulatory relief, such decisions could also have a
material adverse effect on competitors to the ILEC, including Allegiance.
Competitive Access Carriers/Competitive Local Exchange
Carriers/Interexchange Carriers/Other Market Entrants. Allegiance also faces,
and expects to continue to face, competition from other current and potential
market entrants, including long distance carriers such as AT&T, MCI WorldCom and
Sprint seeking to enter, reenter or expand entry into the local exchange market
and from other CLECs, resellers of local exchange services, competitive access
providers, cable television companies, electric utilities, microwave carriers,
wireless telephone system operators and private networks built by large end
users. In addition, a continuing trend toward consolidation of
telecommunications companies and the formation of strategic alliances within the
telecommunications industry, as well as the development of new technologies,
could give rise to significant new competitors to Allegiance. For example,
WorldCom acquired MFS Communications in December 1996, acquired another CLEC,
Brooks Fiber Properties, Inc. in 1997, merged with MCI and has agreed to merge
with Sprint. AT&T acquired Teleport Communications Group Inc., a CLEC, and
TeleCommunications, Inc., a cable, telecommunications and high-speed Internet
services provider. Ameritech Corporation has merged with SBC Communications.
Bell Atlantic has agreed to merge with GTE Corporation. These types of
consolidations and strategic alliances could put Allegiance at a competitive
disadvantage.
The Telecommunications Act includes provisions that impose certain
regulatory requirements on all local exchange carriers, including competitors
such as Allegiance, while granting the FCC expanded authority to reduce the
level of regulation applicable to any or all telecommunications carriers,
including ILECs. The manner in which these provisions of the Telecommunications
Act are implemented and enforced could have a material adverse effect on
Allegiance's ability to successfully compete against ILECs and other
telecommunications service providers. Allegiance also competes with equipment
vendors and installers, and telecommunications management companies with respect
to certain portions of its business.
The changes in the Telecommunications Act radically altered the market
opportunity for traditional competitive access providers and CLECs. Due to the
fact that many existing competitive access providers and CLECs initially entered
the market providing dedicated access in the pre-1996 era, these companies had
to build a fiber infrastructure before offering services. Most competitive
access providers and CLECs added switches in the last year to take advantage of
the opening of the local market. With the Telecommunications Act requiring
unbundling of the local exchange carrier networks, competitive access providers
and CLECs are now be able to more rapidly enter the market by installing
switches and leasing trunk and loop capacity until traffic volume justifies
building facilities. New CLECs do not have to replicate existing facilities and
can be more opportunistic in designing and implementing networks.
A number of CLECs have entered or announced their intention to enter into
one or more of the same markets as Allegiance. Allegiance believes that not all
CLECs however, are pursuing the same target customers as Allegiance.
Demographically, business customers are commonly divided into three segments:
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small, medium and large. Targeted cities are commonly divided into three
segments by population: Tier 1, Tier 2 and Tier 3. As would be expected, each
CLEC may focus on different combinations of primary and secondary target
customers.
Allegiance has chosen to focus primarily on small and medium-sized business
customers in large "Tier 1" markets and selected "Tier 2" markets. To help
distinguish it from other competitors who have adopted a similar strategy,
Allegiance uses a direct sales approach to offer potential customers "one-stop
shopping" services through a single point of contact. In addition, Allegiance is
actively pursuing collocations throughout all of its target markets which, in
combination with its smart build strategy, is expected to allow Allegiance to
access its markets and provide a greater array of services more quickly than if
it were able to use a traditional build approach.
Allegiance believes the major interexchange carriers, such as AT&T, MCI
WorldCom and Sprint, have a two pronged strategy:
- keep the regional Bell operating companies out of in-region long distance
as long as possible; and
- develop facilities-based and unbundled local service, an approach already
being pursued by MCI WorldCom with the acquisition of MFS Communications,
and by AT&T with its acquisitions of Teleport Communications and
TeleCommunications, Inc.
Competition for Provision of Long Distance Services. The long distance
telecommunications industry has numerous entities competing for the same
customers and a high average turnover rate, as customers frequently change long
distance providers in response to the offering of lower rates or promotional
incentives by competitors. Prices in the long distance market have declined
significantly in recent years and are expected to continue to decline.
Allegiance expects to increasingly face competition from companies offering long
distance data and voice services over the Internet. Such companies could enjoy a
significant cost advantage because they do not currently pay carrier access
charges or universal service fees. The FCC has recently granted approval to Bell
Atlantic to provide in-region long distance service in New York and other
regional Bell operating companies may petition and be granted such approval in
the future.
Data/Internet Service Providers. The Internet services market is highly
competitive and there are limited barriers to entry. Allegiance expects that
competition will continue to intensify. Allegiance's competitors in this market
will include Internet service providers, other telecommunications companies,
online service providers and Internet software providers. Most of the regional
Bell operating companies and GTE Corporation operating units have announced
plans to rapidly roll out DSL services. Some of these entities, including SBC
Communications, US West and Bell Atlantic, have already commenced deployment of
DSL services in selected markets and may in the future deploy DSL services on a
widespread basis. Many of these competitors have greater financial,
technological and marketing resources than those available to Allegiance.
Competition from International Telecommunications Providers. Under the
recent World Trade Organization agreement on basic telecommunications services,
the United States and 72 other members of the World Trade Organization committed
themselves to opening their respective telecommunications markets and/or foreign
ownership and/or to adopting regulatory measures to protect competitors against
anticompetitive behavior by dominant telecommunications companies, effective in
some cases as of January 1998. Although Allegiance believes that this agreement
could provide Allegiance with significant opportunities to compete in markets
that were not previously accessible and to provide more reliable services at
lower costs than Allegiance could have provided prior to implementation of this
agreement, it could also provide similar opportunities to Allegiance's
competitors and facilitate entry by foreign carriers into the U.S. market. There
can be no assurance that the pro-competitive effects of the World Trade
Organization agreement will not have a material adverse effect on Allegiance's
business, financial condition and results of operations or that members of the
World Trade Organization will implement the terms of this agreement.
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EMPLOYEES
As of December 31, 1999, Allegiance had 1,784 full-time employees.
Allegiance believes that its future success will depend on its continued ability
to attract and retain highly skilled and qualified employees. None of
Allegiance's employees is currently represented by a collective bargaining
agreement. Allegiance believes that it enjoys good relationships with its
employees.
RISK FACTORS
Our Forward-Looking Statements May Materially Differ from Actual Events or
Results
This annual report on Form 10-K contains "forward-looking statements,"
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended, and Allegiance
intends that such forward-looking statements be subject to the safe harbors
created by this law. You generally can identify these statements by our use of
forward-looking words such as "plans," "estimates," "believes," "expects,"
"may," "will," "should" or "anticipates" or the negative or other variations of
such terms or comparable terminology, or by discussion of strategy that involve
risks and uncertainties. We often use these types of statements when discussing
our plans and strategies, our anticipation of revenues from designated markets,
and statements regarding the development of our businesses, the markets for our
services and products, our anticipated capital expenditures, operations support
systems or changes in regulatory requirements and other statements contained in
this report regarding matters that are not historical facts.
We caution you that these forward-looking statements are only predictions
and estimates regarding future events and circumstances. We cannot assure you
that we will achieve the future results reflected in these statements. The risks
we face that could cause us not to achieve these results include, but are not
limited to, our ability to do the following in a timely manner, at reasonable
costs and on satisfactory terms and conditions:
- successfully market our services to current and new customers;
- interconnect with and develop cooperative working relationships with
ILECs;
- develop efficient operations support systems and other back office
systems;
- successfully and efficiently transfer new customers to our networks and
access new geographic markets;
- identify, finance and complete suitable acquisitions;
- borrow under our credit facilities or borrow under alternative financing
sources;
- install new switching facilities and other network equipment;
- electronically bond with ILECs; and
- obtain leased fiber optic line capacity, rights-of-way, building access
rights and any required governmental authorizations, franchises and
permits.
Regulatory, legislative and judicial developments could also cause actual
results to differ materially from the future results reflected in such
forward-looking statements. You should consider all of our subsequent written
and oral forward-looking statements only in light of such cautionary statements.
You should not place undue reliance on these forward-looking statements and you
should understand that they represent management's view only as of the dates we
make them.
Our Limited History of Operations May Not Be a Reliable Basis for Evaluating
Our Prospects
Because of our short operating history, you have limited operating and
financial data that you can use to evaluate our performance and determine
whether you should invest in our common stock.
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If We Do Not Effectively Manage Rapid Expansion of Our Business, Our Financial
Condition Will Suffer
We are rapidly expanding our operations and providing bundled
telecommunications services on a widespread basis. This continued rapid
expansion may place a significant strain on our management, financial and other
resources. If we fail to manage our growth effectively, we may not be able to
expand our customer base and service offerings as we have planned.
Our Success Depends on Our Key Personnel and We May Not Be Able to Replace Key
Executives Who Leave
We are managed by a small number of key executive officers, most notably
Royce J. Holland, our Chairman and Chief Executive Officer. The loss of services
of one or more of these key individuals, particularly Mr. Holland, could
materially and adversely affect our business and our prospects. Most of our
executive officers do not have employment agreements, and we do not maintain key
person life insurance for any of our executive officers. The competition for
qualified personnel in the telecommunications industry is intense. For this
reason, we cannot assure you that we will be able to hire or retain necessary
personnel in the future.
We Are Dependent on Effective Billing, Customer Service and Information
Systems and We May Have Difficulties in Developing These Systems
Sophisticated back office information and processing systems are vital to
our growth and our ability to monitor costs, bill customers, initiate, implement
and track customer orders and achieve operating efficiencies. We cannot assure
you that these systems will be successfully implemented on a timely basis or at
all or will perform as expected because:
- we have and will likely continue to have difficulties in getting products
and services from our vendors delivered in a timely and effective manner,
at acceptable costs and at the service and performance level required;
- we may fail to adequately identify all of our information and processing
needs;
- our processing or information systems may fail or be inadequate;
- we may not be able to effectively integrate such products or services;
- we may fail to upgrade systems as necessary; and
- third party vendors may cancel or fail to renew license agreements that
relate to these systems.
Under Certain Circumstances We May Need Additional Capital to Expand Our
Business and Increase Revenue
We may need additional capital to fund capital expenditures, working
capital, debt service and cash flow deficits during the period in which we are
expanding and developing our business and deploying our networks, services and
systems. We believe that the borrowings expected to be available under our
credit facilities, together with our cash on hand, will be sufficient to
pre-fund our expanded business plan. However, we will only be able to borrow
under these credit facilities if we are in compliance with the financial
covenants and other conditions. In the event we cannot borrow under these credit
facilities, we may need to access alternative sources of capital. If we are
unable to do so we may not be able to expand as we expect, which may have an
adverse effect on us.
The actual amount and timing of our future capital requirements may differ
materially from our estimates as a result of financial, business and other
factors, many of which are beyond our control, as well as prevailing economic
conditions.
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Our Substantial Indebtedness Could Make Us Unable to Service Indebtedness and
Meet Our Other Requirements and Could Adversely Affect Our Financial Health
We have a significant amount of debt outstanding and plan to access
additional debt financing to fund our expanded business plan, including under
our credit facilities that closed in February 2000. On December 31, 1999, we had
$514.4 million of outstanding indebtedness and $443.6 million of stockholders'
equity.
This level of debt could:
- impair our ability to obtain additional financing for working capital,
capital expenditures, acquisitions or general corporate purposes;
- require us to dedicate a substantial portion of our cash flow from
operations to the payment of principal and interest on our indebtedness,
thereby reducing the funds available for the growth of our networks;
- place us at a competitive disadvantage with those of our competitors who
do not have as much debt as we do;
- impair our ability to adjust rapidly to changing market conditions; and
- make us more vulnerable if there is a downturn in general economic
conditions or in our business.
We cannot assure you that we will be able to meet our working capital,
capital expenditure and debt service requirements.
Limitations Imposed by Restrictive Covenants Could Limit How We Conduct
Business and a Default Under Our Indentures and Financing Agreements Could
Significantly Impact Our Ability to Repay Our Indebtedness
Our indentures and our credit facilities contain covenants that restrict
our ability to:
- incur additional indebtedness;
- pay dividends and make other distributions;
- prepay subordinated indebtedness;
- make investments and other restricted payments;
- enter into sale and leaseback transactions;
- create liens;
- sell assets; and
- engage in certain transactions with affiliates.
Our current and future financing arrangements contain and will continue to
contain similar or more restrictive covenants, as well as other covenants that
will require us to maintain specified financial ratios and satisfy financial
tests. As a result of these restrictions, we are limited in how we conduct
business and we may be unable to raise additional debt or equity financing to
operate during general economic or business downturns, to compete effectively or
to take advantage of new business opportunities. This may affect our ability to
generate revenues and make profits. Without sufficient revenues and cash, we may
not be able to pay interest and principal on our indebtedness.
Our failure to comply with the covenants and restrictions contained in our
indentures and other financing agreements could lead to a default under the
terms of these agreements. If such a default occurs, the other parties to such
agreements could declare all amounts borrowed and all amounts due under other
instruments that contain provisions for cross-acceleration or cross-default due
and payable. In addition, lenders under our current and future financing
arrangements could terminate their commitments to lend to us. If that occurs, we
cannot assure you that we would be able to make payments on our indebtedness,
meet our working capital or
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meet our capital expenditure requirements, or that we would be able to find
additional alternative financing. Even if we could obtain additional alternative
financing, we cannot assure you that it would be on terms that are favorable or
acceptable to us.
We May Not Have the Funds Necessary to Finance the Change of Control Offer
Which May Be Required By Our Financing Agreements
Our indentures provide that upon a change of control, each note holder will
have the right to require us to purchase all or a portion of such holder's
notes. We would be required to purchase the notes at a purchase price of 101% of
the accreted value of the 11 3/4% notes and 101% of the principal amount of the
12 7/8% notes, plus any accrued and unpaid interest to the date of repurchase.
Our credit facilities provides that upon a change of control, we may be required
to repay all of our obligations under these credit facilities. It is possible
that we will not have sufficient funds at that time to repurchase our notes or
repay any debt outstanding under our credit facilities.
If We Do Not Interconnect with Our Primary Competitors, the Incumbent Local
Exchange Carriers, Our Business Will Be Adversely Affected
Many new carriers, including Allegiance, have experienced difficulties in
working with the incumbent local exchange carriers with respect to initiating,
interconnecting, and implementing the systems used by these new carriers to
order and receive unbundled network elements and wholesale services and locating
the new carriers' equipment in the offices of the incumbent local exchange
carriers. As a new carrier, we must coordinate with incumbent local exchange
carriers so that we can provide local service to customers on a timely and
competitive basis. The Telecommunications Act created incentives for regional
Bell operating companies to cooperate with new carriers and permit access to
their facilities by denying such companies the ability to provide in-region long
distance services until they have satisfied statutory conditions designed to
open their local markets to competition. The FCC recently granted approval to
Bell Atlantic to provide in-region long distance service in New York. In
addition, SBC Communications has filed a petition to offer such service in
Texas. Other regional Bell operating companies in our markets may petition and
receive approval from the FCC to offer long distance services. These companies
may not be accommodating to us once they are permitted to offer long distance
service. If we cannot obtain the cooperation of a regional Bell operating
company in a region, whether or not it has been authorized to offer long
distance service, our ability to offer local services in such region on a timely
and cost-effective basis will be adversely affected.
If We Do Not Obtain Peering Arrangements with Internet Service Providers, the
Profitability of Our Internet Access Services Will Suffer
The profitability of our Internet access services, and related services
such as Web site hosting, may be adversely affected if we are unable to obtain
"peering" arrangements with Internet service providers. In the past, major
Internet service providers routinely exchanged traffic with other Internet
service providers that met technical criteria on a "peering" basis, meaning that
each Internet service provider accepted traffic routed to Internet addresses on
their system from their "peers" on a reciprocal basis, without payment of
compensation. However, since 1997 UUNET Technologies, Inc., the largest Internet
service provider, has been greatly restricting the use of peering arrangements
with other providers and has been imposing charges for accepting traffic from
providers other than its "peers". Other major Internet service providers have
adopted similar policies. We do not currently have any peering arrangements and
cannot assure you that we will be able to negotiate "peer" status with any of
the major nationwide Internet service providers in the future, or that we will
be able to terminate traffic on Internet service providers' networks at
favorable prices.
Our Offering of Long Distance Services Is Affected By Our Ability to Establish
Effective Resale Agreements
We offer long distance services as part of our "one-stop shopping" offering
of bundled telecommunications services to our customers. We have relied and will
continue to rely on other carriers to provide transmission and termination
services for all of our long distance traffic. We will continue to enter into
resale agreements with long distance carriers to provide us with transmission
services. Such agreements typically
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provide for the resale of long distance services on a per-minute basis and may
contain minimum volume commitments. Negotiation of these agreements involves
estimates of future supply and demand for transmission capacity as well as
estimates of the calling pattern and traffic levels of our future customers. If
we fail to meet our minimum volume commitments, we may be obligated to pay
underutilization charges and if we underestimate our need for transmission
capacity, we may be required to obtain capacity through more expensive means.
Our Principal Competitors for Local Services, the Incumbent Local Exchange
Carriers, and Potential Additional Competitors, Have Advantages that May
Adversely Affect Our Ability to Compete with Them
The telecommunications industry is highly competitive. Many of our current
and potential competitors in the local market have financial, technical,
marketing, personnel and other resources, including brand name recognition,
substantially greater than ours, as well as other competitive advantages over
us. In each of the markets targeted by us, we will compete principally with the
ILEC serving that area. These ILECs enjoy advantages that may adversely affect
our ability to compete with them. Incumbent local exchange carriers are
established providers of local telephone services to all or virtually all
telephone subscribers within their respective service areas. Incumbent local
exchange carriers also have long-standing relationships with federal and state
regulatory authorities. FCC and state administrative decisions and initiatives
provide the incumbent local exchange carriers with pricing flexibility for
their:
- private lines, which are private, dedicated telecommunications
connections between customers;
- special access services, which are dedicated lines from a customer to a
long distance company provided by the local phone company; and
- switched access services, which refers to the call connection provided by
the local phone company's switch between a customer's phone and the long
distance company's switch.
In addition, with respect to competitive access services, such as special
access services as opposed to switched access services, the FCC recently
approved incumbent local exchange carriers increased pricing flexibility and
deregulation for such access services after certain competitive levels are
reached. If the incumbent local exchange carriers are allowed by regulators to
offer discounts to large customers through contract tariffs, engage in
aggressive volume and term discount pricing practices for their customers,
and/or seek to charge competitors excessive fees for interconnection to their
networks, competitors such as us could be materially adversely affected. If
future regulatory decisions afford the incumbent local exchange carriers
increased pricing flexibility or other regulatory relief, such decisions could
also have a material adverse effect on competitors such as us.
We also face, and expect to continue to face, competition in the local
market from other current and potential market entrants, including long distance
carriers seeking to enter, reenter or expand entry into the local exchange
marketplace such as AT&T, MCI WorldCom and Sprint, and from other CLECs,
resellers, competitive access providers, cable television companies, electric
utilities, microwave carriers, wireless telephone system operators and private
networks built by large end users. In addition, the development of new
technologies could give rise to significant new competitors in the local market.
Significant Competition in Providing Long Distance and Internet Services Could
Reduce the Demand for and Profitability of Our Services
We also face significant competition in providing long distance and
Internet services. Many of these competitors have greater financial,
technological, marketing, personnel and other resources than those available to
us.
The long distance telecommunications market has numerous entities competing
for the same customers and a high average turnover rate, as customers frequently
change long distance providers in response to the offering of lower rates or
promotional incentives. Prices in the long distance market have declined
significantly in recent years and are expected to continue to decline. We face
competition from large carriers such as
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AT&T, MCI WorldCom and Sprint and many smaller long distance carriers. Other
competitors are likely to include regional Bell operating companies providing
long distance services outside of their local service area and, with the removal
of regulatory barriers, long distance services within such local service areas,
other competitive local exchange carriers, microwave and satellite carriers and
private networks owned by large end users. The FCC has recently granted approval
to Bell Atlantic to provide in-region long distance service in New York and
other regional Bell operating companies may petition and be granted such
approval in the future. We may also increasingly face competition from companies
offering local and long distance data and voice services over the Internet. Such
companies could enjoy a significant cost advantage because they do not currently
pay many of the charges or fees that we have to pay.
The Internet services market is highly competitive and there are limited
barriers to entry. We expect that competition will continue to intensify. Our
competitors in this market include Internet service providers, other
telecommunications companies, online service providers and Internet software
providers. Most of the regional Bell operating companies and GTE Corporation
operating units have announced plans to rapidly roll out DSL services. Some of
these entities, including SBC Communications, US West and Bell Atlantic, have
already commenced deployment of DSL services in selected markets and may in the
future deploy DSL services on a widespread basis.
Our Need to Comply with Extensive Government Regulation Can Increase Our Costs
and Slow Our Growth
Our networks and the provision of telecommunications services are subject
to significant regulation at the federal, state and local levels. Delays in
receiving required regulatory approvals or the enactment of new adverse
regulation or regulatory requirements may slow our growth and have a material
adverse effect upon us.
The FCC exercises jurisdiction over us with respect to interstate and
international services. We must obtain, and have obtained through our
subsidiary, Allegiance Telecom International, Inc., prior FCC authorization for
installation and operation of international facilities and the provision,
including by resale, of international long distance services. Additionally, we
file publicly available tariffs detailing our services and pricing with the FCC
for both international and domestic long-distance services.
State regulatory commissions exercise jurisdiction over us because we
provide intrastate services. We are required to obtain regulatory authorization
and/or file tariffs at state agencies in most of the states in which we operate.
If and when we seek to build our own network segments, local authorities
regulate our access to municipal rights-of-way. Constructing a network is also
subject to numerous local regulations such as building codes and licensing. Such
regulations vary on a city by city and county by county basis.
Regulators at both the federal and state level require us to pay various
fees and assessments, file periodic reports, and comply with various rules
regarding the contents of our bills, protection of subscriber privacy, and
similar matters on an ongoing basis.
We cannot assure you that the FCC or state commissions will grant required
authority or refrain from taking action against us if we are found to have
provided services without obtaining the necessary authorizations, or to have
violated other requirements of their rules and orders. Regulators or others
could challenge our compliance with applicable rules and orders. Such challenges
could cause us to incur substantial legal and administrative expenses.
Deregulation of the Telecommunications Industry Involves Uncertainties, and
the Resolution of These Uncertainties Could Adversely Affect Our Business
The Telecommunications Act provides for a significant deregulation of the
domestic telecommunications industry, including the local exchange, long
distance and cable television industries. The Telecommunications Act remains
subject to judicial review and additional FCC rulemaking, and thus it is
difficult to predict what effect the legislation will have on us and our
operations. There are currently many regulatory actions underway and being
contemplated by federal and state authorities regarding interconnection pricing
and other issues that could result in significant changes to the business
conditions in the telecommunications industry. We cannot assure you that these
changes will not have a material adverse effect upon us.
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The Regulation of Interconnection with Incumbent Local Exchange Carriers
Involves Uncertainties, and the Resolution of These Uncertainties Could
Adversely Affect Our Business
Although the incumbent local exchange carriers are required under the
Telecommunications Act to unbundle and make available elements of their network
and permit us to purchase only the origination and termination services that we
need, thereby decreasing our operating expenses, such unbundling may not be done
as quickly as we require and may be priced higher than we expect. This is
important because we rely on the facilities of these other carriers to connect
to our high capacity digital switches so that we can provide services to our
customers. Our ability to obtain these interconnection agreements on favorable
terms, and the time and expense involved in negotiating them, can be adversely
affected by legal developments.
A recent Supreme Court decision vacated a FCC rule determining which
network elements the incumbent local exchange carriers must provide to
competitors on an unbundled basis. On November 5, 1999, the FCC released an
order revising its unbundled network element rules to conform to the Supreme
Court's interpretation of the law, and reaffirmed the availability of the basic
network elements, such as loops and dedicated transport, used by Allegiance. It
is likely that this order may be subject to further agency reconsideration
and/or court review. While these court and FCC proceedings were pending,
Allegiance entered into interconnection agreements with a number of ILECs
through negotiations or, in some cases, adoption of another CLEC's approved
agreement. These agreements remain in effect, although in some cases one or both
parties may be entitled to demand renegotiation of particular provisions based
on intervening changes in the law. However, it is uncertain whether any of these
agreements will be so renegotiated or whether Allegiance will be able to obtain
renewal of these agreements on favorable terms when they expire.
We Could Lose Revenue if Calls to Internet Service Providers Are Treated As
Long Distance Interstate Calls
We believe that other local exchange carriers should have to compensate us
when their customers place calls to Internet service providers who are our
customers. Most incumbent local exchange carriers disagree. Reciprocal
compensation represents a material portion of our revenues. A majority of these
revenues are from calls to Internet service providers. Decisions providing that
other carriers do not have to compensate us for these calls could limit our
ability to service this group of customers profitably.
For all other local calls, it is clear that the telecommunications company
whose customer calls a customer of a second telecommunications company must
compensate the second company. This is known as reciprocal compensation. This
rule does not apply to long distance interstate calls and the FCC in its
Declaratory Ruling of February 26, 1999, determined that Internet service
provider traffic is interstate for jurisdictional purposes, but that its current
rules neither require nor prohibit the payment of reciprocal compensation for
such calls. In the absence of a federal rule, the FCC determined that state
commissions have authority to interpret and enforce the reciprocal compensation
provisions of existing interconnection agreements and to determine the
appropriate treatment of Internet service provider traffic in arbitrating new
agreements. The Court of Appeals for the District of Columbia Circuit issued a
decision on March 24, 2000, vacating the Declaratory Ruling. The court held that
the FCC had not adequately explained its conclusion that calls to Internet
service providers should not be treated as "local" traffic. Allegiance views
this decision as favorable, but the court's direction to the FCC to re-examine
the issue will likely result in further delay in the resolution of pending
compensation disputes, and there can be no assurance as to the ultimate outcome
of these proceedings or as to the timing of such outcome.
Currently, over 30 state commissions and several federal and state courts
have ruled that reciprocal compensation arrangements do apply to calls to
Internet service providers, while four jurisdictions have ruled to the contrary.
A number of these rulings are subject to appeal. Additional disputes over the
appropriate treatments of Internet service provider traffic are pending in other
states.
In addition, we anticipate that the per minute reciprocal compensation rate
we receive from ILECs under our new interconnection agreements will be lower
than it was under our previous agreements. These reductions in reciprocal
compensation will have a material adverse effect on us if we are unable to
offset them with other revenues.
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The Regulation of Access Charges Involves Uncertainties, and the Resolution of
These Uncertainties Could Adversely Affect Our Business
To the extent we provide long-distance, often referred to as
"interexchange," telecommunications service, we are required to pay access
charges to other local exchange carriers when we use the facilities of those
companies to originate or terminate interexchange calls. As a competitive local
exchange carrier, we also provide access services to other long distance service
providers. The interstate access charges of incumbent local exchange carriers
are subject to extensive regulation by the FCC, while those of competitive local
exchange carriers are subject to a lesser degree of FCC regulation, but remain
subject to the requirement that all charges be just, reasonable, and not
unreasonably discriminatory. Disputes have arisen regarding the regulation of
access charges and these may be resolved adversely to us.
Some interexchange carriers, including AT&T and Sprint, have challenged the
switched access rates of Allegiance and other CLECs and have withheld some or
all payments for the switched access services that they continue to receive.
Although no formal complaints have been filed against us, AT&T and other
interexchange carriers have asserted that they have not ordered switched access
service from us and/or that our charges for switched access services are higher
than those of the ILEC serving the same territory and are therefore unjust and
unreasonable. AT&T has refused to pay us any originating access charges at our
tariffed rates and other carriers are paying us less than our tariffed rates.
On July 5, 1999, the FCC issued a ruling to address this issue in the
context of a complaint case filed by MGC Communications, Inc., a CLEC that had
not been receiving payments from AT&T. In that ruling, the FCC stated that "AT&T
is liable to MGC, at MGC's tariffed rate, for the originating access service
that it received . . ." The FCC indicated that AT&T had no obligation to
purchase access from MGC based on the arguments that MGC had made, but the FCC
also made clear that there may be other requirements that could limit AT&T's
ability to not purchase such access from a CLEC. In response to that FCC
decision, AT&T filed a Petition for Review with the FCC, which was denied on
December 28, 1999. The FCC is also reviewing the switched access rate level
issue and related matters in its Access Charge Reform docket. In this docket,
the FCC has requested comment as to whether interexchange carriers may refuse to
purchase switched access services from particular carriers. Allegiance is an
active participant in that proceeding.
Several states, including Colorado, Missouri, New York, Texas and Virginia,
have proposed or required that CLEC access charges be limited to those charged
by ILECs operating in the same area as the CLEC with respect to calls
originating or terminating in such area, except where the CLEC in question can
establish that its costs justify a higher access rate through a formal cost
proceeding. We believe that it is possible that other states will enact similar
requirements. We also believe, however, that it is more likely that many states
will use the same approach for intrastate long distance as the FCC ultimately
decides to use for interstate long distance.
In light of the FCC's decision in the MGC/AT&T proceeding and the support
ILECs, including the large ILECs, have generally given to the principle that
interexchange carriers should not be permitted to refuse to purchase switched
access services from particular carriers, we believe that we will ultimately
receive payment owed to us from AT&T, Sprint and any other interexchange carrier
that withholds payment for switched access services that we provide. We cannot
provide any assurance, however, as to the amount of payments that we will
ultimately receive, the actual outcome of the FCC proceedings or the positions
various states will take on the similar issue of intrastate switched access
rates. Our switched access rates will have to be adjusted to comport with future
decisions of the FCC or state commissions and these adjustments could have a
material adverse effect on Allegiance.
If We Do Not Continually Adapt to Technological Change, We Could Lose
Customers and Market Share
The telecommunications industry is subject to rapid and significant changes
in technology, and we rely on outside vendors for the development of and access
to new technology. The effect of technological changes on our business cannot be
predicted. We believe our future success will depend, in part, on our ability to
anticipate or adapt to such changes and to offer, on a timely basis, services
that meet customer demands. We
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cannot assure you that we will obtain access to new technology on a timely basis
or on satisfactory terms. Any failure by us to obtain new technology could cause
us to lose customers and market share.
We Face Potential Conflicts of Interest Caused by Fund Investor Control Which
Could Be Detrimental to Holders of Our Securities
You should be aware that the investment funds that provided our initial
equity hold a majority of our board seats and a significant amount of our common
stock and that as a result, our direction and future operations may be
controlled by these funds. In addition, Vulcan Ventures recently purchased six
million shares (as adjusted for our 3-for-2 stock split effected on February 28,
2000) of our common stock from existing stockholders and in connection with that
transaction, Allegiance agreed to nominate two Vulcan Ventures designated
directors to Allegiance's board. As a result of these relationships, decisions
concerning our operations or financial structure may present conflicts of
interest between these investors and our management and other holders of our
securities, including our notes. In addition to their investments in us, these
investors or their affiliates currently have significant investments in other
telecommunications companies and may in the future invest in other entities
engaged in the telecommunications business or in related businesses, including
entities that compete with us. Conflicts may also arise in the negotiation or
enforcement of arrangements entered into by us and entities in which these
investors have an interest.
Future Sales of Our Stock by Existing Stockholders May Adversely Affect Our
Stock Price
We currently have approximately 108,100,404 million shares of common stock
outstanding. Many of these shares are "restricted securities" under the federal
securities laws, and such shares are or will be eligible for sale subject to
restrictions as to timing, manner, volume, notice and the availability of
current public information regarding Allegiance. Sales of substantial amounts of
stock in the public market, or the perception that sales could occur, could
depress the prevailing market price for our stock. Sales may also make it more
difficult for us to sell equity securities or equity-related securities in the
future at a time and price that we deem appropriate.
Anti-Takeover Provisions in Allegiance's Charter and Bylaws Could Limit Our
Share Price and Delay a Change of Management
Our certificate of incorporation and by-laws contain provisions that could
make it more difficult or even prevent a third party from acquiring Allegiance
without the approval of our incumbent board of directors.
If We Become Subject to the Investment Company Act, It Could Adversely Affect
Our Financing Activities and Financial Results
Allegiance currently has substantial short-term investments, pending the
deployment of our capital in the pursuit of building our business and these will
increase if we borrow funds under our credit facilities. This may result in
Allegiance being treated as an "investment company" under the Investment Company
Act of 1940. This statute requires the registration of, and imposes various
substantive restrictions on, certain companies that are, or hold themselves out
as being, engaged primarily, or propose to engage primarily in, the business of
investing, reinvesting or trading in securities, or that fail certain
statistical tests regarding composition of assets and sources of income and are
not primarily engaged in businesses other than investing, reinvesting, owning,
holding or trading securities.
Allegiance believes that it is primarily engaged in a business other than
investing, reinvesting, owning, holding or trading securities and, therefore, is
not an investment company within the meaning of this statute. While we believe
this means we are not an investment company within the meaning of the law, we
are currently relying on an exemption from these Investment Company Act
requirements. This exemption remains in effect until June 8, 2000.
If we were required to register as an investment company under the 1940
Act, we would become subject to substantial regulation with respect to our
capital structure, management, operations, transactions with affiliated persons
and other matters. To avoid having to register as an investment company, we may
have to
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seek an extension of the effectiveness of our exemption from the SEC or we may
have to invest a portion of our liquid assets in cash and demand deposits
instead of securities. The extent to which we will have to do so will depend on
the composition and value of our total assets on June 8, 2000. Having to
register as an investment company or having to invest a material portion of our
liquid assets in cash and demand deposits to avoid such registration could have
a material adverse effect on our business, financial condition and results of
operations.
We May Be Adversely Impacted By Year 2000 Issues
The "year 2000" issue generally describes the various problems that may
result from the improper processing of dates and date-sensitive transactions by
computers and other equipment as a result of computer hardware and software
using two digits to identify the year in a date. Although as of the date hereof
no material problems have arisen, if any year 2000 issues are not adequately
resolved, there could be a material adverse effect on our business, financial
condition or results of operations.
ITEM 2. PROPERTIES
Allegiance owns or leases, in its operating territories, telecommunications
property which includes:
- owning switches;
- leasing high capacity digital lines that interconnect Allegiance's
network with ILEC networks;
- leasing high capacity digital lines that connect Allegiance's switching
equipment to Allegiance transmission equipment located in ILEC central
offices;
- leasing local loop lines which connect Allegiance's customers to
Allegiance's network; and
- leasing space in ILEC central offices for collocating Allegiance
transmission equipment.
Allegiance is headquartered in Dallas, Texas and leases offices and space
in a number of locations, primarily for sales offices and network equipment
installations.
Allegiance believes that its leased facilities are adequate to meet its
current needs in the markets in which it has begun to deploy networks, and that
additional facilities are available to meet its development and expansion needs
in existing and projected target markets for the foreseeable future.
ITEM 3. LEGAL PROCEEDINGS
Allegiance is not party to any legal proceeding that Allegiance believes
would, individually or in the aggregate, have a material adverse effect on
Allegiance's financial condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Allegiance did not submit any matter to a vote of its stockholders during
the fourth quarter of 1999.
25
<PAGE> 28
ITEM 4A. EXECUTIVE OFFICERS OF ALLEGIANCE
The following sets forth certain information regarding Allegiance's
executive officers. Allegiance's executive officers are elected annually by the
board of directors at its first meeting held after each annual meeting of
stockholders or as soon thereafter as convenient.
<TABLE>
<CAPTION>
NAME AGE POSITION(S)
- ---- --- -----------
<S> <C> <C>
Royce J. Holland...................... 51 Chairman of the Board and Chief
Executive Officer
C. Daniel Yost........................ 51 President and Chief Operating Officer
and Director
Thomas M. Lord........................ 43 Executive Vice President of Corporate
Development, Chief Financial Officer
and Director
Dana A. Crowne........................ 39 Senior Vice President and Chief
Technology Officer
Ted Gilmore........................... 48 Senior Vice President of Marketing
Curtis Gray........................... 51 Senior Vice President of Operations
and Engineering
Stephen N. Holland.................... 48 Senior Vice President of Research
Patricia E. Koide..................... 51 Senior Vice President of Human
Resources, Real Estate, Facilities and
Administration
Gregg A. Long......................... 46 Senior Vice President of Quality and
Audit
G. Clay Myers......................... 40 Senior Vice President, Finance and
Accounting
Anthony J. Parella.................... 40 Senior Vice President of Field Sales
and Customer Care and Director
Jerrold Sklar......................... 40 Senior Vice President of Operational
Support Systems and Customer
Implementation
Mark B. Tresnowski.................... 40 Senior Vice President, General Counsel
and Secretary
</TABLE>
Royce J. Holland, Allegiance's Chairman of the Board and Chief Executive
Officer, has more than 25 years of experience in the telecommunications,
independent power and engineering/construction industries. Prior to founding
Allegiance in April 1997, Mr. Holland was one of several co-founders of MFS
Communications, where he served as President and Chief Operating Officer from
April 1990 until September 1996 and as Vice Chairman from September 1996 to
February 1997. In January 1993, Mr. Holland was appointed by President George
Bush to the National Security Telecommunications Advisory Committee. In December
1998, Mr. Holland served as the Chairman of the Association for Local
Telecommunications Services, the industry trade organization for the competitive
local telephone sector from December 1998 to January 2000. In November 1999, Mr.
Holland was appointed by Texas Governor George W. Bush to the Texas (Electronic)
E-Government Task Force. Mr. Holland also presently serves on the board of
directors of CSG Systems, a publicly held billing services company and ChoiceOne
Communications Inc., a publicly held CLEC that may compete with Allegiance. Mr.
Holland's brother, Stephen N. Holland, is employed as Allegiance's Senior Vice
President of Research.
C. Daniel Yost, who joined Allegiance as President and Chief Operating
Officer in February 1998, was elected to Allegiance's board of directors in
March 1998. Mr. Yost has more than 26 years of experience in the
telecommunications industry. From July 1997 until he joined Allegiance, Mr. Yost
was the President and Chief Operating Officer for U.S. Operations of Netcom
On-Line Communications Services, Inc., a leading Internet service provider. Mr.
Yost served as the President, Southwest Region of AT&T Wireless Services, Inc.
from June 1994 to July 1997. Prior to that, from July 1991 to June 1994, Mr.
Yost was the
26
<PAGE> 29
President, Southwest Region of McCaw Cellular Communications/LIN Broadcasting.
Mr. Yost presently serves on the board of directors of ADC Telecommunications
Inc., a publicly traded global supplier of transmission and networking systems
for telecommunications, cable television, broadcast, wireless and enterprise
networks, Ace Cash Express Inc., a publicly traded provider of retail financial
services and DSET Corporation, a publicly traded provider of operational support
systems gateway products for the global telecommunications industry.
Thomas M. Lord, a co-founder and director of Allegiance and its Executive
Vice President of Corporate Development and Chief Financial Officer, is
responsible for overseeing Allegiance's mergers and acquisitions, corporate
finance and investor relations functions. Mr. Lord is an 18-year veteran in
investment banking, securities research and portfolio management, including
serving as a managing director of Bear, Stearns & Co. Inc. from January 1986 to
December 1996. In the five-year period ending December 1996, Mr. Lord oversaw 43
different transactions valued in excess of $6.2 billion for the
telecommunications, information services and technology industries.
Dana A. Crowne, Allegiance's Senior Vice President and Chief Technology
Officer, joined Allegiance in August 1997 as its Senior Vice President and Chief
Engineer. Prior to joining Allegiance, Mr. Crowne held various management
positions at MFS Communications from the time of its founding in 1988, where his
responsibilities included providing engineering support and overseeing budgets
for the construction of MFS Communications' networks. Mr. Crowne ultimately
became Vice President, Network Optimization for MFS Communications from January
1996 to May 1997 and managed the company's network expenses and planning and its
domestic engineering functions. Prior to joining MFS Communications, Mr. Crowne
designed and installed fiber optic transmission systems for Morrison-Knudsen and
served as a consultant on the construction of private telecommunications
networks with JW Reed and Associates.
Ted Gilmore joined Allegiance as its Senior Vice President of Marketing in
January 2000. Prior to joining Allegiance, Mr. Gilmore was Vice President Sales
for Allied Riser Communications overseeing sales, distribution strategies and
market implementation for the company's Internet/data services. Mr. Gilmore
previously served in a number of senior management positions with GTE from
September 1987 to November 1998, including Vice President and General Manager,
Ethnic and International Sales and Marketing for GTE Communications Corp; Vice
President and General Manager of GTE Professional Services Incorporated;
Director Distribution Channels and Manager Market Strategy for GTE Telephone
Operations. Mr. Gilmore held sales and marketing management positions with
IBM/Rolm Corporation from 1983 to 1987, and Burroughs Corporation from 1973 to
1983.
Curtis Gray joined Allegiance as its Senior Vice President of Network
Operations and Engineering in January 2000. Prior to joining Allegiance, from
January 1994 to December 1999, Mr. Gray served as Vice President, Enhanced Data
Services, at MCI WorldCom. Mr. Gray was responsible for operations and technical
support of MCI WorldCom's Commercial Global Data Networks, Customer Collocation,
Customer Engineering/Project Management and various Internet service provider
and competitive local exchange carrier initiatives. From November 1991 to
January 1994, Mr. Gray was with WilTel (subsequently purchased by LDDS which
became the WorldCom entity) where he had responsibilities for Customer
Engineering Support, ATM Commercialization, Data Laboratory Services, Customer
Collocation and specific focus on service and support for Internet service
providers. He has previously served in executive roles in engineering and
consulting companies focusing on communication network performance analysis,
design, implementation and operation.
Stephen N. Holland, Allegiance's Senior Vice President of Research, joined
Allegiance in September 1997 as its Senior Vice President and Chief Information
Officer. Prior to that time, Mr. Holland held several senior level positions
involving management of or consulting on information systems, accounting,
taxation and finance. Mr. Holland's experience includes serving as Practice
Manager and Information Technology Consultant for Oracle Corporation from June
1995 to September 1997, as Chief Financial Officer of Petrosurance Casualty Co.
from September 1992 to June 1995, as Manager of Business Development for
Electronic Data Systems, and as a partner of Price Waterhouse. Mr. Holland's
brother, Royce J. Holland, presently serves as Allegiance's Chairman of the
Board and Chief Executive Officer.
27
<PAGE> 30
Patricia E. Koide has been Allegiance's Senior Vice President of Human
Resources, Real Estate, Facilities and Administration since August 1997. Before
then, Ms. Koide was Vice President of Corporate Services, Facilities and
Administration for WorldCom from March 1997 to August 1997. Ms. Koide also held
various management positions within MFS Communications and its subsidiaries
since 1989, including Senior Vice President of Facilities, Administration and
Purchasing for MFS Communications North America from 1996 to 1997, Senior Vice
President of Human Resources, Facilities and Administration for MFS
Communications Telecom from 1994 to 1996, and Vice President of Human Resources
and Administration for MFS Communications North America from 1989 to 1993. Prior
to MFS Communications, Ms. Koide was with Sprint for eight years where she
managed the company's human resources, real estate and facilities for the
Midwest.
Gregg A. Long, Allegiance's Senior Vice President of Quality and Audit,
joined Allegiance in September 1997 as its Senior Vice President of Regulatory
and Development. Mr. Long spent 11 years at Destec Energy, Inc. as Project
Development Manager -- Partnership Vice President and Director. In that
position, he was responsible for the development of gas-fired power plants from
conceptual stages through project financing. Prior to joining Destec, Mr. Long
was Manager of Project Finance at Morrison-Knudsen, where he was responsible for
analyzing and arranging finance packages for various industrial, mining and
civil projects and also served as financial consultant and analyst.
G. Clay Myers joined Allegiance as its Senior Vice President, Finance and
Accounting in December 1999. Prior to joining Allegiance, Mr. Myers was the Vice
President, Finance, Chief Financial Officer and Treasurer of PageMart Wireless,
Inc. Prior to joining PageMart, Mr. Myers was Senior Operations Manager for Dell
Computer Corporation from 1991 to 1993 and was with Ernst & Young, LLP from 1982
to 1991. Mr. Myers is a certified public accountant.
Anthony J. Parella, Allegiance's Senior Vice President of Field Sales and
Customer Care since October 1999, joined Allegiance as its Regional Vice
President -- Central Division in August 1997 and later became its National Vice
President of Field Sales in August 1998. Mr. Parella has more than 10 years of
experience in the telecommunications industry. Mr. Parella became a member of
the board of directors in December 1999. Prior to joining Allegiance, Mr.
Parella was Vice President and General Manager for MFS Intelenet, Inc., an
operating unit of MFS Communications, from February 1994 to January 1997, where
he was responsible for the company's sales and operations in Texas. Mr. Parella
also served as Director of Commercial Sales for Sprint from 1991 to January
1994.
Jerrold Sklar, Allegiance's Senior Vice President of Operation Support
Systems and Customer Implementation, joined Allegiance in January of 1998 as its
Vice President of Marketing, and has more than 17 years of experience in the
telecommunications industry. Prior to joining Allegiance, Mr. Sklar served as
Director of Strategic Sales and Director of Field Support for the Managed
Services Division of Octel Communications Corporation (now Lucent Technologies)
from October 1992 to December 1997. Prior to that time, Mr. Sklar managed the
OEM sales channel for VMX, Inc. from October 1989 to October 1992. Additionally
Mr. Sklar held various Sales and Sales Management positions with long distance
carrier, Sprint from July 1982 to September 1989.
Mark B. Tresnowski became Allegiance's Senior Vice President and General
Counsel in February 1999. Mr. Tresnowski has been Allegiance's Secretary since
September 1997. Mr. Tresnowski practiced law at Kirkland & Ellis for 13 years
and was a partner of that firm from October 1992 to January 1999. In private
practice, Mr. Tresnowski specialized in private and public financings, mergers
and acquisitions and securities law.
28
<PAGE> 31
PART II
ITEM 5. MARKET FOR ALLEGIANCE'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
Allegiance's common stock is listed on the Nasdaq National Market.
Allegiance's ticker symbol is "ALGX." Allegiance completed the initial public
offering of its common stock in July 1998. Prior to July 1, 1998, no established
public trading market for the common stock existed.
The following table sets forth on a per share basis, the high and low sale
prices per share for our common stock as reported on the Nasdaq National Market
for the periods indicated:
<TABLE>
<CAPTION>
HIGH LOW
------- ------
<S> <C> <C>
Year ended December 31, 1998:
Third quarter............................................. $ 10.46 $ 4.17
Fourth quarter............................................ 8.92 3.33
Year ended December 31, 1999:
First quarter............................................. 20.67 7.71
Second quarter............................................ 39.00 16.92
Third quarter............................................. 43.50 26.67
Fourth quarter............................................ 61.75 35.04
</TABLE>
The prices above have been restated to reflect Allegiance's 3-for-2 stock
split, in the form of a 50% stock dividend, to stockholders of record on
February 18, 2000.
STOCKHOLDERS
There were approximately 146 owners of record of Allegiance common stock as
of March 24, 2000. This number excludes stockholders whose stock is held in
nominee or street name by brokers and Allegiance believes that it has a
significantly larger number of beneficial holders of common stock. A recent
reported last sale price of our common stock on the Nasdaq National Market is
set forth on the front cover of this report.
DIVIDENDS
We do not anticipate paying any cash dividends in the foreseeable future.
Any future determination to pay dividends will be at the discretion of our board
of directors and will be dependent upon then existing conditions, including our
financial condition, results of operations, contractual restrictions, capital
requirements, business prospects, and other factors our board of directors deems
relevant. In addition, our current financing arrangements effectively prohibit
us from paying cash dividends for the foreseeable future.
ITEM 6. SELECTED FINANCIAL DATA
The information required by this Item 6 is incorporated in this report by
reference from the section titled "Selected Financial Data" of our annual report
to stockholders for the fiscal year ended December 31, 1999 (the "annual
report").
ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF
OPERATIONS
The information required by this Item 7 is incorporated in this report by
reference from the section titled "Management's Discussion & Analysis of
Financial Condition & Results of Operations" of our annual report.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required by this Item 7A is incorporated in this report by
reference from the section titled "Management's Discussion & Analysis of
Financial Condition & Results of Operations" of our annual report.
29
<PAGE> 32
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this Item 8 is incorporated in this report by
reference from the financial statements contained in our annual report, except
for the financial statement schedules which are included in Item 14 of this
report. For a list of financial statements filed as part of this report, see
Item 14 of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF ALLEGIANCE
The information required by this Item 10 regarding Allegiance's directors
is incorporated in this report by reference from certain sections of our
definitive proxy statement for the annual meeting of stockholders for the fiscal
year ended December 31, 1999, which will be filed with the SEC no later than
April 30, 1999 (the "proxy statement"). You will find our response to this Item
10 in the sections titled "Who Are Allegiance's Directors and Officers?" and
"About the Board of Directors and its Committees" of our proxy statement.
Information required by this Item 10 regarding the executive officers of
Allegiance is included in Item 4A of Part I of this report as permitted by
Instruction 3 to Item 401(b) of Regulation S-K.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item 11 is incorporated in this report by
reference from the sections titled "Compensation of Executive Officers,"
"Compensation Committee Interlocks and Insider Participation" and "Executive
Agreements" of our proxy statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item 12 is incorporated in this report by
reference from the section titled "Security Ownership of Certain Beneficial
Owners and Management" of our proxy statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item 13 is incorporated in this report by
reference from the section titled "Certain Relationships and Related
Transactions" of our proxy statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) Financial Statements (the following financial information from our
annual report is incorporated by reference into Part II of this report):
Report of Independent Public Accountants
Consolidated Balance Sheets as of December 31, 1999 and 1998
Consolidated Statements of Operations for the years ended December 31,
1999 and 1998 and for the Period from Inception (April 22, 1997) to
December 31, 1997
Consolidated Statements of Stockholders' Equity (Deficit) for the
years ended December 31, 1999 and 1998 and for the Period from Inception
(April 22, 1997) to December 31, 1997
Consolidated Statements of Cash Flows for the years ended December 31,
1999, and 1998 and for the Period from Inception (April 22, 1997) to
December 31, 1997
30
<PAGE> 33
Notes to Consolidated Financial Statements
(a)(2) Financial Statement Schedules:
S-I Report of Independent Public Accountants on Financial Statement
Schedule
S-II Valuation and Qualifying Accounts for the years ended December
31, 1999 and 1998 and for the Period from Inception (April 22, 1997) to
December 31, 1997
(a)(3) The exhibits filed in response to Item 601 of Regulation S-K are
listed in the Exhibit Index starting on page E-1 of this report.
(b) Reports on Form 8-K
There were no reports filed during the three months ended December 31,
1999.
31
<PAGE> 34
SIGNATURES
According to the requirements of the Securities Exchange act of 1934,
Allegiance Telecom, Inc. has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized on March 29, 2000.
ALLEGIANCE TELECOM, INC.
By /s/ ROYCE J. HOLLAND
-----------------------------------
Royce J. Holland,
Chairman of the Board and
Chief Executive Officer
According to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons in the capacities indicated on
March 29, 2000.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
--------- --------
<C> <S>
/s/ ROYCE J. HOLLAND Chairman of the Board and Chief Executive
- ----------------------------------------------------- Officer (Principal Executive Officer)
Royce J. Holland
/s/ C. DANIEL YOST President, Chief Operating Officer and
- ----------------------------------------------------- Director
C. Daniel Yost
/s/ THOMAS M. LORD Executive Vice President, Chief Financial
- ----------------------------------------------------- Officer and Director (Principal Financial
Thomas M. Lord Officer)
/s/ G. CLAY MYERS Senior Vice President of Finance and
- ----------------------------------------------------- Accounting (Principal Accounting Officer)
G. Clay Myers
/s/ ANTHONY J. PARELLA Senior Vice President of Field Sales and
- ----------------------------------------------------- Customer Care and Director
Anthony J. Parella
/s/ JAMES E. CRAWFORD, III Director
- -----------------------------------------------------
James E. Crawford, III
/s/ JOHN B. EHRENKRANZ Director
- -----------------------------------------------------
John B. Ehrenkranz
/s/ PAUL J. FINNEGAN Director
- -----------------------------------------------------
Paul J. Finnegan
/s/ RICHARD D. FRISBIE Director
- -----------------------------------------------------
Richard D. Frisbie
/s/ REED E. HUNDT Director
- -----------------------------------------------------
Reed E. Hundt
/s/ ALAN E. GOLDBERG Director
- -----------------------------------------------------
Alan E. Goldberg
</TABLE>
32
<PAGE> 35
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
--------- --------
<C> <S>
/s/ JAMES N. PERRY, JR. Director
- -----------------------------------------------------
James N. Perry, Jr.
/s/ DINO VENDETTI Director
- -----------------------------------------------------
Dino Vendetti
</TABLE>
33
<PAGE> 36
SCHEDULE I -- REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULE
To the Board of Directors and Stockholders of Allegiance Telecom, Inc.:
We have audited, in accordance with auditing standards generally accepted
in the United States, the consolidated balance sheets of Allegiance Telecom,
Inc. and subsidiaries (the "Company") as of December 31, 1999 and 1998, and the
related consolidated statements of operations, stockholders' equity (deficit)
and cash flows for the years ended December 31, 1999, 1998 and for the period
from inception (April 22, 1997), to December 31, 1997, incorporated by reference
in this Form 10-K and have issued our report thereon dated January 26, 2000
except with respect to the matters discussed in Note 12, as to which the date is
March 1, 2000. These consolidated financial statements and the schedule referred
to below are the responsibility of the Company's management. Our responsibility
is to express an opinion on these consolidated financial statements and schedule
based on our audits.
Our audits were made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. Schedule II -- Valuation and
Qualifying Accounts is not a required part of the basic consolidated financial
statements but is supplementary information required by the Securities and
Exchange Commission. This information has been subjected to the auditing
procedures applied in our audit of the basic financial statements and, in our
opinion, is fairly stated in all material respects in relation to the basic
consolidated financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Dallas, Texas
March 1, 2000
S-I
<PAGE> 37
ALLEGIANCE TELECOM, INC.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998 AND FOR THE PERIOD FROM INCEPTION
(APRIL 22, 1997) TO DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
---------------------
BALANCE AT CHARGED TO CHARGED
BEGINNING OF COSTS AND TO OTHER BALANCE AT
DESCRIPTION PERIOD EXPENSES ACCOUNTS DEDUCTIONS END OF PERIOD
- ----------- ------------ ---------- -------- ---------- -------------
<S> <C> <C> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL ACCOUNTS
Year Ended December 31, 1999........ $577 $7,397 $222 $(396) $7,800
Year Ended December 31, 1998........ $ -- $ 650 $ -- $ (73) $ 577
For the period from inception (April
22, 1997) to December 31, 1997... $ -- $ -- $ -- $ -- $ --
</TABLE>
S-II
<PAGE> 38
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
1.1 Form of Underwriting Agreement (Exhibit 1.1 to Allegiance's
Registration Statement on Form S-1, as amended, Registration
No. 333-53479 (the "Form S-1 Registration Statement")).
3.1 Amended and Restated Certificate of Incorporation (Exhibit
3.1 to Allegiance's Form 10-Q for the period ended June 30,
1998).
3.2 Certificate of Correction to Amended and Restated
Certificate of Incorporation (Exhibit 3.2 to Allegiance's
Form 10-K for the period ended December 31, 1998).
3.3 Amended and Restated By-Laws (Exhibit 3.2 to Allegiance's
Form 10-Q for the period ended June 30, 1998).
4.1 Indenture, dated as of July 7, 1998, by and between
Allegiance and The Bank of New York, as trustee (including
the Form of Notes) (Exhibit 4.1 to Allegiance's Registration
Statement on Form S-1, as amended, Registration No.
333-69543).
4.2 Indenture, dated as of February 3, 1998, by and between
Allegiance and The Bank of New York, as trustee (Exhibit 4.2
to Allegiance's Registration Statement on Form S-4, as
amended, Registration No. 333-49013 (the "Form S-4
Registration Statement")).
4.3 Form of 11 3/4% Senior Discount Notes (Exhibit 4.3 to the
Form S-4 Registration Statement).
4.4 Collateral Pledge and Security Agreement, dated as of July
7, 1998, by and between Allegiance and The Bank of New York,
as trustee (Exhibit 4.4 to Allegiance's Registration
Statement on Form S-1, as amended, Registration No.
333-69543).
10.1 Stock Purchase Agreement, dated August 13, 1997, between
Allegiance LLC and Allegiance (Exhibit 10.1 to the Form S-4
Registration Statement).
10.2 Securityholders Agreement, dated August 13, 1997, among
Allegiance LLC, the Fund Investors, the Management Investors
and Allegiance (Exhibit 10.2 to the Form S-4 Registration
Statement).
10.3 Amended and Restated Registration Agreement, dated September
13, 1999, among certain stockholders and Allegiance (Exhibit
99.4 to Allegiance's Form 8-K filed with the SEC on
September 22, 1999).
10.4 Warrant Registration Rights Agreement, dated as of January
29, 1998, by and among Allegiance and Morgan Stanley & Co.
Incorporated, Salomon Brothers Inc, Bear, Stearns & Co. Inc.
and Donaldson, Lufkin & Jenrette Securities Corporation, as
initial purchasers of the 11 3/4% Senior Discount Notes
(Exhibit 10.11 to the Form S-4 Registration Statement).
+10.5 Allegiance Telecom, Inc. 1997 Nonqualified Stock Option Plan
(Exhibit 10.4 to the Form S-4 Registration Statement).
+10.6 Allegiance Telecom, Inc. 1998 Stock Incentive Plan (Exhibit
10.6 to the Form S-1 Registration Statement).
+10.7 First Amendment to the Allegiance Telecom, Inc. 1998 Stock
Incentive Plan (Exhibit 10.7 to Allegiance's Form 10-K for
the period ended December 31, 1998).
*+10.8 Second Amendment to the Allegiance Telecom, Inc. 1998 Stock
Incentive Plan.
*+10.9 Amended and Restated Executive Purchase Agreement, dated
December 13, 1999, between Allegiance and Royce J. Holland.
</TABLE>
E-1
<PAGE> 39
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
*+10.10 Amended and Restated Executive Purchase Agreement, dated
December 13, 1999, between Allegiance and Thomas M. Lord.
*+10.11 Amended and Restated Executive Purchase Agreement, dated
December 13, 1999, between Allegiance and C. Daniel Yost.
+10.12 Form of Executive Purchase Agreement among Allegiance LLC,
Allegiance and each of the other Management Investors
(Exhibit 10.8 to the Form S-4 Registration Statement).
10.13 Warrant Agreement, dated February 3, 1998, by and between
Allegiance and The Bank of New York, as Warrant Agent
(including the form of the Warrant Certificate) (Exhibit
10.9 to the Form S-4 Registration Statement).
10.14 General Agreement, dated October 16, 1997, as amended,
between Allegiance and Lucent Technologies Inc. (Exhibit
10.10 to the Form S-4 Registration Statement).
10.15 Form of Indemnification Agreement by and between Allegiance
and its directors and officers (Exhibit 10.13 to the Form
S-1 Registration Statement).
*10.16 Credit and Guaranty Agreement, dated February 15, 2000,
among Allegiance Telecom, Inc., Allegiance Telecom Company
Worldwide (as successor to Allegiance Finance Company,
Inc.), certain subsidiaries of Allegiance Telecom, Inc.,
various lenders, Goldman Sachs Credit Partners L.P., a
Syndication Agent and Sole Lead Arranger, Toronto Dominion
(Texas), Inc., as Administrative Agent, and BankBoston, N.A.
and Morgan Stanley Senior Funding, Inc., as Co-Documentation
Agents.
*11.1 Statement Regarding Computation of Per Share Earnings (Loss)
for the year ended December 31, 1999.
*11.2 Statement Regarding Computation of Per Share Earnings (Loss)
for the year ended December 31, 1998.
*11.3 Statement Regarding Computation of Per Share Earnings (Loss)
for the period from inception (April 22, 1997) through
December 31, 1997.
*13.1 Portions of Allegiance's Annual Report to Stockholders for
the year ended December 31, 1999.
*21.1 Subsidiaries of Allegiance.
*23.1 Consent of Arthur Andersen LLP.
*27.1 Financial Data Schedule for the year ended December 31,
1999.
</TABLE>
- ---------------
* Filed as part of this report.
+ Management contract or compensatory plan or arrangement filed as an exhibit to
this report pursuant to Items 14(a) and 14(c) of Form 10-K.
E-2
<PAGE> 1
EXHIBIT 10.8
SECOND AMENDMENT
TO THE
ALLEGIANCE TELECOM, INC.
1998 STOCK INCENTIVE PLAN
WHEREAS, the Allegiance Telecom, Inc. 1998 Stock Incentive Plan was initially
adopted by the board of directors and stockholders of Allegiance Telecom, Inc.
("Allegiance").
WHEREAS, Allegiance's board of directors is amending the Allegiance Telecom,
Inc. 1998 Stock Incentive Plan in accordance with Section 16 of such plan.
RESOLVED, that the number of shares of common stock available under the
Allegiance Telecom, Inc. 1998 Stock Incentive Plan be increased by substituting
the number "10,155,778" for the number "6,155,778" in Section 4 of this plan.
Such amendment was approved by the board of directors on December 8, 1999.
FURTHER RESOLVED, that as a result of the 3-for-2 stock split, in the form of a
50% stock dividend, the "10,155,778" number shall be replaced by "15,233,667",
which shall be the aggregate number of shares available under the 1998 Stock
Incentive Plan.
FURTHER RESOLVED, that the officers of Allegiance be, and hereby are, authorized
to take whatever actions are necessary to carry out the intent and purpose of
the foregoing amendment.
<PAGE> 1
EXHIBIT 10.9
AMENDED AND RESTATED EXECUTIVE PURCHASE AGREEMENT
THIS AMENDED AND RESTATED EXECUTIVE PURCHASE AGREEMENT (this
"Agreement") is made as of December 13, 1999, by and between Allegiance Telecom,
Inc., a Delaware corporation (the "Company") and Royce J. Holland ("Executive"),
and the Royce J. Holland Family Limited Partnership (the "Partnership," and
collectively with Executive, the "Executive Purchasers"). This Agreement amends
and restates the Executive Purchase Agreement dated as of August 13, 1997 (the
"Original Agreement") by and between the Executive Purchasers and Transcend
Telecom, L.L.C., a Delaware limited liability company (the "LLC") and the
Company (then known as "Transcend Telecom, Inc."). Capitalized terms used but
not otherwise defined herein have the meanings ascribed to such terms in
paragraph 6 hereof.
NOW, THEREFORE, in consideration of the mutual promises made
herein and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto, intending to be legally
bound, agree as follows:
1. PURCHASE AND SALE OF EXECUTIVE SECURITIES.
(a) Initial Capital Contribution and Issuance of Executive
Securities. Executive purchased the Executive Securities as provided for in the
Original Agreement.
(b) Acknowledgment of At-Will Employment. Each of the
Executive Purchasers acknowledges and agrees that no agreement or arrangement
between the Executive Purchasers and the Company (including, without limitation,
the issuance of the Executive Securities to the Executive Purchasers and the
execution and delivery of this Agreement) shall entitle Executive to remain in
the employment of the Company and its Subsidiaries or affect the right of the
Company or its Subsidiaries to terminate Executive's employment at any time and
for any reason.
2. VESTING OF EXECUTIVE SECURITIES.
(a) Vesting Schedule. Except as otherwise provided herein, an
amount of Unvested Securities (as defined below) shall vest in accordance with
the following schedule:
<TABLE>
<CAPTION>
Cumulative Percentage of Executive
Date Securities Vested on Such Date
---- ----------------------------------
<S> <C>
August 13, 1997 20%
August 13, 1998 60%
August 13, 1999 80%
August 13, 2000 100%
</TABLE>
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<PAGE> 2
Notwithstanding the foregoing sentence, and except as otherwise provided herein,
the above vesting schedule shall cease and no Unvested Securities (as defined
below) shall vest after the date on which Executive's employment with the
Company and its Subsidiaries terminates for any reason; provided that if
Executive's employment is terminated by the Company without Cause, the Executive
Securities shall thereafter continue to vest in accordance with the above
schedule so long as Executive has not committed a Vesting Termination Breach
(upon which breach the vesting schedule shall cease, and no Unvested Securities
(as defined below) shall vest on or after the date of the first such breach). In
the event the Company has alleged that Executive has committed a Vesting
Termination Breach, Executive disputes such allegation, and the matter is
subject to the dispute resolution provisions set forth in paragraph 5, vesting
shall be tolled upon the date of the allegation of such breach; provided that
(i) if it is ultimately resolved under paragraph 5 that Executive has committed
a Vesting Termination Breach, the tolling shall become a permanent cessation
such that vesting shall have forever ceased upon the date of such allegation,
and (ii) if it is ultimately resolved under paragraph 5 that Executive did not
commit a Vesting Termination Breach, a number of Unvested Securities shall vest
giving retroactive effect to such vesting schedule such that there shall exist a
number of Vested Securities as if the vesting schedule had not been tolled as a
result of such allegations. Executive Securities which have become vested
pursuant to this Agreement are referred to herein as "Vested Securities," and
all other Executive Securities are referred to herein as "Unvested Securities."
(b) Acceleration upon a Qualified Sale of the Company. All
Unvested Securities shall become Vested Securities upon the consummation of a
Qualified Sale of the Company (as defined below) so long as Executive is
employed by the Company or any of its Subsidiaries on the date of such sale (or,
if Executive's employment was terminated by the Company without Cause, so long
as Executive has not committed a Vesting Termination Breach). A "Qualified Sale
of the Company" means either (i) the sale, lease, transfer, conveyance or other
disposition, 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, or (ii)
a transaction or series of transactions (including by way of merger,
consolidation, or sale of stock, but not including a Public Offering) the result
of which is that the holders of the Company's outstanding voting stock
immediately prior to such transaction are after giving effect to such
transaction no longer, in the aggregate, the "beneficial owners" (as such term
is defined in Rule 13d-3 and Rule 13d-5 promulgated under the Securities
Exchange Act), directly or indirectly through one or more intermediaries, of
more than 50% of the voting power of the outstanding voting stock of the
Company, in each case where the consideration for such assets or stock in such
sale or transfer consists of cash and/or publicly traded equity securities for
at least 50% of the outstanding stock of the Company (e.g., 100% of such
consideration would have to consist of cash and/or publicly traded equity
securities if only 50.01% of such stock were sold in such transaction).
(c) Acceleration upon a Public Offering. The vesting schedule
set forth in (a) above gives effect to the fact that the Company consummated its
initial Public Offering on July 7, 1998 and Executive was employed by the
Company or any of its Subsidiaries on the closing date of such offering.
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<PAGE> 3
(d) Acceleration upon Death or Disability. All Unvested Shares
shall become Vested Shares if Executive's employment with the Company or any of
its Subsidiaries terminates by reason of Executive's death or Disability.
(e) Other Acceleration. Subject to paragraph 3(h) hereof, any
Unvested Securities which the Company (or its assignees) has not elected to
repurchase in the Repurchase Notice (as defined below) (including Unvested
Securities originally included in the Repurchase Notice, but for which the
election to repurchase was rescinded, pursuant to the terms of paragraph 3, by
all of the Company and/or its assignees having made such election) shall
thereafter be deemed Vested Securities.
3. REPURCHASE OPTION.
(a) The Repurchase Option. Upon (i) the termination of
Executive's employment with the Company and its Subsidiaries for any reason
other than a termination by the Company without Cause, or (ii) if Executive's
employment is terminated by the Company without Cause, upon Executive's
commission of a Vesting Termination Breach (the occurrence of either (i) or
(ii), a "Repurchase Event"), the Unvested Securities then in existence (whether
held by an Executive Purchaser or one or more of the Executive Purchasers'
transferees) will be subject to repurchase by the Company at the Company's
election pursuant to the terms and conditions set forth in this paragraph 3 (the
"Repurchase Option"). In the event that the Company has alleged that Executive
has committed a Vesting Termination Breach, Executive disputes such allegation,
and the matter is subject to the dispute resolution provisions set forth in
paragraph 6, the closing of the repurchase under this paragraph 3 shall not
occur unless and until it is ultimately determined that Executive committed a
Vesting Termination Breach; provided that during the pendency of such
proceeding, the Executive Securities specified in the Repurchase Notice (as
defined below) shall not be transferred by any holder thereof to any Person.
(b) Repurchase Price. The repurchase price (the "Repurchase
Price") of any Unvested Securities to be repurchased shall be the lesser of (x)
the Fair Market Value of such Securities, and (y) the Original Cost of such
Securities (with securities having the lowest Original Cost subject to
repurchase prior to securities with a higher Original Cost).
(c) Exercise of Repurchase Option. The Company may elect to
purchase all or any portion of the Executive Securities by delivering written
notice (the "Repurchase Notice") to the holder or holders of the Executive
Securities within 30 days after the Repurchase Event. The Repurchase Notice
shall set forth the amount, type, and class of Executive Securities to be
acquired from each such holder. The Executive Securities to be repurchased by
the Company shall first be satisfied to the extent possible from the Executive
Securities held by Executive at the time of delivery of the Repurchase Notice.
If the amount of Executive Securities then held by Executive is less than the
total amount of Executive Securities that the Company has elected to purchase,
the Company shall Purchase the remaining securities elected to be purchased from
the other holder(s) of Executive Securities, pro rata according to the amount of
Executive Securities held of record by each such other holder at the time of
delivery of the Repurchase Notice. The amount of Unvested Securities to be
repurchased hereunder shall be deemed to be allocated among Executive and the
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<PAGE> 4
other holders of repurchased Executive Securities (if any) pro rata according to
the amount of Executive Securities to be purchased from such persons.
(d) Assignment by the Company. The Company, by action of the
Board, will have the right to assign all or any portion of its repurchase rights
hereunder to any holder of Investor Equity and/or to any executive employee of
the Company or any of its Subsidiaries.
(e) Fair Market Value of Repurchased Shares.
(i) The "Fair Market Value" of Executive Securities
subject to repurchase hereunder shall be determined in accordance with
this paragraph (e).
(ii) The Company and the holders of a majority of the
Executive Securities to be repurchased shall attempt in good faith to
agree on the Fair Market Value of the Executive Securities. Any
agreement reached by such Persons shall be final and binding on all
parties hereto.
(iii) If such Persons are unable to reach such
agreement within 20 days after the giving of Repurchase Notice, the
Fair Market Value of any Executive Securities that are publicly traded
shall be the average, over a period of 21 days consisting of the date
of the Repurchase Event and the 20 consecutive business days prior to
that date, of the average of the closing prices of the sales of such
securities on all securities exchanges on which such securities may at
that time be listed, or, if there have been no sales on any such
exchange on any day, the average of the highest bid and lowest asked
prices on all such exchanges at the end of such day, or, if on any day
such securities are not so listed, the average of the representative
bid and asked prices quoted in the Nasdaq System as of 4:00 P.M., New
York time, or, if on any day such securities are not quoted in the
Nasdaq System, the average of the highest bid and lowest asked prices
on such day in the domestic over-the-counter market as reported by the
National Quotation Bureau Incorporated, or any similar successor
organization.
(iv) If such Persons are unable to reach agreement
pursuant to subparagraph (ii) within 20 days after the giving of
Repurchase Notice, and to the extent any Executive Securities are not
publicly traded:
(A) The Company and the holders of a
majority of the Executive Securities shall each, within 10 days
thereafter, choose one investment banker or other appraiser with
experience in analyzing and making determinations concerning matters in
the telecommunications industry and in valuing entities like the
Company, and the two investment bankers/appraisers so selected shall
together select a third investment banker/appraiser similarly
qualified.
(B) The three investment bankers/appraisers
shall first appraise the fair market value of the Company (based on the
assumption of an orderly, arm's length sale to a willing unaffiliated
buyer). The three investment bankers/appraisers shall then
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<PAGE> 5
appraise the fair market value of such non-publicly-traded Executive
Securities as follows: the fair market value of each share of Common
Stock shall be equal to the fair market value of the Company divided by
the total number of shares of Common Stock outstanding on the date of
the Repurchase Event (determined on a fully diluted basis (x) with
respect to all outstanding securities convertible into the Company's
Common Stock, assuming the conversion of such convertible securities
(without regard to any conditions or other restrictions on such
conversion), and (y) with respect to all outstanding options, warrants
and other rights or securities exercisable or exchangeable for shares
of the Company's Common Stock, in accordance with the Treasury Stock
Method under generally accepted accounting principles for determination
of fully diluted earnings per share).
The three investment bankers/appraisers shall, within thirty days of
their retention, provide the written results of such appraisals to the
Company and/or its assignees and to each of the holders of Executive
Securities.
(C) The "Fair Market Value" of the
non-publicly-traded Executive Securities to be repurchased shall be the
average of the two appraisals closest to each other, and such amount
shall be final and binding on all parties hereto; provided that the
Company (and/or any assignee) may at any time within five days after
receiving written notice of such determination rescind its prior
exercise of the Repurchase Option by giving written notice of such
revocation to the holder or holders of the Executive Securities to be
repurchased, and upon such revocation the revoking party will be
treated as if it had never exercised such Repurchase Option (it being
understood that such revoking parties shall thereafter have no right to
re-exercise such Repurchase Option).
(D) The costs of such appraisal shall be
allocated between the parties based on the percentage which the portion
of the contested amount not awarded to each party bears to the amount
actually contested by such party; provided that if any parties revoke
their exercise of the Repurchase Option pursuant to paragraph (C)
above, such revoking parties shall bear (pro rata among such revoking
parties based on the number of Executive Securities with respect to
which each such revoking party had initially exercised its Repurchase
Option) any appraisal costs that would be allocated to the holder(s) of
Executive Securities under this paragraph (D).
(f) Closing of the Repurchase. Within 10 business days after
the Repurchase Price for the Executive Securities to be repurchased has been
determined, the Company shall send a notice to each holder of Executive
Securities setting forth the consideration to be paid for such shares and the
time and place for the closing of the transaction, which date shall not be more
than 30 days nor less than five days after the delivery of such notice. At such
closing, the holders of Executive Securities shall deliver all certificates (if
any exist) evidencing the Executive Securities to be repurchased to the Company
(and/or any assignees of the Company's repurchase right), and the Company
(and/or any assignees) shall pay for the Executive Securities to be purchased
pursuant to the Repurchase Option by delivery of a check or wire transfer of
immediately available funds in the aggregate amount of the Repurchase Price for
such securities; provided that in the event the Board determines in its good
faith discretion that the Company is not in a position to pay in cash any
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<PAGE> 6
or all of the Repurchase Price for Executive Securities to be repurchased by it.
The Company may pay, in the form of a promissory note, a portion of the
Repurchase Price for such securities equal to (x) the aggregate Repurchase Price
for the Executive Securities to be repurchased minus (y) the Original Cost of
such securities. Such a promissory note shall be subordinated to all of the
Company's senior debt obligations either then or thereafter incurred, shall earn
simple annual interest at the Base Rate, shall have all principal and accrued
interest due and payable upon maturity, and shall mature upon the earliest to
occur of a Qualified Sale of the Company or the fifth anniversary of the
issuance of such promissory note.
The purchasers of Executive Securities hereunder shall be entitled to receive
customary representations and warranties from the sellers regarding good title
to such shares, free and clear of any liens or encumbrances.
(g) Restrictions. Notwithstanding anything to the contrary
contained in this Agreement, all repurchases of Executive Securities by the
Company shall be subject to applicable restrictions contained in the Delaware
General Corporation Law and in the Company's and its Subsidiaries' debt and
equity financing agreements. If any such restrictions prohibit the repurchase of
Executive Securities hereunder which the Company is otherwise entitled or
required to make, the time periods provided in this paragraph 3 shall be
suspended, and the Company may make such repurchases as soon as it is permitted
to do so under such restrictions, unless by such time such Repurchase Option has
terminated pursuant to paragraph 3(h); provided that notwithstanding the
foregoing, in no event shall the time periods provided in this paragraph 3 be
suspended for more than 6 months.
(h) Termination of Repurchase Option. All rights under this
paragraph 3 of the Company and/or its assignees to repurchase Executive
Securities shall terminate upon a Qualified Sale of the Company.
4. RESTRICTIONS ON TRANSFER.
(a) Opinion of Valid Transfer. In addition to any other
restrictions on transfer imposed by this Agreement, or the Securityholders
Agreement, no holder of Executive Securities may sell, transfer or dispose of
any Executive Securities (except pursuant to an effective registration statement
under the Securities Act) without first delivering to the Company an opinion of
counsel (reasonably acceptable in form and substance to the Company) that
neither registration nor qualification under the Securities Act and applicable
state securities laws is required in connection with such transfer.
(b) Restrictive Legend. The certificates representing
Executive Securities shall bear the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE WERE ORIGINALLY ISSUED
ON AUGUST 13, 1997, HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "ACT"), OR THE SECURITIES LAWS OF ANY STATE,
AND SUCH
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<PAGE> 7
SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR AN EXEMPTION FROM
REGISTRATION THEREUNDER. THE SECURITIES REPRESENTED BY THIS CERTIFICATE
ARE ALSO SUBJECT TO ADDITIONAL RESTRICTIONS ON TRANSFER AND REPURCHASE
OPTIONS SET FORTH IN AN EXECUTIVE PURCHASE AGREEMENT BETWEEN THE ISSUER
OF SUCH SECURITIES (THE "ISSUER") AND THE INITIAL HOLDER OF SUCH
SECURITIES (THE "INITIAL HOLDER"). A COPY OF SUCH AGREEMENT MAY BE
OBTAINED BY THE HOLDER HEREOF AT THE ISSUER'S PRINCIPAL PLACE OF
BUSINESS WITHOUT CHARGE."
The legend set forth above shall be removed from the certificates evidencing any
shares which cease to be Executive Securities.
(c) Retention of Executive Stock.
(i) No Executive Purchaser shall sell, transfer,
assign, pledge or otherwise dispose of (whether with or without
consideration and whether voluntarily or involuntarily or by operation
of law) any interest in any Unvested Securities (a "Transfer"), except
pursuant to (A) the repurchase provisions of paragraph 3 hereof or of
the LLC Agreement, (B) the "Participation Rights" or "Put" provisions
set forth in the Securityholders Agreement, or (C) a Sale of the
Company (as defined in the Securityholders Agreement) (each of (A),
(B), and (C), an "Exempt Transfer").
(ii) The restrictions contained in this paragraph (c)
shall not apply with respect to transfers of Unvested Securities (A)
pursuant to applicable laws of descent and distribution or (B) among
Executive's Family Group; provided that the restrictions contained in
this paragraph shall continue to be applicable to the Unvested
Securities after any such Transfer, the transferees of such Unvested
Securities shall have agreed in writing to be bound by the provisions
of this Agreement with respect to the Unvested Securities so
transferred, and (prior to the death of Executive) each such transferee
of Unvested Securities shall have entered into proxies and other
agreements satisfactory to the holders of a majority of the Investor
Equity pursuant to which Executive shall have the sole right to vote
such Unvested Securities for all purposes. For purposes of this
Agreement, "Family Group" means Executive's spouse and descendants
(whether natural or adopted), any trust which at the time of such
Transfer and at all times thereafter is and remains solely for the
benefit of Executive and/or Executive's spouse and/or descendants and
any family partnership the partners of which consist solely of
Executive, such spouse, such descendants or such trusts.
5. CONFIDENTIALITY, NONCOMPETE, AND NONSOLICITATION.
(a) Nondisclosure and Nonuse of Confidential Information.
Executive shall not disclose or use at any time, either during his employment
with the Company or thereafter, any Confidential Information (as defined below)
of which Executive is or becomes aware, whether or not such information is
developed by him, except to the extent that such disclosure or use is directly
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<PAGE> 8
related to and required by Executive's performance of duties assigned to
Executive or the Company, or to the extent such disclosure is permissible under
the confidentiality provisions set forth in the Stock Purchase Agreement.
Executive shall take all appropriate steps to safeguard Confidential Information
and to protect it against disclosure, misuse, espionage, loss and theft. As used
in this Agreement, the term "Confidential Information" means information that is
not generally known to the public and that is used, developed or obtained by the
Company, or its Subsidiaries in connection with their business, including but
not limited to (i) products or services, (ii) fees, costs and pricing
structures, (iii) designs, (iv) analysis, (v) drawings, photographs and reports,
(vi) computer software, including operating systems, applications and program
listings, (vii) flow charts, manuals and documentation, (viii) data bases, (ix)
accounting and business methods, (x) inventions, devices, new developments,
methods and processes, whether patentable or unpatentable and whether or not
reduced to practice, (xi) customers and clients and customer or client lists,
(xii) copyrightable works, (xiv) all technology and trade secrets, (xv) business
plans and financial models, and (xvi) all similar and related information in
whatever form. Confidential Information shall not include any information that
has been published in a form generally available to the public prior to the date
Executive proposes to disclose or use such information. Information shall not be
deemed to have been published merely because individual portions of the
information have been separately published, but only if all material features
constituting such information have been published in combination.
Notwithstanding the foregoing, "Confidential Information" shall not include any
information of which (a) Executive became aware prior to his affiliation with
the Company, (b) Executive learns from sources other than the Company or its
Subsidiaries, whether prior to or after such information is actually disclosed
by the Company or its Subsidiaries or (c) is disclosed in a prospectus or other
documents for dissemination to the public.
(b) The Company's Ownership of Intellectual Property.
(i) Acknowledgment of Company Ownership. In the event
that Executive as part of his activities on behalf of the Company
generates, authors or contributes to any invention, design, new
development, device, product, method or process (whether or not
patentable or reduced to practice or constituting Confidential
Information), any copyrightable work (whether or not constituting
Confidential Information) or any other form of Confidential Information
relating directly or indirectly to the Company's business as now or
hereafter conducted (collectively, "Intellectual Property"), Executive
acknowledges that such Intellectual Property is the exclusive property
of the Company and hereby assigns all right, title and interest in and
to such Intellectual Property to the Company. Any copyrightable work
prepared in whole or in part by Executive will be deemed "a work made
for hire" under Section 201(b) of the 1976 Copyright Act, and the
Company shall own all of the rights comprised by the copyright therein.
Executive shall promptly and fully disclose all Intellectual Property
to the Company and shall cooperate with the Company to protect the
Company's interests in and rights to such Intellectual Property
(including, without limitation, providing reasonable assistance in
securing patent protection and copyright registrations and executing
all documents as reasonably requested by the Company, whether such
requests occur prior to or after termination of Executive's employment
with the Company).
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<PAGE> 9
(ii) Executive Invention. Executive understands that
paragraph (b)(i) of this Agreement regarding the Company's ownership of
Intellectual Property does not apply to any invention for which no
equipment, supplies, facilities or trade secret information of the
Company were used and which was developed entirely on Executive's own
time, unless (i) the invention relates to the business of the Company
or to the Company's actual or demonstrably anticipated research or
development or (ii) the invention results from any work performed by
Executive for the Company.
(c) Delivery of Materials upon Termination of Employment. As
requested by the Company from time to time and upon the termination of
Executive's employment with the Company for any reason, Executive shall promptly
deliver to the Company all copies and embodiments, in whatever form, of all
Confidential Information and Intellectual Property in Executive's possession or
within his control (including, but not limited to, written records, notes,
photographs, manuals, notebooks, documentation, program listings, flow charts,
magnetic media, disks, diskettes, tapes and all other materials containing any
Confidential Information or Intellectual Property) irrespective of the location
or form of such material and, if requested by the Company, shall provide the
Company with written confirmation that all such materials have been delivered to
the Company.
(d) Noncompete. Executive acknowledges and agrees with the
Company that in the course of his employment with the Company he shall become
familiar with the Company's trade secrets and with other Confidential
Information concerning the Company, that Executive's services to the Company are
unique in nature and of an extraordinary value to the Company, and that the
Company would be irreparably damaged if Executive were to provide similar
services to any person or entity competing directly with the Company. In
connection with the issuance to Executive of the Executive Securities hereunder,
in consideration of and as an inducement to the Company's entering into this
Agreement, Executive accordingly covenants and agrees with the Company that
during the Noncompete Period (as defined below), Executive shall not, directly
or indirectly, either for himself or for or through any other individual,
corporation, partnership, joint venture or other entity, participate in any
business or enterprise conducting business in any Covered MSA which engages or
proposes to engage in the provision of competitive local exchange
telecommunications services. For purposes of this Agreement, (i) the term
"participate in" shall include, without limitation, having any direct or
indirect interest in any corporation, partnership, joint venture or other
entity, whether as a sole proprietor, owner, stockholder, partner, joint
venturer, creditor or otherwise, or rendering any direct or indirect service or
assistance to any individual, corporation, partnership, joint venture and other
business entity (whether as a director, officer, manager, supervisor, employee,
agent, consultant or otherwise), other than ownership of up to 2% of the
outstanding stock of any company (public or private) wherein Executive has no
material involvement in the management (other than as an independent director
for which Executive receives no or only nominal cash compensation), (ii) the
term "MSA" means metropolitan statistical area and (iii) the term "Covered MSA"
means (1) any MSA in which the Company is engaged in business or has at any time
had an Approved Business Plan (as defined in the Stock Purchase Agreement) to
engage in business. Executive agrees that this covenant is reasonable with
respect to its duration, geographical area and scope.
(e) Nonsolicitation. During the Noncompete Period, Executive
shall not (i) induce or attempt to induce any employee of the Company or any
Subsidiary to leave the employ of
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<PAGE> 10
the Company or any Subsidiary, or in any way interfere with the relationship
between the Company or any Subsidiary and any employee thereof, (ii) hire
directly or through another entity any person who was an employee of the Company
or any Subsidiary at any time during the six months prior to the date such
person is to be so hired, or (iii) induce or attempt to induce any customer,
supplier, licensee or other business relation of the Company or any Subsidiary
to cease doing business with the Company or any Subsidiary, or in any way
interfere with the relationship between any such customer, supplier, licensee or
business relation of the Company and its Subsidiaries (including, without
limitation, making any negative statements or communications concerning the
Company or any Subsidiary).
(f) Noncompete Period. The "Noncompete Period" shall commence
on the date hereof and shall continue until the first anniversary of the
termination of Executive's employment with the Company and its Subsidiaries for
any reason; provided that the Noncompete Period shall terminate immediately upon
a Qualified Sale of the Company.
(g) Judicial Modification. If the final judgment of a court of
competent jurisdiction, or any final non-appealable decision of an arbitrator in
connection with a mandatory arbitration, declares that any term or provision of
this paragraph is invalid or unenforceable, the parties agree that the court
making the determination of invalidity or unenforceability shall have the power
to reduce the scope, duration, or geographic area of the term or provision, to
delete specific words or phrases, or to replace any invalid or unenforceable
term or provision with a term or provision that is valid and enforceable and
that comes closest to expressing the intention of the invalid or unenforceable
term or provision, and this Agreement shall be enforceable as so modified after
the expiration of the time within which the judgment or decision may be
appealed.
(h) Dispute Resolution.
(i) Arbitration. All claims, disputes, controversies
and other matters in question arising out of or relating to this
paragraph 5, or to the alleged breach hereof, shall be settled by
preliminary negotiation between the Company or other Person bringing
such allegation and the Executive (the "parties") or, if such
preliminary negotiation is unsuccessful for any reason (but in any
event not later than 10 days after commencement of such negotiation),
by binding arbitration in accordance with the procedures set forth in
this paragraph (h). Without limiting the mandatory arbitration
provision set forth in this paragraph (h), each of the parties hereto
(A) waives the right to bring an action in any court of competent
jurisdiction with respect to any such claims, controversies and
disputes (other than any such action to enforce the award or other
remedy resulting from any arbitration pursuant to this paragraph (h) or
to prevent any arbitrator from exceeding the authority granted to the
arbitrators hereunder) and (B) waives the right to trial by jury in any
suit, action or other proceeding brought on, with respect to or in
connection with this Agreement.
(ii) Binding Arbitration. Upon filing of a notice of
demand for binding arbitration by any party hereto, arbitration shall
be commenced and conducted as follows:
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(A) Arbitrators. All claims, disputes,
controversies and other matters (collectively "matters") in
question shall be referred to and decided and settled by a
panel of three arbitrators with experience in analyzing,
understanding, and making determinations concerning matters in
the telecommunications industry, one selected by each of the
parties and the third by the two arbitrators so selected.
(B) Cost of Arbitration. The cost of each
arbitration proceeding, including without limitation the
arbitrators' compensation and expenses, hearing room charges,
court reporter transcript charges, etc., shall be allocated
among the parties based upon the percentage which the portion
of the contested amount not awarded to each party bears to the
amount actually contested by such party. The arbitrators shall
also award the party that prevails substantially in its
pre-hearing position its reasonable attorneys' fees and costs
incurred in connection with the arbitration. The arbitrators
are specifically instructed to award attorneys' fees for
instances of abuse of the discovery process.
(C) Situs of Proceedings. The situs of the
arbitration shall be in New York, New York, or such other
place as is mutually agreeable to the parties.
(iii) Pre-hearing Discovery. The parties shall have
the right to conduct and enforce pre-hearing discovery in accordance
with the then current Federal Rules of Civil Procedure, subject to the
following limitations: (A) each party may serve no more than one set of
interrogatories which set shall ask no more than twenty questions; (B)
each party may depose the other party's expert witnesses who will be
called to testify at the hearing, plus up to six fact witnesses without
regard to whether they will be called to testify (each party will be
entitled to a total of not more than 24 hours of depositions of the
other party's witnesses, and not more than 6 hours with respect to any
single witness); and (C) document discovery and other discovery shall
be under the control of and enforceable by the arbitrators, and all
disputes relating thereto shall be decided by the arbitrators.
Notwithstanding any contrary foregoing provisions, the arbitrators
shall have the power and authority to, and to the fullest extent
practicable shall, abbreviate arbitration discovery in a manner which
is fair to all parties in order to expedite the conclusion of each
alternative dispute resolution proceeding.
(iv) Pre-hearing Conference. Within thirty (30) days
after filing of notice of demand for binding arbitration, the
arbitrators shall hold a pre-hearing conference to establish schedules
for completion of discovery, for exchange of exhibit and witness lists,
for arbitration briefs, for the hearing, and to decide procedural
matters and all other questions that may be presented.
(v) Hearing Procedures. The hearing shall be
conducted to preserve its privacy and to allow reasonable procedural
due process. Rules of evidence need not be strictly followed, and the
hearing shall be streamlined as follows: (A) documents shall be
self-authenticating, subject to valid objection by the opposing party;
(B) expert reports, witness biographies, depositions and affidavits may
be utilized, subject to the opponent's right of a live
cross-examination of the witness in person; (C) charts, graphs and
summaries shall be utilized to present voluminous data, provided (1)
that the underlying data was made
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<PAGE> 12
available to the opposing party thirty (30) days prior to the hearing,
and (2) that the preparer of each chart, graph or summary is available
for explanation and live cross-examination in person; (D) the hearing
should be held on consecutive business days without interruption to the
maximum extent practicable; and (E) the arbitrators shall establish all
other procedural rules for the conduct of the arbitration in accordance
with the rules of arbitration of the American Arbitration Association.
(vi) Governing Law. This arbitration provision shall
be governed by, and all rights and obligations specifically enforceable
under and pursuant to, the Federal Arbitration Act (9 U.S.C. Section 1,
et seq.).
(vii) Consolidation. No arbitration shall include, by
consolidation, joinder or in any other manner, any additional person
not a party to this Agreement (other than affiliates of any such party,
which affiliates may be included in the arbitration), except by written
consent of the parties hereto containing a specific reference to this
Agreement.
(viii) Award; Time Limit. The arbitrators are
empowered to render an award of general compensatory damages and
equitable relief (including, without limitation, injunctive relief),
but is not empowered to award punitive damages. The award rendered by
the arbitrators (A) shall be final; (B) shall not constitute a basis
for collateral estoppel as to any issue; and (C) shall not be subject
to vacation or modification. The arbitrators shall render any award or
otherwise conclude the arbitration no later than 120 days after the
date notice is given pursuant to this paragraph (h).
(ix) Confidentiality. The Parties hereto will
maintain the substance of any proceedings hereunder in confidence and
the arbitrators, prior to any proceedings hereunder, will sign an
agreement whereby the arbitrator agrees to keep the substance of any
proceedings hereunder in confidence.
6. DEFINITIONS.
"Approved Business Plan" has the meaning ascribed to such term
in the Stock Purchase Agreement.
"Board" means the board of directors of the Company.
"Cause" means (A) Executive's theft or embezzlement, or
attempted theft or embezzlement, of money or property of the Company,
Executive's perpetration or attempted perpetration of fraud, or Executive's
participation in a fraud or attempted fraud, on the Company, or Executive's
unauthorized appropriation of, or attempt to misappropriate, any tangible or
intangible assets or property of the Company, (B) any act or acts of disloyalty,
misconduct or moral turpitude by Executive injurious to the interest, property,
operations, business or reputation of the Company, or Executive's conviction of
a crime the commission of which results in injury to the Company or (C)
Executive's repeated refusal or failure (other than by reason of Disability) to
carry out reasonable instructions by his superiors or the Board or the Company's
board of directors.
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<PAGE> 13
"Common Stock" means the Company's Common Stock, par value
$.01 per share.
"Disability" means (i) any permanent physical or mental
incapacity or disability rendering the Executive unable or unfit to perform
effectively the duties and obligations of his employment or to participate
effectively and actively in the management of the Company, or (ii) any illness,
accident, injury, physical or mental incapacity or other disability, where such
condition has rendered the Executive unable or unfit to perform effectively the
duties and obligations of his employment or to participate effectively and
actively in the management of the Company for a period of at least 90 days (in
either case, as determined in the good faith judgment of the Company's board of
directors).
"Executive Securities" means (i) the Common Stock issued to
the Executive Purchasers under the Original Agreement, and (ii) any securities
issued directly or indirectly with respect to the foregoing securities by way of
a stock split, stock dividend, or other division of securities, or in connection
with a combination of securities, recapitalization, merger, consolidation, or
other reorganization, or upon conversion or exercise of any of the foregoing
securities. As to any particular securities constituting Executive Securities,
such securities shall cease to be Executive Securities when they have been (a)
effectively registered under the Securities Act and disposed of in accordance
with the registration statement covering them, or (b) distributed to the public
through a broker, dealer or market maker pursuant to Rule 144 under the
Securities Act (or any similar provision then in force).
"Investor Equity" means (i) the securities distributed in
respect of the securities purchased under the Investors Purchase Agreement and
(ii) any securities issued directly or indirectly with respect to the foregoing
securities by way of a stock split, stock dividend, or other division of
securities, or in connection with a combination of securities, recapitalization,
merger, consolidation, or other reorganization, or upon conversion or exercise
of the foregoing. As to any particular securities constituting Investor Equity,
such securities shall cease to be Investor Equity when they have been (a)
effectively registered under the Securities Act and disposed of in accordance
with the registration statement covering them, (b) distributed to the public
through a broker, dealer or market maker pursuant to Rule 144 under the
Securities Act (or any similar provision then in force) or (c) repurchased by
the Company or any Subsidiary thereof.
"LLC Agreement" means the limited liability company agreement
of even date herewith, entered into by and among the members of the LLC, as
amended from time to time in accordance with its terms.
"MSA" means a metropolitan statistical area.
"Original Cost" means, at any given time, (i) with respect to
any Common Stock issued upon conversion of Preferred Stock, the Original Cost of
such Preferred Stock, and (ii) with respect to any other securities, the
original price paid upon issuance of such securities.
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<PAGE> 14
"Person" means an individual, a partnership, a corporation, a
limited liability company, an association, a joint stock company, a trust, a
joint venture, an unincorporated organization and a governmental entity or any
department, agency or political subdivision thereof.
"Public Offering" means any underwritten sale of the Company's
common stock pursuant to an effective registration statement under the
Securities Act filed with the Securities and Exchange Commission on Form S-1 (or
a successor form adopted by the Securities and Exchange Commission); provided
that the following shall not be considered a Public Offering: (i) any issuance
of common stock as consideration or financing for a merger or acquisition, and
(ii) any issuance of common stock or rights to acquire common stock to employees
of the Company or its Subsidiaries as part of an incentive or compensation plan.
"Securities Act" means the Securities Act of 1933, as amended,
or any similar federal law then in force.
"Securityholders Agreement" means the securityholders
agreement entered into by and among the Company, the LLC, and the holders of
interests in the LLC, as amended from time to time in accordance with its terms.
"Stock Purchase Agreement" means the stock purchase agreement
of even date herewith, entered into by and between the Company and the LLC, as
amended from time to time in accordance with the terms thereof.
"Subsidiary" means, with respect to any Person, any
corporation, limited liability company, partnership, association or other
business entity of which (i) if a corporation, a majority of the total voting
power of shares of stock entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers or trustees thereof
is at the time owned or controlled, directly or indirectly, by that Person or
one or more of the other Subsidiaries of that Person or a combination thereof,
or (ii) if a limited liability company, partnership, association or other
business entity, a majority of the partnership or other similar ownership
interest thereof is at the time owned or controlled, directly or indirectly, by
any Person or one or more Subsidiaries of that Person or a combination thereof.
For purposes hereof, a Person or Persons shall be deemed to have a majority
ownership interest in a limited liability company, partnership, association or
other business entity if such Person or Persons shall be allocated a majority of
limited liability company, partnership, association or other business entity
gains or losses or shall be or control any managing director or general partner
of such limited liability company, partnership, association or other business
entity.
"Vesting Termination Breach" means (i) any breach of paragraph
5(d) or clause (ii) of paragraph 5(e) and (ii) any breach of any other provision
of paragraph 5 which is material or is intentionally and knowingly committed by
Executive.
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<PAGE> 15
7. MISCELLANEOUS PROVISIONS.
(a) Further Assurances; Voting Proxy. As a condition to the
Company's entering into this Agreement and the issuance of Executive Securities
to the Executive Purchasers, and as further consideration therefor:
(i) Executive hereby unconditionally guarantees the
full and prompt performance of each Executive Purchaser's obligations
under this Agreement and under each of the agreements contemplated
hereby to which such Executive Purchaser is a party, and Executive
agrees that he will take all necessary or desirable actions to ensure
such performance as are reasonably requested by the Company. Executive
further agrees that he will not provide any directions to an Executive
Purchaser that are contrary to any obligation imposed on such Executive
Purchaser under this Agreement or under such other agreements, and that
Executive will not fail to provide any directions to an Executive
Purchaser if such failure would cause an Executive Purchaser not to
satisfy its obligations hereunder or thereunder. This guarantee shall
be irrevocable with respect to each Executive Security held by an
Executive Purchaser (and shall survive any transfer thereof, or the
death, disability, incompetency, or bankruptcy of such Executive
Purchaser) until such time as such Executive Security is transferred in
accordance with the terms hereof to a Person other than a member of
Executive's Family Group, at which time this guarantee shall be deemed
revoked with respect to such security (but not with respect to any
other Executive Securities). No invalidity, irregularity or
unenforceability of this Agreement or such other agreements by reason
of an Executive Purchaser's incapacity, minor status, incompetency,
bankruptcy, insolvency, or otherwise shall impair, affect or be a
defense to the obligations of Executive under this guarantee.
(ii) Each Executive Purchaser (other than Executive)
hereby appoints Executive as his true and lawful proxy and
attorney-in-fact, with full power of substitution, to vote all of such
Executive Purchaser's Executive Securities on all matters to be voted
on by the holders of such securities (whether as a member vote, a
shareholder vote, an approval right under this Agreement or the other
agreements contemplated hereby, or otherwise). These proxies and powers
granted by each Executive Purchaser pursuant to this paragraph are
coupled with an interest, and are given to secure such Executive
Purchasers' obligations under this Agreement and the other agreements
contemplated hereby to which the Executive Purchasers are parties. Such
proxies and powers shall be irrevocable with respect to each Executive
Security held by an Executive Purchaser (and shall survive any transfer
thereof, or the death, disability, incompetency, or bankruptcy of such
Executive Purchaser) until such time as such Executive Security is
transferred in accordance with the terms hereof to a Person other than
a member of Executive's Family Group, at which time such proxy shall be
deemed revoked with respect to such security (but not with respect to
any other Executive Securities).
(b) Transfers in Violation of Agreement. Any Transfer or
attempted Transfer of any Executive Securities in violation of any provision of
this Agreement shall be void, and none of
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<PAGE> 16
the Company, or any Subsidiary thereof shall record such purported Transfer on
its books or treat any purported transferee of such Executive Securities as the
owner of such securities for any purpose.
(c) Severability. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability shall not affect
any other provision or any other jurisdiction, but this Agreement shall be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein.
(d) Complete Agreement. This Agreement, those documents
expressly referred to herein and other documents of even date herewith embody
the complete agreement and understanding among the parties and supersede and
preempt any prior understandings, agreements or representations by or among the
parties, written or oral, which may have related to the subject matter hereof in
any way, including without limitation the Original Agreement.
(e) Counterparts. This Agreement may be executed in separate
counterparts, none of which need contain the signature of more than one party
hereto but each of which shall be deemed to be an original and all of which
taken together shall constitute one and the same agreement.
(f) Successors and Assigns. Except as otherwise provided
herein, this Agreement shall bind the parties hereto and their respective
successors and assigns and shall inure to the benefit of and be enforceable by
the parties hereto and their respective successors and assigns whether so
expressed or not.
(g) CHOICE OF LAW. ALL QUESTIONS CONCERNING THE CONSTRUCTION,
VALIDITY, ENFORCEMENT AND INTERPRETATION OF THIS AGREEMENT AND THE EXHIBITS
HERETO SHALL BE GOVERNED BY THE INTERNAL LAW, AND NOT THE LAW OF CONFLICTS, OF
THE STATE OF DELAWARE.
(h) Remedies. Each of the parties to this Agreement (including
any holder of Investor Equity or employee of the Company to which the Company
assigns any of its repurchase rights under paragraph 3 hereof) shall be entitled
to enforce its rights under this Agreement specifically, to recover damages and
costs (including reasonable attorney's fees) caused by any breach of any
provision of this Agreement and to exercise all other rights existing in its
favor. The parties hereto agree and acknowledge that money damages would not be
an adequate remedy for any breach of the provisions of this Agreement and that
any party may in its sole discretion apply to any court of law or equity of
competent jurisdiction (without posting any bond or deposit) for specific
performance and/or other injunctive relief in order to enforce or prevent any
violations of the provisions of this Agreement.
(i) Amendment, Modification, or Waiver. The provisions of this
Agreement may be amended, modified, or waived only with the prior written
consent of the Company and the Executive.
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<PAGE> 17
(j) Third-Party Beneficiaries. The parties hereto acknowledge
and agree that certain provisions of this Agreement are intended for the benefit
of certain holders of Investor Equity or employees of the Company to which the
Company assigns any of its repurchase rights under paragraph 3 hereof, that such
Persons are third-party beneficiaries of this Agreement and that provisions of
this Agreement shall be enforceable by such Persons as provided herein.
(k) Business Days. If any time period for giving notice or
taking action hereunder expires on a day which is a Saturday, Sunday or legal
holiday in the State of Illinois, the time period shall be automatically
extended to the business day immediately following such Saturday, Sunday or
holiday.
(l) Descriptive Headings; Interpretation; No Strict
Construction. The descriptive headings of this Agreement are inserted for
convenience only and do not constitute a substantive part of this Agreement.
Whenever required by the context, any pronoun used in this Agreement shall
include the corresponding masculine, feminine or neuter forms, and the singular
forms of nouns, pronouns, and verbs shall include the plural and vice versa.
Reference to any agreement, document, or instrument means such agreement,
document, or instrument as amended or otherwise modified from time to time in
accordance with the terms thereof, and if applicable hereof. The use of the
words "include" or "including" in this Agreement shall be by way of example
rather than by limitation. The use of the words "or," "either" or "any" shall
not be exclusive. The parties hereto have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the parties hereto, and no presumption or burden of
proof shall arise favoring or disfavoring any party by virtue of the authorship
of any of the provisions of this Agreement.
(m) Notices. All notices, demands or other communications to
be given or delivered under or by reason of the provisions of this Agreement
shall be in writing and shall be deemed to have been given when (a) delivered
personally to the recipient, (b) telecopied to the recipient (with hard copy
sent to the recipient by reputable overnight courier service (charges prepaid)
that same day) if telecopied before 5:00 p.m. Chicago, Illinois time on a
business day, and otherwise on the next business day, or (c) one business day
after being sent to the recipient by reputable overnight courier service
(charges prepaid). Such notices, demands and other communications shall be sent
to the following Persons at the following addresses:
To the Company:
1950 N. Stemmons Freeway
Suite 3026
Dallas, Texas 75207
Attention: Royce J. Holland
Telephone: (214) 261-7105
Telecopy: (214) 261-7107
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<PAGE> 18
To an Executive Purchaser: at the address set forth in the
Company's records.
or to such other address or to the attention of such other person as the
recipient party has specified by prior written notice to the sending party.
(n) Delivery by Facsimile. This Agreement, the agreements
referred to herein, and each other agreement or instrument entered into in
connection herewith or therewith or contemplated hereby or thereby, and any
amendments hereto or thereto, to the extent signed and delivered by means of a
facsimile machine, shall be treated in all manner and respects as an original
agreement or instrument and shall be considered to have the same binding legal
effect as if it were the original signed version thereof delivered in person. At
the request of any party hereto or to any such agreement or instrument, each
other party hereto or thereto shall reexecute original forms thereof and deliver
them to all other parties. No party hereto or to any such agreement or
instrument shall raise the use of a facsimile machine to deliver a signature or
the fact that any signature or agreement or instrument was transmitted or
communicated through the use of a facsimile machine as a defense to the
formation or enforceability of a contract and each such party forever waives any
such defense.
(o) Excise Tax. If either (a) it is determined by the Internal
Revenue Service or any other applicable governmental agency that any payment or
distribution of any type to or for the benefit of Executive pursuant to this
Agreement by the Company, any Person who acquires ownership or effective control
of the Company, or ownership of a substantial portion of the assets of the
Company (within the meaning of section 280G of the Code and the regulations
thereunder) or any affiliate of such Person (the "Total Payments") would be
subject to the excise tax imposed by section 4999 of the Code or any interest or
penalties with respect to such excise tax (such excise tax, together with any
such interest and penalties, are collectively referred to as the "Excise Tax"),
or (b) the Company or any such Person withholds any portion of such payment or
distribution or otherwise seeks to reduce the benefits to Executive under this
Agreement on account of the Excise Tax, then the Company and such Person shall
be jointly and severally obligated to pay to Executive an additional payment (a
"Gross-Up Payment") in an amount such that, after payment by Executive of all
federal, state and local taxes (including any interest or penalties imposed with
respect to such taxes), including any Excise Tax, imposed upon the Gross-Up
Payment, Executive retains an amount of the Gross-Up Payment equal to the Excise
Tax imposed upon the Total Payments. The Company and such Person shall be
obligated to pay all costs of Executive (including attorney fees and expenses)
incurred in enforcing their obligations under this Section 5(o).
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<PAGE> 19
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement on the date first written above.
ALLEGIANCE TELECOM, INC.
By: /s/ MARK B. TRESNOWSKI
---------------------------------------
Its: Secretary
---------------------------------------
EXECUTIVE PURCHASERS
/s/ ROYCE J. HOLLAND
---------------------------------------------
Royce J. Holland
Royce J. Holland Family Limited Partnership
By: /s/ ROYCE J. HOLLAND
-----------------------------------------
Royce J. Holland, its general partner
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<PAGE> 1
EXHIBIT 10.10
AMENDED AND RESTATED EXECUTIVE PURCHASE AGREEMENT
THIS AMENDED AND RESTATED EXECUTIVE PURCHASE AGREEMENT (this
"Agreement") is made as of December 13, 1999, by and between Allegiance Telecom,
Inc., a Delaware corporation (the "Company") and Thomas M. Lord ("Executive"),
Victoria M. Lord ("Victoria"), Brian T. Lord ("Brian"), and Colin J. Lord
("Colin," and collectively with Executive, Victoria, and Brian, the "Executive
Purchasers"). This Agreement amends and restates the Executive Purchase
Agreement dated as of August 13, 1997 (the "Original Agreement") by and between
the Executive Purchasers and Transcend Telecom, L.L.C., a Delaware limited
liability company (the "LLC") and the Company (then known as "Transcend Telecom,
Inc."). Capitalized terms used but not otherwise defined herein have the
meanings ascribed to such terms in paragraph 6 hereof.
NOW, THEREFORE, in consideration of the mutual promises made
herein and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto, intending to be legally
bound, agree as follows:
1. PURCHASE AND SALE OF EXECUTIVE SECURITIES.
(a) Initial Capital Contribution and Issuance of Executive
Securities. Executive purchased the Executive Securities as provided for in the
Original Agreement.
(b) Acknowledgment of At-Will Employment. Each of the
Executive Purchasers acknowledges and agrees that no agreement or arrangement
between the Executive Purchasers and the Company (including, without limitation,
the issuance of the Executive Securities to the Executive Purchasers and the
execution and delivery of this Agreement) shall entitle Executive to remain in
the employment of the Company and its Subsidiaries or affect the right of the
Company or its Subsidiaries to terminate Executive's employment at any time and
for any reason.
2. VESTING OF EXECUTIVE SECURITIES.
(a) Vesting Schedule. Except as otherwise provided herein, an
amount of Unvested Securities (as defined below) shall vest in accordance with
the following schedule:
<TABLE>
<CAPTION>
Cumulative Percentage of Executive
Date Securities Vested on Such Date
---- ----------------------------------
<S> <C>
August 13, 1997 20%
August 13, 1998 60%
August 13, 1999 80%
August 13, 2000 100%
</TABLE>
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<PAGE> 2
Notwithstanding the foregoing sentence, and except as otherwise provided herein,
the above vesting schedule shall cease and no Unvested Securities (as defined
below) shall vest after the date on which Executive's employment with the
Company and its Subsidiaries terminates for any reason; provided that if
Executive's employment is terminated by the Company without Cause, the Executive
Securities shall thereafter continue to vest in accordance with the above
schedule so long as Executive has not committed a Vesting Termination Breach
(upon which breach the vesting schedule shall cease, and no Unvested Securities
(as defined below) shall vest on or after the date of the first such breach). In
the event the Company has alleged that Executive has committed a Vesting
Termination Breach, Executive disputes such allegation, and the matter is
subject to the dispute resolution provisions set forth in paragraph 5, vesting
shall be tolled upon the date of the allegation of such breach; provided that
(i) if it is ultimately resolved under paragraph 5 that Executive has committed
a Vesting Termination Breach, the tolling shall become a permanent cessation
such that vesting shall have forever ceased upon the date of such allegation,
and (ii) if it is ultimately resolved under paragraph 5 that Executive did not
commit a Vesting Termination Breach, a number of Unvested Securities shall vest
giving retroactive effect to such vesting schedule such that there shall exist a
number of Vested Securities as if the vesting schedule had not been tolled as a
result of such allegations. Executive Securities which have become vested
pursuant to this Agreement are referred to herein as "Vested Securities," and
all other Executive Securities are referred to herein as "Unvested Securities."
(b) Acceleration upon a Qualified Sale of the Company. All
Unvested Securities shall become Vested Securities upon the consummation of a
Qualified Sale of the Company (as defined below) so long as Executive is
employed by the Company or any of its Subsidiaries on the date of such sale (or,
if Executive's employment was terminated by the Company without Cause, so long
as Executive has not committed a Vesting Termination Breach). A "Qualified Sale
of the Company" means either (i) the sale, lease, transfer, conveyance or other
disposition, 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, or (ii)
a transaction or series of transactions (including by way of merger,
consolidation, or sale of stock, but not including a Public Offering) the result
of which is that the holders of the Company's outstanding voting stock
immediately prior to such transaction are after giving effect to such
transaction no longer, in the aggregate, the "beneficial owners" (as such term
is defined in Rule 13d-3 and Rule 13d-5 promulgated under the Securities
Exchange Act), directly or indirectly through one or more intermediaries, of
more than 50% of the voting power of the outstanding voting stock of the
Company, in each case where the consideration for such assets or stock in such
sale or transfer consists of cash and/or publicly traded equity securities for
at least 50% of the outstanding stock of the Company (e.g., 100% of such
consideration would have to consist of cash and/or publicly traded equity
securities if only 50.01% of such stock were sold in such transaction).
(c) Acceleration upon a Public Offering. The vesting schedule
set forth in (a) above gives effect to the fact that the Company consummated its
initial Public Offering on July 7, 1998 and Executive was employed by the
Company or any of its Subsidiaries on the closing date of such offering.
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<PAGE> 3
(d) Acceleration upon Death or Disability. All Unvested Shares
shall become Vested Shares if Executive's employment with the Company or any of
its Subsidiaries terminates by reason of Executive's death or Disability.
(e) Other Acceleration. Subject to paragraph 3(h) hereof, any
Unvested Securities which the Company (or its assignees) has not elected to
repurchase in the Repurchase Notice (as defined below) (including Unvested
Securities originally included in the Repurchase Notice, but for which the
election to repurchase was rescinded, pursuant to the terms of paragraph 3, by
all of the Company and/or its assignees having made such election) shall
thereafter be deemed Vested Securities.
3. REPURCHASE OPTION.
(a) The Repurchase Option. Upon (i) the termination of
Executive's employment with the Company and its Subsidiaries for any reason
other than a termination by the Company without Cause, or (ii) if Executive's
employment is terminated by the Company without Cause, upon Executive's
commission of a Vesting Termination Breach (the occurrence of either (i) or
(ii), a "Repurchase Event"), the Unvested Securities then in existence (whether
held by an Executive Purchaser or one or more of the Executive Purchasers'
transferees) will be subject to repurchase by the Company at the Company's
election pursuant to the terms and conditions set forth in this paragraph 3 (the
"Repurchase Option"). In the event that the Company has alleged that Executive
has committed a Vesting Termination Breach, Executive disputes such allegation,
and the matter is subject to the dispute resolution provisions set forth in
paragraph 6, the closing of the repurchase under this paragraph 3 shall not
occur unless and until it is ultimately determined that Executive committed a
Vesting Termination Breach; provided that during the pendency of such
proceeding, the Executive Securities specified in the Repurchase Notice (as
defined below) shall not be transferred by any holder thereof to any Person.
(b) Repurchase Price. The repurchase price (the "Repurchase
Price") of any Unvested Securities to be repurchased shall be the lesser of (x)
the Fair Market Value of such Securities, and (y) the Original Cost of such
Securities (with securities having the lowest Original Cost subject to
repurchase prior to securities with a higher Original Cost).
(c) Exercise of Repurchase Option. The Company may elect to
purchase all or any portion of the Executive Securities by delivering written
notice (the "Repurchase Notice") to the holder or holders of the Executive
Securities within 30 days after the Repurchase Event. The Repurchase Notice
shall set forth the amount, type, and class of Executive Securities to be
acquired from each such holder. The Executive Securities to be repurchased by
the Company shall first be satisfied to the extent possible from the Executive
Securities held by Executive at the time of delivery of the Repurchase Notice.
If the amount of Executive Securities then held by Executive is less than the
total amount of Executive Securities that the Company has elected to purchase,
the Company shall Purchase the remaining securities elected to be purchased from
the other holder(s) of Executive Securities, pro rata according to the amount of
Executive Securities held of record by each such other holder at the time of
delivery of the Repurchase Notice. The amount of Unvested
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<PAGE> 4
Securities to be repurchased hereunder shall be deemed to be allocated among
Executive and the other holders of repurchased Executive Securities (if any) pro
rata according to the amount of Executive Securities to be purchased from such
persons.
(d) Assignment by the Company. The Company, by action of the
Board, will have the right to assign all or any portion of its repurchase rights
hereunder to any holder of Investor Equity and/or to any executive employee of
the Company or any of its Subsidiaries.
(e) Fair Market Value of Repurchased Shares.
(i) The "Fair Market Value" of Executive Securities
subject to repurchase hereunder shall be determined in accordance with
this paragraph (e).
(ii) The Company and the holders of a majority of the
Executive Securities to be repurchased shall attempt in good faith to
agree on the Fair Market Value of the Executive Securities. Any
agreement reached by such Persons shall be final and binding on all
parties hereto.
(iii) If such Persons are unable to reach such
agreement within 20 days after the giving of Repurchase Notice, the
Fair Market Value of any Executive Securities that are publicly traded
shall be the average, over a period of 21 days consisting of the date
of the Repurchase Event and the 20 consecutive business days prior to
that date, of the average of the closing prices of the sales of such
securities on all securities exchanges on which such securities may at
that time be listed, or, if there have been no sales on any such
exchange on any day, the average of the highest bid and lowest asked
prices on all such exchanges at the end of such day, or, if on any day
such securities are not so listed, the average of the representative
bid and asked prices quoted in the Nasdaq System as of 4:00 P.M., New
York time, or, if on any day such securities are not quoted in the
Nasdaq System, the average of the highest bid and lowest asked prices
on such day in the domestic over-the-counter market as reported by the
National Quotation Bureau Incorporated, or any similar successor
organization.
(iv) If such Persons are unable to reach agreement
pursuant to subparagraph (ii) within 20 days after the giving of
Repurchase Notice, and to the extent any Executive Securities are not
publicly traded:
(A) The Company and the holders of a
majority of the Executive Securities shall each, within 10 days
thereafter, choose one investment banker or other appraiser with
experience in analyzing and making determinations concerning matters in
the telecommunications industry and in valuing entities like the
Company, and the two investment bankers/appraisers so selected shall
together select a third investment banker/appraiser similarly
qualified.
(B) The three investment bankers/appraisers
shall first appraise the fair market value of the Company (based on the
assumption of an orderly, arm's length
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sale to a willing unaffiliated buyer). The three investment
bankers/appraisers shall then appraise the fair market value of such
non-publicly-traded Executive Securities as follows: the fair market
value of each share of Common Stock shall be equal to the fair market
value of the Company divided by the total number of shares of Common
Stock outstanding on the date of the Repurchase Event (determined on a
fully diluted basis (x) with respect to all outstanding securities
convertible into the Company's Common Stock, assuming the conversion of
such convertible securities (without regard to any conditions or other
restrictions on such conversion), and (y) with respect to all
outstanding options, warrants and other rights or securities
exercisable or exchangeable for shares of the Company's Common Stock,
in accordance with the Treasury Stock Method under generally accepted
accounting principles for determination of fully diluted earnings per
share).
The three investment bankers/appraisers shall, within thirty days of
their retention, provide the written results of such appraisals to the
Company and/or its assignees and to each of the holders of Executive
Securities.
(C) The "Fair Market Value" of the
non-publicly-traded Executive Securities to be repurchased shall be the
average of the two appraisals closest to each other, and such amount
shall be final and binding on all parties hereto; provided that the
Company (and/or any assignee) may at any time within five days after
receiving written notice of such determination rescind its prior
exercise of the Repurchase Option by giving written notice of such
revocation to the holder or holders of the Executive Securities to be
repurchased, and upon such revocation the revoking party will be
treated as if it had never exercised such Repurchase Option (it being
understood that such revoking parties shall thereafter have no right to
re-exercise such Repurchase Option).
(D) The costs of such appraisal shall be
allocated between the parties based on the percentage which the portion
of the contested amount not awarded to each party bears to the amount
actually contested by such party; provided that if any parties revoke
their exercise of the Repurchase Option pursuant to paragraph (C)
above, such revoking parties shall bear (pro rata among such revoking
parties based on the number of Executive Securities with respect to
which each such revoking party had initially exercised its Repurchase
Option) any appraisal costs that would be allocated to the holder(s) of
Executive Securities under this paragraph (D).
(f) Closing of the Repurchase. Within 10 business days after
the Repurchase Price for the Executive Securities to be repurchased has been
determined, the Company shall send a notice to each holder of Executive
Securities setting forth the consideration to be paid for such shares and the
time and place for the closing of the transaction, which date shall not be more
than 30 days nor less than five days after the delivery of such notice. At such
closing, the holders of Executive Securities shall deliver all certificates (if
any exist) evidencing the Executive Securities to be repurchased to the Company
(and/or any assignees of the Company's repurchase right), and the Company
(and/or any assignees) shall pay for the Executive Securities to be purchased
pursuant to the Repurchase Option by delivery of a check or wire transfer of
immediately available funds in the aggregate amount of the Repurchase Price for
such securities; provided that in the event the
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<PAGE> 6
Board determines in its good faith discretion that the Company is not in a
position to pay in cash any or all of the Repurchase Price for Executive
Securities to be repurchased by it. The Company may pay, in the form of a
promissory note, a portion of the Repurchase Price for such securities equal to
(x) the aggregate Repurchase Price for the Executive Securities to be
repurchased minus (y) the Original Cost of such securities. Such a promissory
note shall be subordinated to all of the Company's senior debt obligations
either then or thereafter incurred, shall earn simple annual interest at the
Base Rate, shall have all principal and accrued interest due and payable upon
maturity, and shall mature upon the earliest to occur of a Qualified Sale of the
Company or the fifth anniversary of the issuance of such promissory note.
The purchasers of Executive Securities hereunder shall be entitled to receive
customary representations and warranties from the sellers regarding good title
to such shares, free and clear of any liens or encumbrances.
(g) Restrictions. Notwithstanding anything to the contrary
contained in this Agreement, all repurchases of Executive Securities by the
Company shall be subject to applicable restrictions contained in the Delaware
General Corporation Law and in the Company's and its Subsidiaries' debt and
equity financing agreements. If any such restrictions prohibit the repurchase of
Executive Securities hereunder which the Company is otherwise entitled or
required to make, the time periods provided in this paragraph 3 shall be
suspended, and the Company may make such repurchases as soon as it is permitted
to do so under such restrictions, unless by such time such Repurchase Option has
terminated pursuant to paragraph 3(h); provided that notwithstanding the
foregoing, in no event shall the time periods provided in this paragraph 3 be
suspended for more than 6 months.
(h) Termination of Repurchase Option. All rights under this
paragraph 3 of the Company and/or its assignees to repurchase Executive
Securities shall terminate upon a Qualified Sale of the Company.
4. RESTRICTIONS ON TRANSFER.
(a) Opinion of Valid Transfer. In addition to any other
restrictions on transfer imposed by this Agreement, or the Securityholders
Agreement, no holder of Executive Securities may sell, transfer or dispose of
any Executive Securities (except pursuant to an effective registration statement
under the Securities Act) without first delivering to the Company an opinion of
counsel (reasonably acceptable in form and substance to the Company) that
neither registration nor qualification under the Securities Act and applicable
state securities laws is required in connection with such transfer.
(b) Restrictive Legend. The certificates representing
Executive Securities shall bear the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE WERE ORIGINALLY ISSUED
ON AUGUST 13, 1997, HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE
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<PAGE> 7
"ACT"), OR THE SECURITIES LAWS OF ANY STATE, AND SUCH SECURITIES MAY
NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE ACT OR AN EXEMPTION FROM REGISTRATION THEREUNDER.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE ALSO SUBJECT TO
ADDITIONAL RESTRICTIONS ON TRANSFER AND REPURCHASE OPTIONS SET FORTH IN
AN EXECUTIVE PURCHASE AGREEMENT BETWEEN THE ISSUER OF SUCH SECURITIES
(THE "ISSUER") AND THE INITIAL HOLDER OF SUCH SECURITIES (THE "INITIAL
HOLDER"). A COPY OF SUCH AGREEMENT MAY BE OBTAINED BY THE HOLDER HEREOF
AT THE ISSUER'S PRINCIPAL PLACE OF BUSINESS WITHOUT CHARGE."
The legend set forth above shall be removed from the certificates evidencing any
shares which cease to be Executive Securities.
(c) Retention of Executive Stock.
(i) No Executive Purchaser shall sell, transfer,
assign, pledge or otherwise dispose of (whether with or without
consideration and whether voluntarily or involuntarily or by operation
of law) any interest in any Unvested Securities (a "Transfer"), except
pursuant to (A) the repurchase provisions of paragraph 3 hereof or of
the LLC Agreement, (B) the "Participation Rights" or "Put" provisions
set forth in the Securityholders Agreement, or (C) a Sale of the
Company (as defined in the Securityholders Agreement) (each of (A),
(B), and (C), an "Exempt Transfer").
(ii) The restrictions contained in this paragraph (c)
shall not apply with respect to transfers of Unvested Securities (A)
pursuant to applicable laws of descent and distribution or (B) among
Executive's Family Group; provided that the restrictions contained in
this paragraph shall continue to be applicable to the Unvested
Securities after any such Transfer, the transferees of such Unvested
Securities shall have agreed in writing to be bound by the provisions
of this Agreement with respect to the Unvested Securities so
transferred, and (prior to the death of Executive) each such transferee
of Unvested Securities shall have entered into proxies and other
agreements satisfactory to the holders of a majority of the Investor
Equity pursuant to which Executive shall have the sole right to vote
such Unvested Securities for all purposes. For purposes of this
Agreement, "Family Group" means Executive's spouse and descendants
(whether natural or adopted), any trust which at the time of such
Transfer and at all times thereafter is and remains solely for the
benefit of Executive and/or Executive's spouse and/or descendants and
any family partnership the partners of which consist solely of
Executive, such spouse, such descendants or such trusts.
5. CONFIDENTIALITY, NONCOMPETE, AND NONSOLICITATION.
(a) Nondisclosure and Nonuse of Confidential Information.
Executive shall not disclose or use at any time, either during his employment
with the Company or thereafter, any Confidential Information (as defined below)
of which Executive is or becomes aware, whether or
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<PAGE> 8
not such information is developed by him, except to the extent that such
disclosure or use is directly related to and required by Executive's performance
of duties assigned to Executive or the Company, or to the extent such disclosure
is permissible under the confidentiality provisions set forth in the Stock
Purchase Agreement. Executive shall take all appropriate steps to safeguard
Confidential Information and to protect it against disclosure, misuse,
espionage, loss and theft. As used in this Agreement, the term "Confidential
Information" means information that is not generally known to the public and
that is used, developed or obtained by the Company, or its Subsidiaries in
connection with their business, including but not limited to (i) products or
services, (ii) fees, costs and pricing structures, (iii) designs, (iv) analysis,
(v) drawings, photographs and reports, (vi) computer software, including
operating systems, applications and program listings, (vii) flow charts, manuals
and documentation, (viii) data bases, (ix) accounting and business methods, (x)
inventions, devices, new developments, methods and processes, whether patentable
or unpatentable and whether or not reduced to practice, (xi) customers and
clients and customer or client lists, (xii) copyrightable works, (xiv) all
technology and trade secrets, (xv) business plans and financial models, and
(xvi) all similar and related information in whatever form. Confidential
Information shall not include any information that has been published in a form
generally available to the public prior to the date Executive proposes to
disclose or use such information. Information shall not be deemed to have been
published merely because individual portions of the information have been
separately published, but only if all material features constituting such
information have been published in combination. Notwithstanding the foregoing,
"Confidential Information" shall not include any information of which (a)
Executive became aware prior to his affiliation with the Company, (b) Executive
learns from sources other than the Company or its Subsidiaries, whether prior to
or after such information is actually disclosed by the Company or its
Subsidiaries or (c) is disclosed in a prospectus or other documents for
dissemination to the public.
(b) The Company's Ownership of Intellectual Property.
(i) Acknowledgment of Company Ownership. In the event
that Executive as part of his activities on behalf of the Company
generates, authors or contributes to any invention, design, new
development, device, product, method or process (whether or not
patentable or reduced to practice or constituting Confidential
Information), any copyrightable work (whether or not constituting
Confidential Information) or any other form of Confidential Information
relating directly or indirectly to the Company's business as now or
hereafter conducted (collectively, "Intellectual Property"), Executive
acknowledges that such Intellectual Property is the exclusive property
of the Company and hereby assigns all right, title and interest in and
to such Intellectual Property to the Company. Any copyrightable work
prepared in whole or in part by Executive will be deemed "a work made
for hire" under Section 201(b) of the 1976 Copyright Act, and the
Company shall own all of the rights comprised by the copyright therein.
Executive shall promptly and fully disclose all Intellectual Property
to the Company and shall cooperate with the Company to protect the
Company's interests in and rights to such Intellectual Property
(including, without limitation, providing reasonable assistance in
securing patent protection and copyright registrations and executing
all documents as reasonably requested by the Company, whether such
requests occur prior to or after termination of Executive's employment
with the Company).
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<PAGE> 9
(ii) Executive Invention. Executive understands that
paragraph (b)(i) of this Agreement regarding the Company's ownership of
Intellectual Property does not apply to any invention for which no
equipment, supplies, facilities or trade secret information of the
Company were used and which was developed entirely on Executive's own
time, unless (i) the invention relates to the business of the Company
or to the Company's actual or demonstrably anticipated research or
development or (ii) the invention results from any work performed by
Executive for the Company.
(c) Delivery of Materials upon Termination of Employment. As
requested by the Company from time to time and upon the termination of
Executive's employment with the Company for any reason, Executive shall promptly
deliver to the Company all copies and embodiments, in whatever form, of all
Confidential Information and Intellectual Property in Executive's possession or
within his control (including, but not limited to, written records, notes,
photographs, manuals, notebooks, documentation, program listings, flow charts,
magnetic media, disks, diskettes, tapes and all other materials containing any
Confidential Information or Intellectual Property) irrespective of the location
or form of such material and, if requested by the Company, shall provide the
Company with written confirmation that all such materials have been delivered to
the Company.
(d) Noncompete. Executive acknowledges and agrees with the
Company that in the course of his employment with the Company he shall become
familiar with the Company's trade secrets and with other Confidential
Information concerning the Company, that Executive's services to the Company are
unique in nature and of an extraordinary value to the Company, and that the
Company would be irreparably damaged if Executive were to provide similar
services to any person or entity competing directly with the Company. In
connection with the issuance to Executive of the Executive Securities hereunder,
in consideration of and as an inducement to the Company's entering into this
Agreement, Executive accordingly covenants and agrees with the Company that
during the Noncompete Period (as defined below), Executive shall not, directly
or indirectly, either for himself or for or through any other individual,
corporation, partnership, joint venture or other entity, participate in any
business or enterprise conducting business in any Covered MSA which engages or
proposes to engage in the provision of competitive local exchange
telecommunications services. For purposes of this Agreement, (i) the term
"participate in" shall include, without limitation, having any direct or
indirect interest in any corporation, partnership, joint venture or other
entity, whether as a sole proprietor, owner, stockholder, partner, joint
venturer, creditor or otherwise, or rendering any direct or indirect service or
assistance to any individual, corporation, partnership, joint venture and other
business entity (whether as a director, officer, manager, supervisor, employee,
agent, consultant or otherwise), other than ownership of up to 2% of the
outstanding stock of any company (public or private) wherein Executive has no
material involvement in the management (other than as an independent director
for which Executive receives no or only nominal cash compensation), (ii) the
term "MSA" means metropolitan statistical area and (iii) the term "Covered MSA"
means (1) any MSA in which the Company is engaged in business or has at any time
had an Approved Business Plan (as defined in the Stock Purchase Agreement) to
engage in business. Executive agrees that this covenant is reasonable with
respect to its duration, geographical area and scope.
(e) Nonsolicitation. During the Noncompete Period, Executive
shall not (i) induce or attempt to induce any employee of the Company or any
Subsidiary to leave the employ of
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<PAGE> 10
the Company or any Subsidiary, or in any way interfere with the relationship
between the Company or any Subsidiary and any employee thereof, (ii) hire
directly or through another entity any person who was an employee of the Company
or any Subsidiary at any time during the six months prior to the date such
person is to be so hired, or (iii) induce or attempt to induce any customer,
supplier, licensee or other business relation of the Company or any Subsidiary
to cease doing business with the Company or any Subsidiary, or in any way
interfere with the relationship between any such customer, supplier, licensee or
business relation of the Company and its Subsidiaries (including, without
limitation, making any negative statements or communications concerning the
Company or any Subsidiary).
(f) Noncompete Period. The "Noncompete Period" shall commence
on the date hereof and shall continue until the first anniversary of the
termination of Executive's employment with the Company and its Subsidiaries for
any reason; provided that the Noncompete Period shall terminate immediately upon
a Qualified Sale of the Company.
(g) Judicial Modification. If the final judgment of a court of
competent jurisdiction, or any final non-appealable decision of an arbitrator in
connection with a mandatory arbitration, declares that any term or provision of
this paragraph is invalid or unenforceable, the parties agree that the court
making the determination of invalidity or unenforceability shall have the power
to reduce the scope, duration, or geographic area of the term or provision, to
delete specific words or phrases, or to replace any invalid or unenforceable
term or provision with a term or provision that is valid and enforceable and
that comes closest to expressing the intention of the invalid or unenforceable
term or provision, and this Agreement shall be enforceable as so modified after
the expiration of the time within which the judgment or decision may be
appealed.
(h) Dispute Resolution.
(i) Arbitration. All claims, disputes, controversies
and other matters in question arising out of or relating to this
paragraph 5, or to the alleged breach hereof, shall be settled by
preliminary negotiation between the Company or other Person bringing
such allegation and the Executive (the "parties") or, if such
preliminary negotiation is unsuccessful for any reason (but in any
event not later than 10 days after commencement of such negotiation),
by binding arbitration in accordance with the procedures set forth in
this paragraph (h). Without limiting the mandatory arbitration
provision set forth in this paragraph (h), each of the parties hereto
(A) waives the right to bring an action in any court of competent
jurisdiction with respect to any such claims, controversies and
disputes (other than any such action to enforce the award or other
remedy resulting from any arbitration pursuant to this paragraph (h) or
to prevent any arbitrator from exceeding the authority granted to the
arbitrators hereunder) and (B) waives the right to trial by jury in any
suit, action or other proceeding brought on, with respect to or in
connection with this Agreement.
(ii) Binding Arbitration. Upon filing of a notice of
demand for binding arbitration by any party hereto, arbitration shall
be commenced and conducted as follows:
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(A) Arbitrators. All claims, disputes,
controversies and other matters (collectively "matters") in
question shall be referred to and decided and settled by a
panel of three arbitrators with experience in analyzing,
understanding, and making determinations concerning matters in
the telecommunications industry, one selected by each of the
parties and the third by the two arbitrators so selected.
(B) Cost of Arbitration. The cost of each
arbitration proceeding, including without limitation the
arbitrators' compensation and expenses, hearing room charges,
court reporter transcript charges, etc., shall be allocated
among the parties based upon the percentage which the portion
of the contested amount not awarded to each party bears to the
amount actually contested by such party. The arbitrators shall
also award the party that prevails substantially in its
pre-hearing position its reasonable attorneys' fees and costs
incurred in connection with the arbitration. The arbitrators
are specifically instructed to award attorneys' fees for
instances of abuse of the discovery process.
(C) Situs of Proceedings. The situs of the
arbitration shall be in New York, New York, or such other
place as is mutually agreeable to the parties.
(iii) Pre-hearing Discovery. The parties shall have
the right to conduct and enforce pre-hearing discovery in accordance
with the then current Federal Rules of Civil Procedure, subject to the
following limitations: (A) each party may serve no more than one set of
interrogatories which set shall ask no more than twenty questions; (B)
each party may depose the other party's expert witnesses who will be
called to testify at the hearing, plus up to six fact witnesses without
regard to whether they will be called to testify (each party will be
entitled to a total of not more than 24 hours of depositions of the
other party's witnesses, and not more than 6 hours with respect to any
single witness); and (C) document discovery and other discovery shall
be under the control of and enforceable by the arbitrators, and all
disputes relating thereto shall be decided by the arbitrators.
Notwithstanding any contrary foregoing provisions, the arbitrators
shall have the power and authority to, and to the fullest extent
practicable shall, abbreviate arbitration discovery in a manner which
is fair to all parties in order to expedite the conclusion of each
alternative dispute resolution proceeding.
(iv) Pre-hearing Conference. Within thirty (30) days
after filing of notice of demand for binding arbitration, the
arbitrators shall hold a pre-hearing conference to establish schedules
for completion of discovery, for exchange of exhibit and witness lists,
for arbitration briefs, for the hearing, and to decide procedural
matters and all other questions that may be presented.
(v) Hearing Procedures. The hearing shall be
conducted to preserve its privacy and to allow reasonable procedural
due process. Rules of evidence need not be strictly followed, and the
hearing shall be streamlined as follows: (A) documents shall be
self-authenticating, subject to valid objection by the opposing party;
(B) expert reports, witness biographies, depositions and affidavits may
be utilized, subject to the opponent's right of a live
cross-examination of the witness in person; (C) charts, graphs and
summaries shall be utilized to present voluminous data, provided (1)
that the underlying data was made
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available to the opposing party thirty (30) days prior to the hearing,
and (2) that the preparer of each chart, graph or summary is available
for explanation and live cross-examination in person; (D) the hearing
should be held on consecutive business days without interruption to the
maximum extent practicable; and (E) the arbitrators shall establish all
other procedural rules for the conduct of the arbitration in accordance
with the rules of arbitration of the American Arbitration Association.
(vi) Governing Law. This arbitration provision shall
be governed by, and all rights and obligations specifically enforceable
under and pursuant to, the Federal Arbitration Act (9 U.S.C. Section 1,
et seq.).
(vii) Consolidation. No arbitration shall include, by
consolidation, joinder or in any other manner, any additional person
not a party to this Agreement (other than affiliates of any such party,
which affiliates may be included in the arbitration), except by written
consent of the parties hereto containing a specific reference to this
Agreement.
(viii) Award; Time Limit. The arbitrators are
empowered to render an award of general compensatory damages and
equitable relief (including, without limitation, injunctive relief),
but is not empowered to award punitive damages. The award rendered by
the arbitrators (A) shall be final; (B) shall not constitute a basis
for collateral estoppel as to any issue; and (C) shall not be subject
to vacation or modification. The arbitrators shall render any award or
otherwise conclude the arbitration no later than 120 days after the
date notice is given pursuant to this paragraph (h).
(ix) Confidentiality. The Parties hereto will
maintain the substance of any proceedings hereunder in confidence and
the arbitrators, prior to any proceedings hereunder, will sign an
agreement whereby the arbitrator agrees to keep the substance of any
proceedings hereunder in confidence.
6. DEFINITIONS.
"Approved Business Plan" has the meaning ascribed to such term
in the Stock Purchase Agreement.
"Board" means the board of directors of the Company.
"Cause" means (A) Executive's theft or embezzlement, or
attempted theft or embezzlement, of money or property of the Company,
Executive's perpetration or attempted perpetration of fraud, or Executive's
participation in a fraud or attempted fraud, on the Company, or Executive's
unauthorized appropriation of, or attempt to misappropriate, any tangible or
intangible assets or property of the Company, (B) any act or acts of disloyalty,
misconduct or moral turpitude by Executive injurious to the interest, property,
operations, business or reputation of the Company, or Executive's conviction of
a crime the commission of which results in injury to the Company or (C)
Executive's repeated refusal or failure (other than by reason of Disability) to
carry out reasonable instructions by his superiors or the Board or the Company's
board of directors.
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"Common Stock" means the Company's Common Stock, par value
$.01 per share.
"Disability" means (i) any permanent physical or mental
incapacity or disability rendering the Executive unable or unfit to perform
effectively the duties and obligations of his employment or to participate
effectively and actively in the management of the Company, or (ii) any illness,
accident, injury, physical or mental incapacity or other disability, where such
condition has rendered the Executive unable or unfit to perform effectively the
duties and obligations of his employment or to participate effectively and
actively in the management of the Company for a period of at least 90 days (in
either case, as determined in the good faith judgment of the Company's board of
directors).
"Executive Securities" means (i) the Common Stock issued to
the Executive Purchasers under the Original Agreement, and (ii) any securities
issued directly or indirectly with respect to the foregoing securities by way of
a stock split, stock dividend, or other division of securities, or in connection
with a combination of securities, recapitalization, merger, consolidation, or
other reorganization, or upon conversion or exercise of any of the foregoing
securities. As to any particular securities constituting Executive Securities,
such securities shall cease to be Executive Securities when they have been (a)
effectively registered under the Securities Act and disposed of in accordance
with the registration statement covering them, or (b) distributed to the public
through a broker, dealer or market maker pursuant to Rule 144 under the
Securities Act (or any similar provision then in force).
"Investor Equity" means (i) the securities distributed in
respect of the securities purchased under the Investors Purchase Agreement and
(ii) any securities issued directly or indirectly with respect to the foregoing
securities by way of a stock split, stock dividend, or other division of
securities, or in connection with a combination of securities, recapitalization,
merger, consolidation, or other reorganization, or upon conversion or exercise
of the foregoing. As to any particular securities constituting Investor Equity,
such securities shall cease to be Investor Equity when they have been (a)
effectively registered under the Securities Act and disposed of in accordance
with the registration statement covering them, (b) distributed to the public
through a broker, dealer or market maker pursuant to Rule 144 under the
Securities Act (or any similar provision then in force) or (c) repurchased by
the Company or any Subsidiary thereof.
"LLC Agreement" means the limited liability company agreement
of even date herewith, entered into by and among the members of the LLC, as
amended from time to time in accordance with its terms.
"MSA" means a metropolitan statistical area.
"Original Cost" means, at any given time, (i) with respect to
any Common Stock issued upon conversion of Preferred Stock, the Original Cost of
such Preferred Stock, and (ii) with respect to any other securities, the
original price paid upon issuance of such securities.
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"Person" means an individual, a partnership, a corporation, a
limited liability company, an association, a joint stock company, a trust, a
joint venture, an unincorporated organization and a governmental entity or any
department, agency or political subdivision thereof.
"Public Offering" means any underwritten sale of the Company's
common stock pursuant to an effective registration statement under the
Securities Act filed with the Securities and Exchange Commission on Form S-1 (or
a successor form adopted by the Securities and Exchange Commission); provided
that the following shall not be considered a Public Offering: (i) any issuance
of common stock as consideration or financing for a merger or acquisition, and
(ii) any issuance of common stock or rights to acquire common stock to employees
of the Company or its Subsidiaries as part of an incentive or compensation plan.
"Securities Act" means the Securities Act of 1933, as amended,
or any similar federal law then in force.
"Securityholders Agreement" means the securityholders
agreement entered into by and among the Company, the LLC, and the holders of
interests in the LLC, as amended from time to time in accordance with its terms.
"Stock Purchase Agreement" means the stock purchase agreement
of even date herewith, entered into by and between the Company and the LLC, as
amended from time to time in accordance with the terms thereof.
"Subsidiary" means, with respect to any Person, any
corporation, limited liability company, partnership, association or other
business entity of which (i) if a corporation, a majority of the total voting
power of shares of stock entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers or trustees thereof
is at the time owned or controlled, directly or indirectly, by that Person or
one or more of the other Subsidiaries of that Person or a combination thereof,
or (ii) if a limited liability company, partnership, association or other
business entity, a majority of the partnership or other similar ownership
interest thereof is at the time owned or controlled, directly or indirectly, by
any Person or one or more Subsidiaries of that Person or a combination thereof.
For purposes hereof, a Person or Persons shall be deemed to have a majority
ownership interest in a limited liability company, partnership, association or
other business entity if such Person or Persons shall be allocated a majority of
limited liability company, partnership, association or other business entity
gains or losses or shall be or control any managing director or general partner
of such limited liability company, partnership, association or other business
entity.
"Vesting Termination Breach" means (i) any breach of paragraph
5(d) or clause (ii) of paragraph 5(e) and (ii) any breach of any other provision
of paragraph 5 which is material or is intentionally and knowingly committed by
Executive.
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7. MISCELLANEOUS PROVISIONS.
(a) Further Assurances; Voting Proxy. As a condition to the
Company's entering into this Agreement and the issuance of Executive Securities
to the Executive Purchasers, and as further consideration therefor:
(i) Executive hereby unconditionally guarantees the
full and prompt performance of each Executive Purchaser's obligations
under this Agreement and under each of the agreements contemplated
hereby to which such Executive Purchaser is a party, and Executive
agrees that he will take all necessary or desirable actions to ensure
such performance as are reasonably requested by the Company. Executive
further agrees that he will not provide any directions to an Executive
Purchaser that are contrary to any obligation imposed on such Executive
Purchaser under this Agreement or under such other agreements, and that
Executive will not fail to provide any directions to an Executive
Purchaser if such failure would cause an Executive Purchaser not to
satisfy its obligations hereunder or thereunder. This guarantee shall
be irrevocable with respect to each Executive Security held by an
Executive Purchaser (and shall survive any transfer thereof, or the
death, disability, incompetency, or bankruptcy of such Executive
Purchaser) until such time as such Executive Security is transferred in
accordance with the terms hereof to a Person other than a member of
Executive's Family Group, at which time this guarantee shall be deemed
revoked with respect to such security (but not with respect to any
other Executive Securities). No invalidity, irregularity or
unenforceability of this Agreement or such other agreements by reason
of an Executive Purchaser's incapacity, minor status, incompetency,
bankruptcy, insolvency, or otherwise shall impair, affect or be a
defense to the obligations of Executive under this guarantee.
(ii) Each Executive Purchaser (other than Executive)
hereby appoints Executive as his true and lawful proxy and
attorney-in-fact, with full power of substitution, to vote all of such
Executive Purchaser's Executive Securities on all matters to be voted
on by the holders of such securities (whether as a member vote, a
shareholder vote, an approval right under this Agreement or the other
agreements contemplated hereby, or otherwise). These proxies and powers
granted by each Executive Purchaser pursuant to this paragraph are
coupled with an interest, and are given to secure such Executive
Purchasers' obligations under this Agreement and the other agreements
contemplated hereby to which the Executive Purchasers are parties. Such
proxies and powers shall be irrevocable with respect to each Executive
Security held by an Executive Purchaser (and shall survive any transfer
thereof, or the death, disability, incompetency, or bankruptcy of such
Executive Purchaser) until such time as such Executive Security is
transferred in accordance with the terms hereof to a Person other than
a member of Executive's Family Group, at which time such proxy shall be
deemed revoked with respect to such security (but not with respect to
any other Executive Securities).
(b) Transfers in Violation of Agreement. Any Transfer or
attempted Transfer of any Executive Securities in violation of any provision of
this Agreement shall be void, and none of
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<PAGE> 16
the Company, or any Subsidiary thereof shall record such purported Transfer on
its books or treat any purported transferee of such Executive Securities as the
owner of such securities for any purpose.
(c) Severability. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability shall not affect
any other provision or any other jurisdiction, but this Agreement shall be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein.
(d) Complete Agreement. This Agreement, those documents
expressly referred to herein and other documents of even date herewith embody
the complete agreement and understanding among the parties and supersede and
preempt any prior understandings, agreements or representations by or among the
parties, written or oral, which may have related to the subject matter hereof in
any way, including without limitation the Original Agreement.
(e) Counterparts. This Agreement may be executed in separate
counterparts, none of which need contain the signature of more than one party
hereto but each of which shall be deemed to be an original and all of which
taken together shall constitute one and the same agreement.
(f) Successors and Assigns. Except as otherwise provided
herein, this Agreement shall bind the parties hereto and their respective
successors and assigns and shall inure to the benefit of and be enforceable by
the parties hereto and their respective successors and assigns whether so
expressed or not.
(g) CHOICE OF LAW. ALL QUESTIONS CONCERNING THE CONSTRUCTION,
VALIDITY, ENFORCEMENT AND INTERPRETATION OF THIS AGREEMENT AND THE EXHIBITS
HERETO SHALL BE GOVERNED BY THE INTERNAL LAW, AND NOT THE LAW OF CONFLICTS, OF
THE STATE OF DELAWARE.
(h) Remedies. Each of the parties to this Agreement (including
any holder of Investor Equity or employee of the Company to which the Company
assigns any of its repurchase rights under paragraph 3 hereof) shall be entitled
to enforce its rights under this Agreement specifically, to recover damages and
costs (including reasonable attorney's fees) caused by any breach of any
provision of this Agreement and to exercise all other rights existing in its
favor. The parties hereto agree and acknowledge that money damages would not be
an adequate remedy for any breach of the provisions of this Agreement and that
any party may in its sole discretion apply to any court of law or equity of
competent jurisdiction (without posting any bond or deposit) for specific
performance and/or other injunctive relief in order to enforce or prevent any
violations of the provisions of this Agreement.
(i) Amendment, Modification, or Waiver. The provisions of this
Agreement may be amended, modified, or waived only with the prior written
consent of the Company and the Executive.
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<PAGE> 17
(j) Third-Party Beneficiaries. The parties hereto acknowledge
and agree that certain provisions of this Agreement are intended for the benefit
of certain holders of Investor Equity or employees of the Company to which the
Company assigns any of its repurchase rights under paragraph 3 hereof, that such
Persons are third-party beneficiaries of this Agreement and that provisions of
this Agreement shall be enforceable by such Persons as provided herein.
(k) Business Days. If any time period for giving notice or
taking action hereunder expires on a day which is a Saturday, Sunday or legal
holiday in the State of Illinois, the time period shall be automatically
extended to the business day immediately following such Saturday, Sunday or
holiday.
(l) Descriptive Headings; Interpretation; No Strict
Construction. The descriptive headings of this Agreement are inserted for
convenience only and do not constitute a substantive part of this Agreement.
Whenever required by the context, any pronoun used in this Agreement shall
include the corresponding masculine, feminine or neuter forms, and the singular
forms of nouns, pronouns, and verbs shall include the plural and vice versa.
Reference to any agreement, document, or instrument means such agreement,
document, or instrument as amended or otherwise modified from time to time in
accordance with the terms thereof, and if applicable hereof. The use of the
words "include" or "including" in this Agreement shall be by way of example
rather than by limitation. The use of the words "or," "either" or "any" shall
not be exclusive. The parties hereto have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the parties hereto, and no presumption or burden of
proof shall arise favoring or disfavoring any party by virtue of the authorship
of any of the provisions of this Agreement.
(m) Notices. All notices, demands or other communications to
be given or delivered under or by reason of the provisions of this Agreement
shall be in writing and shall be deemed to have been given when (a) delivered
personally to the recipient, (b) telecopied to the recipient (with hard copy
sent to the recipient by reputable overnight courier service (charges prepaid)
that same day) if telecopied before 5:00 p.m. Chicago, Illinois time on a
business day, and otherwise on the next business day, or (c) one business day
after being sent to the recipient by reputable overnight courier service
(charges prepaid). Such notices, demands and other communications shall be sent
to the following Persons at the following addresses:
To the Company:
1950 N. Stemmons Freeway
Suite 3026
Dallas, Texas 75207
Attention: Royce J. Holland
Telephone: (214) 261-7105
Telecopy: (214) 261-7107
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<PAGE> 18
To an Executive Purchaser: at the address set forth in the
Company's records.
or to such other address or to the attention of such other person as the
recipient party has specified by prior written notice to the sending party.
(n) Delivery by Facsimile. This Agreement, the agreements
referred to herein, and each other agreement or instrument entered into in
connection herewith or therewith or contemplated hereby or thereby, and any
amendments hereto or thereto, to the extent signed and delivered by means of a
facsimile machine, shall be treated in all manner and respects as an original
agreement or instrument and shall be considered to have the same binding legal
effect as if it were the original signed version thereof delivered in person. At
the request of any party hereto or to any such agreement or instrument, each
other party hereto or thereto shall reexecute original forms thereof and deliver
them to all other parties. No party hereto or to any such agreement or
instrument shall raise the use of a facsimile machine to deliver a signature or
the fact that any signature or agreement or instrument was transmitted or
communicated through the use of a facsimile machine as a defense to the
formation or enforceability of a contract and each such party forever waives any
such defense.
(o) Excise Tax. If either (a) it is determined by the Internal
Revenue Service or any other applicable governmental agency that any payment or
distribution of any type to or for the benefit of Executive pursuant to this
Agreement by the Company, any Person who acquires ownership or effective control
of the Company, or ownership of a substantial portion of the assets of the
Company (within the meaning of section 280G of the Code and the regulations
thereunder) or any affiliate of such Person (the "Total Payments") would be
subject to the excise tax imposed by section 4999 of the Code or any interest or
penalties with respect to such excise tax (such excise tax, together with any
such interest and penalties, are collectively referred to as the "Excise Tax"),
or (b) the Company or any such Person withholds any portion of such payment or
distribution or otherwise seeks to reduce the benefits to Executive under this
Agreement on account of the Excise Tax, then the Company and such Person shall
be jointly and severally obligated to pay to Executive an additional payment (a
"Gross-Up Payment") in an amount such that, after payment by Executive of all
federal, state and local taxes (including any interest or penalties imposed with
respect to such taxes), including any Excise Tax, imposed upon the Gross-Up
Payment, Executive retains an amount of the Gross-Up Payment equal to the Excise
Tax imposed upon the Total Payments. The Company and such Person shall be
obligated to pay all costs of Executive (including attorney fees and expenses)
incurred in enforcing their obligations under this Section 5(o).
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<PAGE> 19
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement on the date first written above.
ALLEGIANCE TELECOM, INC.
By: /s/ ROYCE J. HOLLAND
---------------------------------------
Its: Chairman & CEO
---------------------------------------
EXECUTIVE PURCHASERS
/s/ THOMAS M. LORD
----------------------------------------------
Thomas M. Lord (individually and on
behalf of Brian T. Lord and Colin J. Lord)
/s/ VICTORIA M. LORD
----------------------------------------------
Victoria M. Lord
<PAGE> 1
EXHIBIT 10.11
AMENDED AND RESTATED EXECUTIVE PURCHASE AGREEMENT
THIS AMENDED AND RESTATED EXECUTIVE PURCHASE AGREEMENT (this
"Agreement") is made as of December 13, 1999, by and between Allegiance Telecom,
Inc., a Delaware corporation (the "Company") and C. Daniel Yost ("Executive").
This Agreement amends and restates the Executive Purchase Agreement dated as of
January 28, 1998 (the "Original Agreement") by and between the Executive and
Transcend Telecom, L.L.C., a Delaware limited liability company (the "LLC") and
the Company (then known as "Transcend Telecom, Inc."). Capitalized terms used
but not otherwise defined herein have the meanings ascribed to such terms in
paragraph 6 hereof.
NOW, THEREFORE, in consideration of the mutual promises made
herein and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto, intending to be legally
bound, agree as follows:
1. PURCHASE AND SALE OF EXECUTIVE SECURITIES.
(a) Initial Capital Contribution and Issuance of Executive
Securities. Executive purchased the Executive Securities as provided for in the
Original Agreement.
(b) Acknowledgment of At-Will Employment. The Executive
acknowledges and agrees that no agreement or arrangement between the Executive
and the Company (including, without limitation, the issuance of the Executive
Securities to the Executive and the execution and delivery of this Agreement)
shall entitle Executive to remain in the employment of the Company and its
Subsidiaries or affect the right of the Company or its Subsidiaries to terminate
Executive's employment at any time and for any reason.
2. VESTING OF EXECUTIVE SECURITIES.
(a) Vesting Schedule. Except as otherwise provided herein, an
amount of Unvested Securities (as defined below) shall vest in accordance with
the following schedule:
<TABLE>
<CAPTION>
Cumulative Percentage of Executive
Date Securities Vested on Such Date
---- ----------------------------------
<S> <C>
January 28, 1998 20%
January 28, 1999 60%
January 28, 2000 80%
January 28, 2001 100%
</TABLE>
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<PAGE> 2
Notwithstanding the foregoing sentence, and except as otherwise provided herein,
the above vesting schedule shall cease and no Unvested Securities (as defined
below) shall vest after the date on which Executive's employment with the
Company and its Subsidiaries terminates for any reason; provided that if
Executive's employment is terminated by the Company without Cause, the Executive
Securities shall thereafter continue to vest in accordance with the above
schedule so long as Executive has not committed a Vesting Termination Breach
(upon which breach the vesting schedule shall cease, and no Unvested Securities
(as defined below) shall vest on or after the date of the first such breach). In
the event the Company has alleged that Executive has committed a Vesting
Termination Breach, Executive disputes such allegation, and the matter is
subject to the dispute resolution provisions set forth in paragraph 5, vesting
shall be tolled upon the date of the allegation of such breach; provided that
(i) if it is ultimately resolved under paragraph 5 that Executive has committed
a Vesting Termination Breach, the tolling shall become a permanent cessation
such that vesting shall have forever ceased upon the date of such allegation,
and (ii) if it is ultimately resolved under paragraph 5 that Executive did not
commit a Vesting Termination Breach, a number of Unvested Securities shall vest
giving retroactive effect to such vesting schedule such that there shall exist a
number of Vested Securities as if the vesting schedule had not been tolled as a
result of such allegations. Executive Securities which have become vested
pursuant to this Agreement are referred to herein as "Vested Securities," and
all other Executive Securities are referred to herein as "Unvested Securities."
(b) Acceleration upon a Qualified Sale of the Company. All
Unvested Securities shall become Vested Securities upon the consummation of a
Qualified Sale of the Company (as defined below) so long as Executive is
employed by the Company or any of its Subsidiaries on the date of such sale (or,
if Executive's employment was terminated by the Company without Cause, so long
as Executive has not committed a Vesting Termination Breach). A "Qualified Sale
of the Company" means either (i) the sale, lease, transfer, conveyance or other
disposition, 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, or (ii)
a transaction or series of transactions (including by way of merger,
consolidation, or sale of stock, but not including a Public Offering) the result
of which is that the holders of the Company's outstanding voting stock
immediately prior to such transaction are after giving effect to such
transaction no longer, in the aggregate, the "beneficial owners" (as such term
is defined in Rule 13d-3 and Rule 13d-5 promulgated under the Securities
Exchange Act), directly or indirectly through one or more intermediaries, of
more than 50% of the voting power of the outstanding voting stock of the
Company, in each case where the consideration for such assets or stock in such
sale or transfer consists of cash and/or publicly traded equity securities for
at least 50% of the outstanding stock of the Company (e.g., 100% of such
consideration would have to consist of cash and/or publicly traded equity
securities if only 50.01% of such stock were sold in such transaction).
(c) Acceleration upon a Public Offering. The vesting schedule
set forth in (a) above gives effect to the fact that the Company consummated its
initial Public Offering on July 7, 1998 and Executive was employed by the
Company or any of its Subsidiaries on the closing date of such offering.
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<PAGE> 3
(d) Acceleration upon Death or Disability. All Unvested Shares
shall become Vested Shares if Executive's employment with the Company or any of
its Subsidiaries terminates by reason of Executive's death or Disability.
(e) Other Acceleration. Subject to paragraph 3(h) hereof, any
Unvested Securities which the Company (or its assignees) has not elected to
repurchase in the Repurchase Notice (as defined below) (including Unvested
Securities originally included in the Repurchase Notice, but for which the
election to repurchase was rescinded, pursuant to the terms of paragraph 3, by
all of the Company and/or its assignees having made such election) shall
thereafter be deemed Vested Securities.
3. REPURCHASE OPTION.
(a) The Repurchase Option. Upon (i) the termination of
Executive's employment with the Company and its Subsidiaries for any reason
other than a termination by the Company without Cause, or (ii) if Executive's
employment is terminated by the Company without Cause, upon Executive's
commission of a Vesting Termination Breach (the occurrence of either (i) or
(ii), a "Repurchase Event"), the Unvested Securities then in existence (whether
held by Executive or one or more of the Executive's transferees) will be subject
to repurchase by the Company at the Company's election pursuant to the terms and
conditions set forth in this paragraph 3 (the "Repurchase Option"). In the event
that the Company has alleged that Executive has committed a Vesting Termination
Breach, Executive disputes such allegation, and the matter is subject to the
dispute resolution provisions set forth in paragraph 6, the closing of the
repurchase under this paragraph 3 shall not occur unless and until it is
ultimately determined that Executive committed a Vesting Termination Breach;
provided that during the pendency of such proceeding, the Executive Securities
specified in the Repurchase Notice (as defined below) shall not be transferred
by any holder thereof to any Person.
(b) Repurchase Price. The repurchase price (the "Repurchase
Price") of any Unvested Securities to be repurchased shall be the lesser of (x)
the Fair Market Value of such Securities, and (y) the Original Cost of such
Securities (with securities having the lowest Original Cost subject to
repurchase prior to securities with a higher Original Cost).
(c) Exercise of Repurchase Option. The Company may elect to
purchase all or any portion of the Executive Securities by delivering written
notice (the "Repurchase Notice") to the holder or holders of the Executive
Securities within 30 days after the Repurchase Event. The Repurchase Notice
shall set forth the amount, type, and class of Executive Securities to be
acquired from each such holder. The Executive Securities to be repurchased by
the Company shall first be satisfied to the extent possible from the Executive
Securities held by Executive at the time of delivery of the Repurchase Notice.
If the amount of Executive Securities then held by Executive is less than the
total amount of Executive Securities that the Company has elected to purchase,
the Company shall Purchase the remaining securities elected to be purchased from
the other holder(s) of Executive Securities, pro rata according to the amount of
Executive Securities held of record by each such other holder at the time of
delivery of the Repurchase Notice. The amount of Unvested Securities to be
repurchased hereunder shall be deemed to be allocated among Executive and the
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<PAGE> 4
other holders of repurchased Executive Securities (if any) pro rata according to
the amount of Executive Securities to be purchased from such persons.
(d) Assignment by the Company. The Company, by action of the
Board, will have the right to assign all or any portion of its repurchase rights
hereunder to any holder of Investor Equity and/or to any executive employee of
the Company or any of its Subsidiaries.
(e) Fair Market Value of Repurchased Shares.
(i) The "Fair Market Value" of Executive Securities
subject to repurchase hereunder shall be determined in accordance with
this paragraph (e).
(ii) The Company and the holders of a majority of the
Executive Securities to be repurchased shall attempt in good faith to
agree on the Fair Market Value of the Executive Securities. Any
agreement reached by such Persons shall be final and binding on all
parties hereto.
(iii) If such Persons are unable to reach such
agreement within 20 days after the giving of Repurchase Notice, the
Fair Market Value of any Executive Securities that are publicly traded
shall be the average, over a period of 21 days consisting of the date
of the Repurchase Event and the 20 consecutive business days prior to
that date, of the average of the closing prices of the sales of such
securities on all securities exchanges on which such securities may at
that time be listed, or, if there have been no sales on any such
exchange on any day, the average of the highest bid and lowest asked
prices on all such exchanges at the end of such day, or, if on any day
such securities are not so listed, the average of the representative
bid and asked prices quoted in the Nasdaq System as of 4:00 P.M., New
York time, or, if on any day such securities are not quoted in the
Nasdaq System, the average of the highest bid and lowest asked prices
on such day in the domestic over-the-counter market as reported by the
National Quotation Bureau Incorporated, or any similar successor
organization.
(iv) If such Persons are unable to reach agreement
pursuant to subparagraph (ii) within 20 days after the giving of
Repurchase Notice, and to the extent any Executive Securities are not
publicly traded:
(A) The Company and the holders of a
majority of the Executive Securities shall each, within 10 days
thereafter, choose one investment banker or other appraiser with
experience in analyzing and making determinations concerning matters in
the telecommunications industry and in valuing entities like the
Company, and the two investment bankers/appraisers so selected shall
together select a third investment banker/appraiser similarly
qualified.
(B) The three investment bankers/appraisers
shall first appraise the fair market value of the Company (based on the
assumption of an orderly, arm's length sale to a willing unaffiliated
buyer). The three investment bankers/appraisers shall then
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<PAGE> 5
appraise the fair market value of such non-publicly-traded Executive
Securities as follows: the fair market value of each share of Common
Stock shall be equal to the fair market value of the Company divided by
the total number of shares of Common Stock outstanding on the date of
the Repurchase Event (determined on a fully diluted basis (x) with
respect to all outstanding securities convertible into the Company's
Common Stock, assuming the conversion of such convertible securities
(without regard to any conditions or other restrictions on such
conversion), and (y) with respect to all outstanding options, warrants
and other rights or securities exercisable or exchangeable for shares
of the Company's Common Stock, in accordance with the Treasury Stock
Method under generally accepted accounting principles for determination
of fully diluted earnings per share).
The three investment bankers/appraisers shall, within thirty days of
their retention, provide the written results of such appraisals to the
Company and/or its assignees and to each of the holders of Executive
Securities.
(C) The "Fair Market Value" of the
non-publicly-traded Executive Securities to be repurchased shall be the
average of the two appraisals closest to each other, and such amount
shall be final and binding on all parties hereto; provided that the
Company (and/or any assignee) may at any time within five days after
receiving written notice of such determination rescind its prior
exercise of the Repurchase Option by giving written notice of such
revocation to the holder or holders of the Executive Securities to be
repurchased, and upon such revocation the revoking party will be
treated as if it had never exercised such Repurchase Option (it being
understood that such revoking parties shall thereafter have no right to
re-exercise such Repurchase Option).
(D) The costs of such appraisal shall be
allocated between the parties based on the percentage which the portion
of the contested amount not awarded to each party bears to the amount
actually contested by such party; provided that if any parties revoke
their exercise of the Repurchase Option pursuant to paragraph (C)
above, such revoking parties shall bear (pro rata among such revoking
parties based on the number of Executive Securities with respect to
which each such revoking party had initially exercised its Repurchase
Option) any appraisal costs that would be allocated to the holder(s) of
Executive Securities under this paragraph (D).
(f) Closing of the Repurchase. Within 10 business days after
the Repurchase Price for the Executive Securities to be repurchased has been
determined, the Company shall send a notice to each holder of Executive
Securities setting forth the consideration to be paid for such shares and the
time and place for the closing of the transaction, which date shall not be more
than 30 days nor less than five days after the delivery of such notice. At such
closing, the holders of Executive Securities shall deliver all certificates (if
any exist) evidencing the Executive Securities to be repurchased to the Company
(and/or any assignees of the Company's repurchase right), and the Company
(and/or any assignees) shall pay for the Executive Securities to be purchased
pursuant to the Repurchase Option by delivery of a check or wire transfer of
immediately available funds in the aggregate amount of the Repurchase Price for
such securities; provided that in the event the Board determines in its good
faith discretion that the Company is not in a position to pay in cash any
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<PAGE> 6
or all of the Repurchase Price for Executive Securities to be repurchased by it.
The Company may pay, in the form of a promissory note, a portion of the
Repurchase Price for such securities equal to (x) the aggregate Repurchase Price
for the Executive Securities to be repurchased minus (y) the Original Cost of
such securities. Such a promissory note shall be subordinated to all of the
Company's senior debt obligations either then or thereafter incurred, shall earn
simple annual interest at the Base Rate, shall have all principal and accrued
interest due and payable upon maturity, and shall mature upon the earliest to
occur of a Qualified Sale of the Company or the fifth anniversary of the
issuance of such promissory note.
The purchasers of Executive Securities hereunder shall be entitled to receive
customary representations and warranties from the sellers regarding good title
to such shares, free and clear of any liens or encumbrances.
(g) Restrictions. Notwithstanding anything to the contrary
contained in this Agreement, all repurchases of Executive Securities by the
Company shall be subject to applicable restrictions contained in the Delaware
General Corporation Law and in the Company's and its Subsidiaries' debt and
equity financing agreements. If any such restrictions prohibit the repurchase of
Executive Securities hereunder which the Company is otherwise entitled or
required to make, the time periods provided in this paragraph 3 shall be
suspended, and the Company may make such repurchases as soon as it is permitted
to do so under such restrictions, unless by such time such Repurchase Option has
terminated pursuant to paragraph 3(h); provided that notwithstanding the
foregoing, in no event shall the time periods provided in this paragraph 3 be
suspended for more than 6 months.
(h) Termination of Repurchase Option. All rights under this
paragraph 3 of the Company and/or its assignees to repurchase Executive
Securities shall terminate upon a Qualified Sale of the Company.
4. RESTRICTIONS ON TRANSFER.
(a) Opinion of Valid Transfer. In addition to any other
restrictions on transfer imposed by this Agreement, or the Securityholders
Agreement, no holder of Executive Securities may sell, transfer or dispose of
any Executive Securities (except pursuant to an effective registration statement
under the Securities Act) without first delivering to the Company an opinion of
counsel (reasonably acceptable in form and substance to the Company) that
neither registration nor qualification under the Securities Act and applicable
state securities laws is required in connection with such transfer.
(b) Restrictive Legend. The certificates representing
Executive Securities shall bear the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE WERE ORIGINALLY ISSUED
ON JANUARY 28, 1998, HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "ACT"), OR THE SECURITIES LAWS OF ANY STATE,
AND SUCH
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<PAGE> 7
SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR AN EXEMPTION FROM
REGISTRATION THEREUNDER. THE SECURITIES REPRESENTED BY THIS CERTIFICATE
ARE ALSO SUBJECT TO ADDITIONAL RESTRICTIONS ON TRANSFER AND REPURCHASE
OPTIONS SET FORTH IN AN EXECUTIVE PURCHASE AGREEMENT BETWEEN THE ISSUER
OF SUCH SECURITIES (THE "ISSUER") AND THE INITIAL HOLDER OF SUCH
SECURITIES (THE "INITIAL HOLDER"). A COPY OF SUCH AGREEMENT MAY BE
OBTAINED BY THE HOLDER HEREOF AT THE ISSUER'S PRINCIPAL PLACE OF
BUSINESS WITHOUT CHARGE."
The legend set forth above shall be removed from the certificates evidencing any
shares which cease to be Executive Securities.
(c) Retention of Executive Stock.
(i) No Executive Purchaser shall sell, transfer,
assign, pledge or otherwise dispose of (whether with or without
consideration and whether voluntarily or involuntarily or by operation
of law) any interest in any Unvested Securities (a "Transfer"), except
pursuant to (A) the repurchase provisions of paragraph 3 hereof or of
the LLC Agreement, (B) the "Participation Rights" or "Put" provisions
set forth in the Securityholders Agreement, or (C) a Sale of the
Company (as defined in the Securityholders Agreement) (each of (A),
(B), and (C), an "Exempt Transfer").
(ii) The restrictions contained in this paragraph (c)
shall not apply with respect to transfers of Unvested Securities (A)
pursuant to applicable laws of descent and distribution or (B) among
Executive's Family Group; provided that the restrictions contained in
this paragraph shall continue to be applicable to the Unvested
Securities after any such Transfer, the transferees of such Unvested
Securities shall have agreed in writing to be bound by the provisions
of this Agreement with respect to the Unvested Securities so
transferred, and (prior to the death of Executive) each such transferee
of Unvested Securities shall have entered into proxies and other
agreements satisfactory to the holders of a majority of the Investor
Equity pursuant to which Executive shall have the sole right to vote
such Unvested Securities for all purposes. For purposes of this
Agreement, "Family Group" means Executive's spouse and descendants
(whether natural or adopted), any trust which at the time of such
Transfer and at all times thereafter is and remains solely for the
benefit of Executive and/or Executive's spouse and/or descendants and
any family partnership the partners of which consist solely of
Executive, such spouse, such descendants or such trusts.
5. CONFIDENTIALITY, NONCOMPETE, AND NONSOLICITATION.
(a) Nondisclosure and Nonuse of Confidential Information.
Executive shall not disclose or use at any time, either during his employment
with the Company or thereafter, any Confidential Information (as defined below)
of which Executive is or becomes aware, whether or not such information is
developed by him, except to the extent that such disclosure or use is directly
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related to and required by Executive's performance of duties assigned to
Executive or the Company, or to the extent such disclosure is permissible under
the confidentiality provisions set forth in the Stock Purchase Agreement.
Executive shall take all appropriate steps to safeguard Confidential Information
and to protect it against disclosure, misuse, espionage, loss and theft. As used
in this Agreement, the term "Confidential Information" means information that is
not generally known to the public and that is used, developed or obtained by the
Company, or its Subsidiaries in connection with their business, including but
not limited to (i) products or services, (ii) fees, costs and pricing
structures, (iii) designs, (iv) analysis, (v) drawings, photographs and reports,
(vi) computer software, including operating systems, applications and program
listings, (vii) flow charts, manuals and documentation, (viii) data bases, (ix)
accounting and business methods, (x) inventions, devices, new developments,
methods and processes, whether patentable or unpatentable and whether or not
reduced to practice, (xi) customers and clients and customer or client lists,
(xii) copyrightable works, (xiv) all technology and trade secrets, (xv) business
plans and financial models, and (xvi) all similar and related information in
whatever form. Confidential Information shall not include any information that
has been published in a form generally available to the public prior to the date
Executive proposes to disclose or use such information. Information shall not be
deemed to have been published merely because individual portions of the
information have been separately published, but only if all material features
constituting such information have been published in combination.
Notwithstanding the foregoing, "Confidential Information" shall not include any
information of which (a) Executive became aware prior to his affiliation with
the Company, (b) Executive learns from sources other than the Company or its
Subsidiaries, whether prior to or after such information is actually disclosed
by the Company or its Subsidiaries or (c) is disclosed in a prospectus or other
documents for dissemination to the public.
(b) The Company's Ownership of Intellectual Property.
(i) Acknowledgment of Company Ownership. In the event
that Executive as part of his activities on behalf of the Company
generates, authors or contributes to any invention, design, new
development, device, product, method or process (whether or not
patentable or reduced to practice or constituting Confidential
Information), any copyrightable work (whether or not constituting
Confidential Information) or any other form of Confidential Information
relating directly or indirectly to the Company's business as now or
hereafter conducted (collectively, "Intellectual Property"), Executive
acknowledges that such Intellectual Property is the exclusive property
of the Company and hereby assigns all right, title and interest in and
to such Intellectual Property to the Company. Any copyrightable work
prepared in whole or in part by Executive will be deemed "a work made
for hire" under Section 201(b) of the 1976 Copyright Act, and the
Company shall own all of the rights comprised by the copyright therein.
Executive shall promptly and fully disclose all Intellectual Property
to the Company and shall cooperate with the Company to protect the
Company's interests in and rights to such Intellectual Property
(including, without limitation, providing reasonable assistance in
securing patent protection and copyright registrations and executing
all documents as reasonably requested by the Company, whether such
requests occur prior to or after termination of Executive's employment
with the Company).
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<PAGE> 9
(ii) Executive Invention. Executive understands that
paragraph (b)(i) of this Agreement regarding the Company's ownership of
Intellectual Property does not apply to any invention for which no
equipment, supplies, facilities or trade secret information of the
Company were used and which was developed entirely on Executive's own
time, unless (i) the invention relates to the business of the Company
or to the Company's actual or demonstrably anticipated research or
development or (ii) the invention results from any work performed by
Executive for the Company.
(c) Delivery of Materials upon Termination of Employment. As
requested by the Company from time to time and upon the termination of
Executive's employment with the Company for any reason, Executive shall promptly
deliver to the Company all copies and embodiments, in whatever form, of all
Confidential Information and Intellectual Property in Executive's possession or
within his control (including, but not limited to, written records, notes,
photographs, manuals, notebooks, documentation, program listings, flow charts,
magnetic media, disks, diskettes, tapes and all other materials containing any
Confidential Information or Intellectual Property) irrespective of the location
or form of such material and, if requested by the Company, shall provide the
Company with written confirmation that all such materials have been delivered to
the Company.
(d) Noncompete. Executive acknowledges and agrees with the
Company that in the course of his employment with the Company he shall become
familiar with the Company's trade secrets and with other Confidential
Information concerning the Company, that Executive's services to the Company are
unique in nature and of an extraordinary value to the Company, and that the
Company would be irreparably damaged if Executive were to provide similar
services to any person or entity competing directly with the Company. In
connection with the issuance to Executive of the Executive Securities hereunder,
in consideration of and as an inducement to the Company's entering into this
Agreement, Executive accordingly covenants and agrees with the Company that
during the Noncompete Period (as defined below), Executive shall not, directly
or indirectly, either for himself or for or through any other individual,
corporation, partnership, joint venture or other entity, participate in any
business or enterprise conducting business in any Covered MSA which engages or
proposes to engage in the provision of competitive local exchange
telecommunications services. For purposes of this Agreement, (i) the term
"participate in" shall include, without limitation, having any direct or
indirect interest in any corporation, partnership, joint venture or other
entity, whether as a sole proprietor, owner, stockholder, partner, joint
venturer, creditor or otherwise, or rendering any direct or indirect service or
assistance to any individual, corporation, partnership, joint venture and other
business entity (whether as a director, officer, manager, supervisor, employee,
agent, consultant or otherwise), other than ownership of up to 2% of the
outstanding stock of any company (public or private) wherein Executive has no
material involvement in the management (other than as an independent director
for which Executive receives no or only nominal cash compensation), (ii) the
term "MSA" means metropolitan statistical area and (iii) the term "Covered MSA"
means (1) any MSA in which the Company is engaged in business or has at any time
had an Approved Business Plan (as defined in the Stock Purchase Agreement) to
engage in business. Executive agrees that this covenant is reasonable with
respect to its duration, geographical area and scope.
(e) Nonsolicitation. During the Noncompete Period, Executive
shall not (i) induce or attempt to induce any employee of the Company or any
Subsidiary to leave the employ of
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<PAGE> 10
the Company or any Subsidiary, or in any way interfere with the relationship
between the Company or any Subsidiary and any employee thereof, (ii) hire
directly or through another entity any person who was an employee of the Company
or any Subsidiary at any time during the six months prior to the date such
person is to be so hired, or (iii) induce or attempt to induce any customer,
supplier, licensee or other business relation of the Company or any Subsidiary
to cease doing business with the Company or any Subsidiary, or in any way
interfere with the relationship between any such customer, supplier, licensee or
business relation of the Company and its Subsidiaries (including, without
limitation, making any negative statements or communications concerning the
Company or any Subsidiary).
(f) Noncompete Period. The "Noncompete Period" shall commence
on the date hereof and shall continue until the first anniversary of the
termination of Executive's employment with the Company and its Subsidiaries for
any reason; provided that the Noncompete Period shall terminate immediately upon
a Qualified Sale of the Company.
(g) Judicial Modification. If the final judgment of a court of
competent jurisdiction, or any final non-appealable decision of an arbitrator in
connection with a mandatory arbitration, declares that any term or provision of
this paragraph is invalid or unenforceable, the parties agree that the court
making the determination of invalidity or unenforceability shall have the power
to reduce the scope, duration, or geographic area of the term or provision, to
delete specific words or phrases, or to replace any invalid or unenforceable
term or provision with a term or provision that is valid and enforceable and
that comes closest to expressing the intention of the invalid or unenforceable
term or provision, and this Agreement shall be enforceable as so modified after
the expiration of the time within which the judgment or decision may be
appealed.
(h) Dispute Resolution.
(i) Arbitration. All claims, disputes, controversies
and other matters in question arising out of or relating to this
paragraph 5, or to the alleged breach hereof, shall be settled by
preliminary negotiation between the Company or other Person bringing
such allegation and the Executive (the "parties") or, if such
preliminary negotiation is unsuccessful for any reason (but in any
event not later than 10 days after commencement of such negotiation),
by binding arbitration in accordance with the procedures set forth in
this paragraph (h). Without limiting the mandatory arbitration
provision set forth in this paragraph (h), each of the parties hereto
(A) waives the right to bring an action in any court of competent
jurisdiction with respect to any such claims, controversies and
disputes (other than any such action to enforce the award or other
remedy resulting from any arbitration pursuant to this paragraph (h) or
to prevent any arbitrator from exceeding the authority granted to the
arbitrators hereunder) and (B) waives the right to trial by jury in any
suit, action or other proceeding brought on, with respect to or in
connection with this Agreement.
(ii) Binding Arbitration. Upon filing of a notice of
demand for binding arbitration by any party hereto, arbitration shall
be commenced and conducted as follows:
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(A) Arbitrators. All claims, disputes,
controversies and other matters (collectively "matters") in
question shall be referred to and decided and settled by a
panel of three arbitrators with experience in analyzing,
understanding, and making determinations concerning matters in
the telecommunications industry, one selected by each of the
parties and the third by the two arbitrators so selected.
(B) Cost of Arbitration. The cost of each
arbitration proceeding, including without limitation the
arbitrators' compensation and expenses, hearing room charges,
court reporter transcript charges, etc., shall be allocated
among the parties based upon the percentage which the portion
of the contested amount not awarded to each party bears to the
amount actually contested by such party. The arbitrators shall
also award the party that prevails substantially in its
pre-hearing position its reasonable attorneys' fees and costs
incurred in connection with the arbitration. The arbitrators
are specifically instructed to award attorneys' fees for
instances of abuse of the discovery process.
(C) Situs of Proceedings. The situs of the
arbitration shall be in New York, New York, or such other
place as is mutually agreeable to the parties.
(iii) Pre-hearing Discovery. The parties shall have
the right to conduct and enforce pre-hearing discovery in accordance
with the then current Federal Rules of Civil Procedure, subject to the
following limitations: (A) each party may serve no more than one set of
interrogatories which set shall ask no more than twenty questions; (B)
each party may depose the other party's expert witnesses who will be
called to testify at the hearing, plus up to six fact witnesses without
regard to whether they will be called to testify (each party will be
entitled to a total of not more than 24 hours of depositions of the
other party's witnesses, and not more than 6 hours with respect to any
single witness); and (C) document discovery and other discovery shall
be under the control of and enforceable by the arbitrators, and all
disputes relating thereto shall be decided by the arbitrators.
Notwithstanding any contrary foregoing provisions, the arbitrators
shall have the power and authority to, and to the fullest extent
practicable shall, abbreviate arbitration discovery in a manner which
is fair to all parties in order to expedite the conclusion of each
alternative dispute resolution proceeding.
(iv) Pre-hearing Conference. Within thirty (30) days
after filing of notice of demand for binding arbitration, the
arbitrators shall hold a pre-hearing conference to establish schedules
for completion of discovery, for exchange of exhibit and witness lists,
for arbitration briefs, for the hearing, and to decide procedural
matters and all other questions that may be presented.
(v) Hearing Procedures. The hearing shall be
conducted to preserve its privacy and to allow reasonable procedural
due process. Rules of evidence need not be strictly followed, and the
hearing shall be streamlined as follows: (A) documents shall be
self-authenticating, subject to valid objection by the opposing party;
(B) expert reports, witness biographies, depositions and affidavits may
be utilized, subject to the opponent's right of a live
cross-examination of the witness in person; (C) charts, graphs and
summaries shall be utilized to present voluminous data, provided (1)
that the underlying data was made
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available to the opposing party thirty (30) days prior to the hearing,
and (2) that the preparer of each chart, graph or summary is available
for explanation and live cross-examination in person; (D) the hearing
should be held on consecutive business days without interruption to the
maximum extent practicable; and (E) the arbitrators shall establish all
other procedural rules for the conduct of the arbitration in accordance
with the rules of arbitration of the American Arbitration Association.
(vi) Governing Law. This arbitration provision shall
be governed by, and all rights and obligations specifically enforceable
under and pursuant to, the Federal Arbitration Act (9 U.S.C. Section 1,
et seq.).
(vii) Consolidation. No arbitration shall include, by
consolidation, joinder or in any other manner, any additional person
not a party to this Agreement (other than affiliates of any such party,
which affiliates may be included in the arbitration), except by written
consent of the parties hereto containing a specific reference to this
Agreement.
(viii) Award; Time Limit. The arbitrators are
empowered to render an award of general compensatory damages and
equitable relief (including, without limitation, injunctive relief),
but is not empowered to award punitive damages. The award rendered by
the arbitrators (A) shall be final; (B) shall not constitute a basis
for collateral estoppel as to any issue; and (C) shall not be subject
to vacation or modification. The arbitrators shall render any award or
otherwise conclude the arbitration no later than 120 days after the
date notice is given pursuant to this paragraph (h).
(ix) Confidentiality. The Parties hereto will
maintain the substance of any proceedings hereunder in confidence and
the arbitrators, prior to any proceedings hereunder, will sign an
agreement whereby the arbitrator agrees to keep the substance of any
proceedings hereunder in confidence.
6. DEFINITIONS.
"Approved Business Plan" has the meaning ascribed to such term
in the Stock Purchase Agreement.
"Board" means the board of directors of the Company.
"Cause" means (A) Executive's theft or embezzlement, or
attempted theft or embezzlement, of money or property of the Company,
Executive's perpetration or attempted perpetration of fraud, or Executive's
participation in a fraud or attempted fraud, on the Company, or Executive's
unauthorized appropriation of, or attempt to misappropriate, any tangible or
intangible assets or property of the Company, (B) any act or acts of disloyalty,
misconduct or moral turpitude by Executive injurious to the interest, property,
operations, business or reputation of the Company, or Executive's conviction of
a crime the commission of which results in injury to the Company or (C)
Executive's repeated refusal or failure (other than by reason of Disability) to
carry out reasonable instructions by his superiors or the Board or the Company's
board of directors.
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"Common Stock" means the Company's Common Stock, par value
$.01 per share.
"Disability" means (i) any permanent physical or mental
incapacity or disability rendering the Executive unable or unfit to perform
effectively the duties and obligations of his employment or to participate
effectively and actively in the management of the Company, or (ii) any illness,
accident, injury, physical or mental incapacity or other disability, where such
condition has rendered the Executive unable or unfit to perform effectively the
duties and obligations of his employment or to participate effectively and
actively in the management of the Company for a period of at least 90 days (in
either case, as determined in the good faith judgment of the Company's board of
directors).
"Executive Securities" means (i) the Common Stock issued to
the Executive Purchasers under the Original Agreement, and (ii) any securities
issued directly or indirectly with respect to the foregoing securities by way of
a stock split, stock dividend, or other division of securities, or in connection
with a combination of securities, recapitalization, merger, consolidation, or
other reorganization, or upon conversion or exercise of any of the foregoing
securities. As to any particular securities constituting Executive Securities,
such securities shall cease to be Executive Securities when they have been (a)
effectively registered under the Securities Act and disposed of in accordance
with the registration statement covering them, or (b) distributed to the public
through a broker, dealer or market maker pursuant to Rule 144 under the
Securities Act (or any similar provision then in force).
"Investor Equity" means (i) the securities distributed in
respect of the securities purchased under the Investors Purchase Agreement and
(ii) any securities issued directly or indirectly with respect to the foregoing
securities by way of a stock split, stock dividend, or other division of
securities, or in connection with a combination of securities, recapitalization,
merger, consolidation, or other reorganization, or upon conversion or exercise
of the foregoing. As to any particular securities constituting Investor Equity,
such securities shall cease to be Investor Equity when they have been (a)
effectively registered under the Securities Act and disposed of in accordance
with the registration statement covering them, (b) distributed to the public
through a broker, dealer or market maker pursuant to Rule 144 under the
Securities Act (or any similar provision then in force) or (c) repurchased by
the Company or any Subsidiary thereof.
"LLC Agreement" means the limited liability company agreement
of even date herewith, entered into by and among the members of the LLC, as
amended from time to time in accordance with its terms.
"MSA" means a metropolitan statistical area.
"Original Cost" means, at any given time, (i) with respect to
any Common Stock issued upon conversion of Preferred Stock, the Original Cost of
such Preferred Stock, and (ii) with respect to any other securities, the
original price paid upon issuance of such securities.
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<PAGE> 14
"Person" means an individual, a partnership, a corporation, a
limited liability company, an association, a joint stock company, a trust, a
joint venture, an unincorporated organization and a governmental entity or any
department, agency or political subdivision thereof.
"Public Offering" means any underwritten sale of the Company's
common stock pursuant to an effective registration statement under the
Securities Act filed with the Securities and Exchange Commission on Form S-1 (or
a successor form adopted by the Securities and Exchange Commission); provided
that the following shall not be considered a Public Offering: (i) any issuance
of common stock as consideration or financing for a merger or acquisition, and
(ii) any issuance of common stock or rights to acquire common stock to employees
of the Company or its Subsidiaries as part of an incentive or compensation plan.
"Securities Act" means the Securities Act of 1933, as amended,
or any similar federal law then in force.
"Securityholders Agreement" means the securityholders
agreement entered into by and among the Company, the LLC, and the holders of
interests in the LLC, as amended from time to time in accordance with its terms.
"Stock Purchase Agreement" means the stock purchase agreement
of even date herewith, entered into by and between the Company and the LLC, as
amended from time to time in accordance with the terms thereof.
"Subsidiary" means, with respect to any Person, any
corporation, limited liability company, partnership, association or other
business entity of which (i) if a corporation, a majority of the total voting
power of shares of stock entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers or trustees thereof
is at the time owned or controlled, directly or indirectly, by that Person or
one or more of the other Subsidiaries of that Person or a combination thereof,
or (ii) if a limited liability company, partnership, association or other
business entity, a majority of the partnership or other similar ownership
interest thereof is at the time owned or controlled, directly or indirectly, by
any Person or one or more Subsidiaries of that Person or a combination thereof.
For purposes hereof, a Person or Persons shall be deemed to have a majority
ownership interest in a limited liability company, partnership, association or
other business entity if such Person or Persons shall be allocated a majority of
limited liability company, partnership, association or other business entity
gains or losses or shall be or control any managing director or general partner
of such limited liability company, partnership, association or other business
entity.
"Vesting Termination Breach" means (i) any breach of paragraph
5(d) or clause (ii) of paragraph 5(e) and (ii) any breach of any other provision
of paragraph 5 which is material or is intentionally and knowingly committed by
Executive.
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<PAGE> 15
7. MISCELLANEOUS PROVISIONS.
(a) Transfers in Violation of Agreement. Any Transfer or
attempted Transfer of any Executive Securities in violation of any provision of
this Agreement shall be void, and none of the Company, or any Subsidiary thereof
shall record such purported Transfer on its books or treat any purported
transferee of such Executive Securities as the owner of such securities for any
purpose.
(b) Severability. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability shall not affect
any other provision or any other jurisdiction, but this Agreement shall be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein.
(c) Complete Agreement. This Agreement, those documents
expressly referred to herein and other documents of even date herewith embody
the complete agreement and understanding among the parties and supersede and
preempt any prior understandings, agreements or representations by or among the
parties, written or oral, which may have related to the subject matter hereof in
any way, including without limitation the Original Agreement.
(d) Counterparts. This Agreement may be executed in separate
counterparts, none of which need contain the signature of more than one party
hereto but each of which shall be deemed to be an original and all of which
taken together shall constitute one and the same agreement.
(e) Successors and Assigns. Except as otherwise provided
herein, this Agreement shall bind the parties hereto and their respective
successors and assigns and shall inure to the benefit of and be enforceable by
the parties hereto and their respective successors and assigns whether so
expressed or not.
(f) CHOICE OF LAW. ALL QUESTIONS CONCERNING THE CONSTRUCTION,
VALIDITY, ENFORCEMENT AND INTERPRETATION OF THIS AGREEMENT AND THE EXHIBITS
HERETO SHALL BE GOVERNED BY THE INTERNAL LAW, AND NOT THE LAW OF CONFLICTS, OF
THE STATE OF DELAWARE.
(g) Remedies. Each of the parties to this Agreement (including
any holder of Investor Equity or employee of the Company to which the Company
assigns any of its repurchase rights under paragraph 3 hereof) shall be entitled
to enforce its rights under this Agreement specifically, to recover damages and
costs (including reasonable attorney's fees) caused by any breach of any
provision of this Agreement and to exercise all other rights existing in its
favor. The parties hereto agree and acknowledge that money damages would not be
an adequate remedy for any breach of the provisions of this Agreement and that
any party may in its sole discretion apply to any court of law or equity of
competent jurisdiction (without posting any bond or deposit) for specific
performance and/or other injunctive relief in order to enforce or prevent any
violations of the provisions of this Agreement.
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(h) Amendment, Modification, or Waiver. The provisions of this
Agreement may be amended, modified, or waived only with the prior written
consent of the Company and the Executive.
(i) Third-Party Beneficiaries. The parties hereto acknowledge
and agree that certain provisions of this Agreement are intended for the benefit
of certain holders of Investor Equity or employees of the Company to which the
Company assigns any of its repurchase rights under paragraph 3 hereof, that such
Persons are third-party beneficiaries of this Agreement and that provisions of
this Agreement shall be enforceable by such Persons as provided herein.
(j) Business Days. If any time period for giving notice or
taking action hereunder expires on a day which is a Saturday, Sunday or legal
holiday in the State of Illinois, the time period shall be automatically
extended to the business day immediately following such Saturday, Sunday or
holiday.
(k) Descriptive Headings; Interpretation; No Strict
Construction. The descriptive headings of this Agreement are inserted for
convenience only and do not constitute a substantive part of this Agreement.
Whenever required by the context, any pronoun used in this Agreement shall
include the corresponding masculine, feminine or neuter forms, and the singular
forms of nouns, pronouns, and verbs shall include the plural and vice versa.
Reference to any agreement, document, or instrument means such agreement,
document, or instrument as amended or otherwise modified from time to time in
accordance with the terms thereof, and if applicable hereof. The use of the
words "include" or "including" in this Agreement shall be by way of example
rather than by limitation. The use of the words "or," "either" or "any" shall
not be exclusive. The parties hereto have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the parties hereto, and no presumption or burden of
proof shall arise favoring or disfavoring any party by virtue of the authorship
of any of the provisions of this Agreement.
(l) Notices. All notices, demands or other communications to
be given or delivered under or by reason of the provisions of this Agreement
shall be in writing and shall be deemed to have been given when (a) delivered
personally to the recipient, (b) telecopied to the recipient (with hard copy
sent to the recipient by reputable overnight courier service (charges prepaid)
that same day) if telecopied before 5:00 p.m. Chicago, Illinois time on a
business day, and otherwise on the next business day, or (c) one business day
after being sent to the recipient by reputable overnight courier service
(charges prepaid). Such notices, demands and other communications shall be sent
to the following Persons at the following addresses:
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To the Company:
1950 N. Stemmons Freeway
Suite 3026
Dallas, Texas 75207
Attention: Royce J. Holland
Telephone: (214) 261-7105
Telecopy: (214) 261-7107
To an Executive Purchaser: at the address set forth in the
Company's records.
or to such other address or to the attention of such other person as the
recipient party has specified by prior written notice to the sending party.
(m) Delivery by Facsimile. This Agreement, the agreements
referred to herein, and each other agreement or instrument entered into in
connection herewith or therewith or contemplated hereby or thereby, and any
amendments hereto or thereto, to the extent signed and delivered by means of a
facsimile machine, shall be treated in all manner and respects as an original
agreement or instrument and shall be considered to have the same binding legal
effect as if it were the original signed version thereof delivered in person. At
the request of any party hereto or to any such agreement or instrument, each
other party hereto or thereto shall reexecute original forms thereof and deliver
them to all other parties. No party hereto or to any such agreement or
instrument shall raise the use of a facsimile machine to deliver a signature or
the fact that any signature or agreement or instrument was transmitted or
communicated through the use of a facsimile machine as a defense to the
formation or enforceability of a contract and each such party forever waives any
such defense.
(n) Excise Tax. If either (a) it is determined by the Internal
Revenue Service or any other applicable governmental agency that any payment or
distribution of any type to or for the benefit of Executive pursuant to this
Agreement by the Company, any Person who acquires ownership or effective control
of the Company, or ownership of a substantial portion of the assets of the
Company (within the meaning of section 280G of the Code and the regulations
thereunder) or any affiliate of such Person (the "Total Payments") would be
subject to the excise tax imposed by section 4999 of the Code or any interest or
penalties with respect to such excise tax (such excise tax, together with any
such interest and penalties, are collectively referred to as the "Excise Tax"),
or (b) the Company or any such Person withholds any portion of such payment or
distribution or otherwise seeks to reduce the benefits to Executive under this
Agreement on account of the Excise Tax, then the Company and such Person shall
be jointly and severally obligated to pay to Executive an additional payment (a
"Gross-Up Payment") in an amount such that, after payment by Executive of all
federal, state and local taxes (including any interest or penalties imposed with
respect to such taxes), including any Excise Tax, imposed upon the Gross-Up
Payment, Executive retains an amount of the Gross-Up Payment equal to the Excise
Tax imposed upon the Total Payments. The Company and such Person shall be
obligated to pay all costs of Executive (including attorney fees and expenses)
incurred in enforcing their obligations under this Section 5(n).
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IN WITNESS WHEREOF, the parties hereto have executed this
Agreement on the date first written above.
ALLEGIANCE TELECOM, INC.
By: /s/ ROYCE J. HOLLAND
--------------------------------
Its: Chairman & CEO
--------------------------------
EXECUTIVE
/s/ C. DANIEL YOST
----------------------------------------
C. Daniel Yost
<PAGE> 1
EXHIBIT 10.16
CREDIT AND
GUARANTY AGREEMENT
DATED AS OF FEBRUARY 15, 2000
AMONG
ALLEGIANCE TELECOM COMPANY WORLDWIDE
AS BORROWER,
ALLEGIANCE TELECOM, INC.,
AND
SUBSIDIARIES OF ALLEGIANCE TELECOM, INC.,
AS GUARANTORS,
VARIOUS LENDERS,
GOLDMAN SACHS CREDIT PARTNERS L.P.,
AS SYNDICATION AGENT AND SOLE LEAD ARRANGER,
TORONTO DOMINION (TEXAS), INC.
AS ADMINISTRATIVE AGENT,
BANKBOSTON, N.A.
AND
MORGAN STANLEY SENIOR FUNDING, INC.
AS CO-DOCUMENTATION AGENTS
$500,000,000 SENIOR SECURED CREDIT FACILITIES
------------------------------------------------
EXECUTION
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<S> <C> <C>
SECTION 1. DEFINITIONS AND INTERPRETATION....................................................2
1.1. Definitions..................................................................2
1.2. Accounting Terms............................................................33
1.3. Interpretation, etc.........................................................33
SECTION 2. AMOUNTS AND TERMS OF COMMITMENTS AND LOANS.......................................33
2.1. Loans.......................................................................33
2.2. Pro Rata Shares; Availability of Funds......................................37
2.3. Use of Proceeds.............................................................38
2.4. Evidence of Debt; Register; Lenders' Books and Records; Notes...............38
2.5. Interest Payments...........................................................39
2.6. Conversion/Continuation.....................................................40
2.7. Default Interest............................................................40
2.8. Fees........................................................................41
2.9. Scheduled Payments/Reductions...............................................41
2.10. Voluntary Prepayments/Reductions............................................42
2.11. Mandatory Prepayments/Reductions............................................44
2.12. Application of Prepayments/Reductions.......................................45
2.13. Allocation of Certain Payments and Proceeds.................................46
2.14. General Provisions Regarding Payments.......................................47
2.15. Ratable Sharing.............................................................48
2.16. Making or Maintaining Eurodollar Rate Loans.................................48
2.17. Increased Costs; Capital Adequacy...........................................50
2.18. Taxes; Withholding, Etc.....................................................51
2.19. Obligation to Mitigate......................................................54
2.20. Defaulting Lenders..........................................................54
2.21. Removal or Replacement of a Lender..........................................55
SECTION 3. CONDITIONS PRECEDENT.............................................................56
3.1. Conditions to Effectiveness of the Agreement................................56
3.2. Conditions to Each Loan.....................................................60
SECTION 4. REPRESENTATIONS AND WARRANTIES.................................................61
4.1. Organization; Powers; Qualification.........................................61
4.2. Authorization of Credit Documents; No Conflict..............................61
4.3. Governmental Consents.......................................................62
4.4. Binding Obligation..........................................................62
4.5. Historical Financial Statements; Projections................................62
4.6. No Material Adverse Change; No Restricted Junior Payments...................62
4.7. Adverse Proceedings, Etc....................................................63
</TABLE>
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<PAGE> 3
<TABLE>
<S> <C> <C>
4.8. Payment of Taxes............................................................63
4.9. Title to Properties.........................................................63
4.10. Collateral..................................................................64
4.11. Environmental...............................................................64
4.12. No Defaults; Material Contracts.............................................65
4.13. Governmental Regulation.....................................................65
4.14. Margin Stock................................................................65
4.15. Employee Matters............................................................65
4.16. Employee Benefit Plans......................................................65
4.17. Certain Fees................................................................66
4.18. Solvency....................................................................66
4.19. Existing Indentures.........................................................66
4.20. Year 2000 Issues............................................................66
4.21. Disclosure..................................................................66
4.22. No Burdensome Restrictions..................................................67
SECTION 5. AFFIRMATIVE COVENANTS............................................................67
5.1. Financial Statements and Other Reports......................................67
5.2. Contribution................................................................71
5.3. Existence...................................................................71
5.4. Payment of Taxes and Claims.................................................71
5.5. Maintenance of Properties...................................................71
5.6. Insurance...................................................................72
5.7. Books and Records; Inspections; Lenders Meetings............................72
5.8. Compliance with Laws; Contractual Obligations...............................72
5.9. Environmental...............................................................73
5.10. Subsidiaries................................................................74
5.11. Real Estate Assets..........................................................75
5.12. Interest Rate Protection....................................................76
5.13. Certain Post Closing Matters................................................76
SECTION 6. NEGATIVE COVENANTS...............................................................76
6.1. Indebtedness................................................................77
6.2. Liens.......................................................................78
6.3. Equitable Lien; No Further Negative Pledges.................................80
6.4. Restricted Payments; Restrictions on Subsidiary Distributions...............80
6.5. Investments.................................................................81
6.6. Stage 1 Financial Covenants.................................................82
6.7. Stage 2 Financial Covenants.................................................82
6.8. Maximum Consolidated Capital Expenditures...................................83
6.9. Fundamental Changes; Disposition of Assets; Acquisitions....................83
6.10. Disposal of Subsidiary Interests............................................83
6.11. Sales and Lease-Backs.......................................................84
6.12. Sale or Discount of Receivables.............................................84
</TABLE>
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<PAGE> 4
<TABLE>
<S> <C> <C>
6.13. Transactions with Shareholders and Affiliates...............................84
6.14. Conduct of Business.........................................................84
6.15. Amendments or Waivers of Existing Indentures/Subordinated
Indebtedness................................................................85
6.16. Fiscal Year.................................................................85
6.17. Designation of Unrestricted Subsidiaries; RS Designations. .................85
SECTION 7. GUARANTY.........................................................................87
7.1. Guaranty of the Obligations.................................................87
7.2. Contribution by Guarantors..................................................87
7.3. Payment by Guarantors.......................................................88
7.4. Liability of Guarantors Absolute............................................88
7.5. Waivers by Guarantors.......................................................90
7.6. Guarantors' Rights of Subrogation, Contribution, Etc........................91
7.7. Subordination of Other Obligations..........................................91
7.8. Continuing Guaranty.........................................................92
7.9. Authority of Guarantors or Borrower.........................................92
7.10. Financial Condition of Borrower.............................................92
7.11. Bankruptcy, Etc.............................................................92
7.12. Notice of Events............................................................93
7.13. Discharge of Guaranty Upon Sale of Guarantor................................93
SECTION 8. EVENTS OF DEFAULT................................................................93
8.1. Events of Default...........................................................93
SECTION 9. AGENTS...........................................................................96
9.1. Appointment of Agents.......................................................96
9.2. Powers and Duties...........................................................96
9.3. General Immunity............................................................97
9.4. Agents Entitled to Act as Lender............................................97
9.5. Lenders' Representations, Warranties and Acknowledgment.....................98
9.6. Right to Indemnity..........................................................98
9.7. Successor Administrative Agent..............................................99
9.8. Collateral Documents and Guaranties.........................................99
SECTION 10. MISCELLANEOUS..................................................................100
10.1. Notices....................................................................100
10.2. Expenses...................................................................100
10.3. Indemnity..................................................................101
10.4. Set-Off....................................................................102
10.5. Amendments and Waivers; Requisite Lenders' Consent.........................102
10.6. Successors and Assigns; Participations.....................................104
10.7. Independence of Covenants..................................................107
10.8. Survival of Representations, Warranties and Agreements.....................107
</TABLE>
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<PAGE> 5
<TABLE>
<S> <C> <C>
10.9. No Waiver; Remedies Cumulative.............................................107
10.10. Marshalling; Payments Set Aside............................................107
10.11. Severability...............................................................108
10.12. Entire Agreement...........................................................108
10.13. Obligations Several; Independent Nature of Lenders' Rights.................108
10.14. Headings...................................................................108
10.15. APPLICABLE LAW.............................................................108
10.16. CONSENT TO JURISDICTION....................................................108
10.17. WAIVER OF JURY TRIAL.......................................................109
10.18. Confidentiality............................................................109
10.19. Usury Savings Clause.......................................................110
10.20. Counterparts; Effectiveness................................................111
</TABLE>
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<PAGE> 6
<TABLE>
<S> <C> <C>
APPENDICES: A Commitments
B Notice Addresses
SCHEDULES: 1.1 Specified Geographic Markets
4.1 Organization, Etc.
4.2 Authorizations
4.3 Governmental Consents
4.7 Litigation
4.9(b) Real Estate Assets
4.10(b) Certain Approvals
4.12 Material Contracts
5.13(a) Interconnection Agreement Parties
6.2 Certain Liens
6.6(a) Minimum Revenues
6.6(b) Ratio of Senior Secured Debt to Annualized Adjusted
EBITDA
6.7(a) Senior Leverage Ratio
6.7(b) Total Leverage Ratio
6.7(c) Interest Coverage Ratio
6.7(d) Pro Forma Debt Service Overage Ratio
6.8 Maximum Consolidated Capital Expenditures
EXHIBITS: A-1 Funding Notice
A-2 Conversion/Continuation Notice
B-1 Revolving Loan Note
B-2 Delayed Draw Term Loan Note
B-3 New Term Loan Note
C Compliance Certificate
D-1 Opinion of Kirkland & Ellis, Counsel to Credit Parties
D-2 Opinion of General Counsel of Borrower
D-3 Opinion of Winstead Sechrest, Local Counsel to Credit Parties
D-4 Opinion of Swidler & Berlin, Special Regulatory Counsel to
Credit Parties
E Assignment Agreement
F Certificate Re Non-Bank Status
G Closing Date Certificate
H Joinder Agreement
I Pledge and Security Agreement
J Mortgage
K Acknowledgment Letter
L Counterpart Agreement
</TABLE>
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<PAGE> 7
CREDIT AND GUARANTY AGREEMENT
This CREDIT AND GUARANTY AGREEMENT, dated as of February 15, 2000 is
entered into by and among ALLEGIANCE TELECOM, INC., a Delaware corporation
("COMPANY"), ALLEGIANCE TELECOM COMPANY WORLDWIDE, a Delaware corporation
("BORROWER"), CERTAIN DOMESTIC SUBSIDIARIES OF COMPANY (other than the Borrower)
PARTY HERETO, as Guarantors, the LENDERS party hereto from time to time, GOLDMAN
SACHS CREDIT PARTNERS L.P. ("GSCP"), as Syndication Agent (in such
capacity,"SYNDICATION AGENT"), TORONTO DOMINION (TEXAS), INC. ("TD"), as
Administrative Agent (together with its permitted successors in such
capacity,"ADMINISTRATIVE AGENT"), BANKBOSTON, N.A. ("FLEET BOSTON") and MORGAN
STANLEY SENIOR FUNDING, INC. ("MSSF"), as Co-Documentation Agents (in such
capacity, "CO-DOCUMENTATION AGENTS"), GSCP, as Sole Lead Arranger (in such
capacity," SOLE LEAD ARRANGER"), and the Managing Agents listed on the signature
pages hereof.
RECITALS
WHEREAS, capitalized terms used herein have the meanings assigned to
those terms in Section 1.1;
WHEREAS, Lenders have agreed to extend certain credit facilities to
Borrower in an aggregate amount not to exceed $500,000,000, consisting of up to
$150,000,000 aggregate principal amount of Delayed Draw Term Loans and up to
$350,000,000 of Revolving Credit Commitments, the proceeds of which shall be
used for general corporate purposes including working capital financing and to
provide purchase money financing for the cost of design, development,
acquisition, construction, installation, improvement, transportation or
integration of equipment, inventory and network assets;
WHEREAS, Borrower has agreed to secure all of its obligations hereunder
by granting to Administrative Agent, for the benefit of Lenders, a First
Priority Lien on substantially all of its assets, including a pledge of all of
the Capital Stock of each of its Subsidiaries and first tier Unrestricted
Subsidiaries (65% of all of the Capital Stock of each of its first tier Foreign
Subsidiaries), but excluding assets acquired under any Permitted Equipment
Financing;
WHEREAS, Guarantors have agreed to guarantee the obligations of
Borrower hereunder and to secure Borrower's and all of the Guarantors'
respective Obligations hereunder by granting to Administrative Agent, for the
benefit of Lenders, a First Priority Lien on their assets contemplated under the
Collateral Documents, including a pledge of all of the Capital Stock of each of
their respective Subsidiaries (including Borrower) and first tier Unrestricted
Subsidiaries (65% of all of the Capital Stock of each of their respective first
tier Foreign Subsidiaries).
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NOW, THEREFORE, in consideration of the premises and the agreements,
provisions and covenants herein contained, Borrower, Company, Guarantors,
Lenders and Agents agree as follows:
SECTION 1. DEFINITIONS AND INTERPRETATION
1.1 Definitions. The following terms used herein, including the
preamble, recitals, exhibits and schedules hereto, shall have the following
meanings:
"ADJUSTED EURODOLLAR RATE" means, for any Interest Rate Determination
Date with respect to an Interest Period for a Eurodollar Rate Loan, the rate per
annum obtained by dividing (i) (a) the rate per annum (rounded upward to the
nearest 1/100th) equal to the rate determined by Administrative Agent to be the
offered rate which appears on the page of the Telerate Screen which displays an
average British Bankers Association Interest Settlement Rate (such page
currently being page number 3740 or 3750, as applicable) for deposits (for
delivery on the first day of such period) with a term equivalent to such period
in Dollars, determined as of approximately 11:00 a.m. (London, England time) on
such Interest Rate Determination Date, or (b) in the event the rate referenced
in the preceding clause (a) does not appear on such page or service or if such
page or service shall cease to be available, the rate per annum (rounded upward
to the nearest 1/100th) equal to the rate determined by Administrative Agent to
be the offered rate on such other page or other service which displays an
average British Bankers Association Interest Settlement Rate for deposits (for
delivery on the first day of such period) with a term equivalent to such period
in Dollars, determined as of approximately 11:00 a.m. (London, England time) on
such Interest Rate Determination Date, or (c) in the event the rates referenced
in the preceding clauses (a) and (b) are not available, the rate per annum equal
to the offered quotation rate (carried out to the fifth decimal place) to first
class banks in the London interbank market by Administrative Agent for deposits
(for delivery on the first day of the relevant period) in Dollars of amounts in
same day funds comparable to the principal amount of the applicable Loan for
which the Adjusted Eurodollar Rate is then being determined with maturities
comparable to such period as of approximately 11:00 a.m. (London, England time)
on such Interest Rate Determination Date, by (ii) an amount equal to (a) one
minus (b) the Applicable Reserve Requirement.
"ADMINISTRATIVE AGENT" as defined in the preamble hereto.
"ADVERSE PROCEEDING" means any action, suit, proceeding (whether
administrative, judicial or otherwise), governmental investigation or
arbitration (whether or not purportedly on behalf of Company or any of its
Subsidiaries) at law or in equity, or before or by any Governmental Authority,
domestic or foreign (including any Environmental Claims), whether pending or, to
the knowledge of Company or any of its Subsidiaries, threatened against or
affecting Company or any of its Subsidiaries or any property of Company or any
of its Subsidiaries.
"AFFECTED LENDER" as defined in Section 2.16(b).
"AFFECTED LOANS" as defined in Section 2.16(b).
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"AFFILIATE," as applied to any Person, means any other Person directly
or indirectly controlling, controlled by, or under common control with, that
Person. For the purposes of this definition, "control" (including, with
correlative meanings, the terms "controlling," "controlled by" and "under common
control with"), as applied to any Person, means the possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies of that Person, whether through the ownership of voting securities or
by contract or otherwise. Neither any Agent nor any Lender shall be deemed
Affiliates of any Credit Party by virtue of the security interests granted by
the Pledge and Security Agreement.
"AGENT" means each of Syndication Agent, Administrative Agent and
Co-Documentation Agents.
"AGGREGATE AMOUNTS DUE" as defined in Section 2.15.
"AGGREGATE PAYMENTS" as defined in Section 7.2.
"AGREEMENT" means this Credit and Guaranty Agreement, dated as of
February 15, 2000, as it may be amended, supplemented or otherwise modified from
time to time.
"ANNUALIZED ADJUSTED EBITDA" means the aggregate Pre-Overhead EBITDA
for the most recent Fiscal Quarter multiplied by four.
"ANNUALIZED CONSOLIDATED EBITDA" means Consolidated EBITDA for the most
recently completed Fiscal Quarter multiplied by four.
"APPLICABLE COMMITMENT FEE PERCENTAGE" means a percentage, per annum,
determined by reference to the Facilities Usage in effect from time to time as
set forth below:
<TABLE>
<CAPTION>
Applicable Commitment Fee
Facilities Usage Percentage
- ---------------- --------------------------
<S> <C>
< 1/3 1.50%
< < 2/3 1.125%
> or = 1/3
> or = 2/3 0.75%
</TABLE>
"APPLICABLE MARGIN" means a percentage, per annum, determined by
reference to the Total Leverage Ratio in effect from time to time as set forth
below:
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<TABLE>
<CAPTION>
Eurodollar Base Rate
Total Leverage Ratio Rate Loan Loan
-------------------- ------------- ----------
<S> <C> <C>
> or = 8.00:1.00 or negative 3.25% 2.25%
< 8.00:1.00 3.00% 2.00%
> or = 7.00:1.00
< 7.00:1.00 2.75% 1.75%
> or = 6.00:1.00
< 6.00:1.00 2.50% 1.50%
> or = 5.00:1.00
< 5.00:1.00 2.25% 1.25%
> or = 4.00:1.00
< 4.00:1.00 2.00% 1.00%
</TABLE>
; provided, however, that at any time during Stage 1 the Applicable Margin shall
be 3.25% per annum with respect to Eurodollar Rate Loans and 2.25% per annum
with respect to Base Rate Loans.
No change in the Applicable Margin shall be effective until three Business Days
after the date on which Administrative Agent shall have received the applicable
financial statements and a Compliance Certificate pursuant to Section 5.1(d)
calculating the Total Leverage Ratio. At any time Borrower has not submitted to
Administrative Agent the applicable information as and when required under
Section 5.1(d), the Applicable Margin shall be determined as if the Total
Leverage Ratio were in excess of 8.00:1.00 or negative. Within one Business Day
of receipt of the applicable information as and when required under Section
5.1(d), Administrative Agent shall give each Lender telefacsimile or telephonic
notice (confirmed in writing) of the Applicable Margin in effect from such date.
The Applicable Margin with respect to any New Term Loans shall be set forth in
the applicable Joinder Agreement.
"APPLICABLE RESERVE REQUIREMENT" means, at any time, for any Eurodollar
Rate Loan the maximum rate at which reserves (including, without limitation, any
marginal, special, supplemental or emergency reserves) are required to be
maintained by such member banks with respect thereto against "Eurocurrency
liabilities" (as such term is defined in Regulation D) under regulations issued
from time to time by the Board of Governors of the Federal Reserve System or
other applicable banking regulator. Without limiting the effect of the
foregoing, the Applicable Reserve Requirement shall reflect any other reserves
required to be maintained by such member banks with respect to (i) any category
of liabilities which includes deposits by reference to which the applicable
Adjusted Eurodollar Rate or any other interest rate of a Loan is to be
determined, or (ii) any category of extensions of credit or other assets which
include Eurodollar Rate Loans. A Eurodollar Rate Loan shall be deemed to
constitute Eurocurrency liabilities and as such shall be deemed subject to
reserve requirements without benefits of credit for proration, exceptions or
offsets that may be available
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from time to time to the applicable Lender. The rate of interest on Eurodollar
Rate Loans shall be adjusted automatically on and as of the effective date of
any change in the Applicable Reserve Requirement.
"ASSET SALE" means a sale, lease or sublease (as lessor or sublessor),
transfer or disposition to any Person other than Company, Borrower or any
Guarantor, in one transaction or a series of transactions, of all or any part of
Company's or any of its Subsidiaries' businesses, properties or assets, whether
now owned or hereafter acquired, including, without limitation, the equity
Securities of any of Company' Subsidiaries, other than (i) the sale of Cash
Equivalents in the ordinary course of business, (ii) inventory sold in the
ordinary course of business, (iii) disposals of obsolete, worn out or surplus
property, (iv) disposals of uneconomical, redundant or non-strategic property
acquired in Permitted Acquisitions in an amount not in excess of $30,000,000 per
fiscal year (provided that such property acquired in a Permitted Acquisition is
disposed of in each case within 270 days of the acquisition thereof by Company
or any of its Subsidiaries), (v) sales of assets the Net Asset Sale Proceeds of
which are invested in assets of the general type used in the business of the
Borrower and its Subsidiaries within 270 days of receipt of such proceeds and
(vi) sales of assets in a single transaction or series of transactions not in
excess of $45,000,000 in the aggregate during the term of this Agreement.
"ASSIGNMENT AGREEMENT" means an Assignment Agreement in the form of
Exhibit E (with such amendments or modifications as may be approved by Borrower
and Administrative Agent).
"AUTHORIZED OFFICER" means, as applied to any Person, any individual
holding the position of chairman of the board (if an officer) or president or
one of its vice presidents (or the equivalent thereof), and such Person's chief
financial officer, treasurer or controller.
"BANKRUPTCY CODE" means Title 11 of the United States Code entitled
"Bankruptcy," as now and hereafter in effect, or any successor statute.
"BASE RATE" means, for any day, a rate per annum (carried out to the
fifth decimal place) equal to the greater of (i) the Prime Rate in effect on
such day and (ii) the Federal Funds Effective Rate in effect on such day plus
1/2 of 1%. Any change in the Base Rate resulting due to a change in the Prime
Rate or the Federal Funds Effective Rate shall be effective on the effective day
of such change in the Prime Rate or the Federal Funds Effective Rate,
respectively.
"BASE RATE LOAN" means a Loan bearing interest at a rate determined by
reference to the Base Rate.
"BENEFICIARY" means each Agent, each Lender and each Lender
Counterparty.
"BUSINESS DAY" means any day, excluding all of the following: Saturday,
Sunday and any day which is a legal holiday under the laws of the State of New
York or is a day on which banking institutions located in such state are
authorized or required by law or other governmental action to
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<PAGE> 12
close, and with respect to all notices, determinations, fundings and payments in
connection with the Adjusted Eurodollar Rate or any Eurodollar Rate Loans, that
is also a day for trading by and between banks in Dollar deposits in the London
interbank market.
"CAPITAL EXPENDITURES" means, for any period, the aggregate of all
expenditures of any Person during such period that, in accordance with GAAP, are
or should be included in "purchase of property and equipment" or similar items
reflected in the statement of cash flows of such Person. Notwithstanding the
foregoing, the term "Capital Expenditures" shall not include capital
expenditures in respect of the reinvestment of Net Asset Sale Proceeds or Net
Insurance/Condemnation Proceeds made in accordance with Sections 2.11(a) and
(b).
"CAPITAL LEASE" means, as applied to any Person, any lease of any
property (whether real, personal or mixed) by that Person as lessee that, in
conformity with GAAP, is accounted for as a capital lease on the balance sheet
of that Person, including, without limitation, Dark Fiber Leases.
"CASH" means money, currency or a credit balance in any demand or
deposit account.
"CASH EQUIVALENTS" means, as at any date of determination, (i)
marketable securities (a) issued or directly and unconditionally guaranteed as
to interest and principal by the United States Government or (b) issued by any
agency of the United States the obligations of which are backed by the full
faith and credit of the United States, in each case maturing within two years
after such date; (ii) marketable direct obligations issued by any state of the
United States or any political subdivision of any such state or any public
instrumentality thereof, in each case maturing within one year after such date
and having, at the time of the acquisition thereof, a rating of at least A-1
from S&P or at least P-1 from Moody's or the equivalent thereof; (iii)
commercial paper maturing not more than one year from the date of creation
thereof and having, at the time of the acquisition thereof, a rating of at least
A-1 from S&P or at least P-1 from Moody's or the equivalent thereof; (iv) time
deposits, certificates of deposit or bankers' acceptances maturing within one
year after such date and issued or accepted by any Lender or by any commercial
bank organized under the laws of the United States or any state or territory
thereof or the District of Columbia or any foreign country recognized by the
United States or United States branches of foreign banks or the parent company
of any such bank that in each case (a) is at least "adequately capitalized" (as
defined in the regulations of its primary Federal banking regulator) and (b) has
Tier 1 capital (as defined in such regulations) of not less than $100,000,000;
(v) shares of any money market mutual fund that (a) has at least 95% of its
assets invested continuously in the types of investments referred to in clauses
(i) and (ii) above, (b) has net assets of not less than $500,000,000, and (c)
has the highest rating obtainable from either S&P or Moody's or the equivalent
thereof; (vi) repurchase agreements maturing within 30 days from the date of
acquisition thereof by Borrower or any of its Subsidiaries with any Lender or
bank referred to in clause (iv) above, in each case for underlying securities of
the type referred to in clause (i) above.
"CERTIFICATE RE NON-BANK STATUS" means a certificate in the form of
Exhibit F.
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<PAGE> 13
"CHANGE OF CONTROL" means, at any time, (i) Holland shall cease to
beneficially own and control at least 50% of the capital stock of Company owned
or controlled by Holland as of the Closing Date (excluding any such capital
stock transferred to a spouse as part of a divorce proceeding or any settlement
thereof); provided that the foregoing shall not constitute a "change of control"
at any time after Annualized Consolidated EBITDA of the Company has become
positive; (ii) Company shall cease to beneficially own and control all of the
issued and outstanding shares of capital stock of Borrower; (iii) any "change of
control" or similar event under the Existing Indentures and other similar
documents governing other Subordinated Indebtedness (or related documentation)
shall occur; (iv) any "person" or "group" (as such terms are used in Section
13(d) and 14(d) of the Exchange Act), other than Holland is or becomes the
"beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act),
directly or indirectly, of 20% or more of the then outstanding voting capital
stock of Company other than in a transaction having the approval of the board of
directors of Company at least a majority of which members are Continuing
Directors; or (v) Continuing Directors shall cease to constitute at least a
majority of the directors constituting the board of directors of Company.
"CLASS" means (i) with respect to Lenders each of the following classes
of Lenders: (a) Lenders having Revolving Loan Exposure, (b) Lenders having
Delayed Draw Term Loan Exposure and (c) Lenders having New Term Loan Exposure,
if any, and (ii) with respect to Loans, each of the following classes of Loans:
(a) Revolving Loans, (b) Delayed Draw Term Loans and (c) New Term Loans, if any.
"CLOSING DATE" means the date on or before February 15, 2000 on which
the conditions set forth in Section 3.1 are satisfied or waived in accordance
with the terms thereof.
"CLOSING DATE CERTIFICATE" means a certificate in the form of Exhibit
G.
"COLLATERAL" means, collectively, all of the real, personal and mixed
property (including capital stock and other equity Securities) on which Liens
are purported to be granted pursuant to the Collateral Documents as security for
the Obligations.
"COLLATERAL DOCUMENTS" means the Pledge and Security Agreement, the
Mortgages, if any, and all other instruments, documents and agreements delivered
by any Credit Party pursuant to this Agreement or any of the other Credit
Documents in order to grant to Administrative Agent, on behalf of Lenders, a
Lien on any real, personal or mixed property of that Credit Party as security
for the Obligations.
"CO-LOCATION SITES" means the central office premises of a local
exchange carrier on which a Subsidiary of Borrower has located
telecommunications transmission equipment.
"COMMITMENT" means the commitments of Lenders to make Loans as set
forth in Section 2.1(a) of this Agreement. The amount of each Lender's
Commitment is set forth on Appendix A or
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<PAGE> 14
in the applicable Assignment Agreement or Joinder Agreement and is subject to
any adjustment or reduction pursuant to the terms and conditions hereof.
"COMPANY" as defined in the preamble hereto.
"COMPLIANCE CERTIFICATE" means a certificate in the form of Exhibit C.
"CONSOLIDATED CAPITAL EXPENDITURES" means, for any period, the
aggregate of all Capital Expenditures of Company and its Subsidiaries during
such period, determined in accordance with GAAP.
"CONSOLIDATED CASH INTEREST EXPENSE" means, for any period,
Consolidated Interest Expense for such period, excluding (i) any amount not
payable in Cash and (ii) Cash interest payable from funds escrowed for such
purpose by Company prior to the Closing Date.
"CONSOLIDATED EBITDA" means, for any period, an amount determined for
any Person on a consolidated basis equal to (i) the sum of the amounts for such
period of (a) Consolidated Net Income, (b) Consolidated Interest Expense, (c)
provisions for franchise taxes and taxes based on income, (d) total depreciation
expense, (e) total amortization expense, and (f) other non-cash items reducing
Consolidated Net Income (including management ownership allocation charges and
non-cash deferred compensation), minus (ii) other non-cash items increasing
Consolidated Net Income.
"CONSOLIDATED EXCESS CASH FLOW" means, for any period, an amount (if
positive) equal to Consolidated EBITDA minus the sum, without duplication, of
the amounts for such period of (a) voluntary and scheduled repayments of
Consolidated Total Debt (excluding repayments of Loans except to the extent the
Commitments are permanently reduced in connection with such repayments), (b)
Consolidated Capital Expenditures and, to the extent not otherwise deducted in
determining Consolidated Excess Cash Flow, Cash consideration paid for Permitted
Acquisitions and Investments permitted under this Agreement (in each case, net
of any proceeds of any related financings incurred to finance, and issuances of
equity Securities issued to finance, such expenditures, Permitted Acquisitions
or Investments) (c) Consolidated Cash Interest Expense, and (d) provisions for
current franchise taxes and taxes based on income of Company and its
Subsidiaries and payable in cash with respect to such period.
"CONSOLIDATED INTEREST EXPENSE" means, for any period, total interest
expense (including that portion attributable to Capital Leases in accordance
with GAAP and capitalized interest) of Company and its Subsidiaries on a
consolidated basis with respect to all outstanding Indebtedness of Company and
its Subsidiaries, including all commissions, discounts and other fees and
charges owed with respect to letters of credit and bankers' acceptance financing
and net costs under Interest Rate Agreements, but excluding, however, any (i)
amounts referred to in Section 2.8 payable on or before the Closing Date, (ii)
any fees and expenses associated with the Existing Credit Agreement and (iii)
any fees and expenses associated with issuances of Subordinated Debt.
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"CONSOLIDATED NET INCOME" means, for any period, (i) the net income (or
loss) of Company and its Subsidiaries on a consolidated basis for such period
taken as a single accounting period determined in conformity with GAAP, minus,
to the extent included in (i), (ii) (a) the income of any Person (other than a
Subsidiary of Company) in which any other Person (other than Company or any of
its Subsidiaries) has a joint interest, except to the extent of the amount of
dividends or other distributions actually paid to Company or any of its
Subsidiaries by such Person during such period, (b) the income (or loss) of any
Person accrued prior to the date it becomes a Subsidiary of Company or is merged
into or consolidated with Company or any of its Subsidiaries or that Person's
assets are acquired by Company or any of its Subsidiaries, (c) the income of any
Subsidiary of Company to the extent that the declaration or payment of dividends
or similar distributions by that Subsidiary of that income is not at the time
permitted by operation of the terms of its charter or any agreement, instrument,
judgment, decree, order, statute, rule or governmental regulation applicable to
that Subsidiary, (d) any after-tax gains or losses attributable to Asset Sales
and other sales of assets not constituting Asset Sales (unless excluded from
Asset Sales under clauses (i) or (ii) of the definition thereof), or returned
surplus assets of any Pension Plan, and (e) (to the extent not included in
clauses (a) through (d) above) any net extraordinary gains (without giving
effect to any net non-cash extraordinary losses).
"CONSOLIDATED TOTAL DEBT" means, as at any date of determination, the
aggregate stated balance sheet amount of all Indebtedness of Company and its
Subsidiaries determined on a consolidated basis in accordance with GAAP, less
any funds escrowed for the purpose of paying interest on such Indebtedness.
"CONTINUING DIRECTORS" means individuals who at the beginning of any
period of two consecutive calendar years constituted the board of directors of
Company, together with any new directors whose election by such board of
directors or whose nomination for election was approved by a vote of at least
two-thirds of the members of such board of directors then still in office who
either were members of such board of directors at the beginning of such period
or whose election or nomination for election was previously so approved.
"CONTRACTUAL OBLIGATION" means, as applied to any Person, any provision
of any Security issued by that Person or of any material indenture, mortgage,
deed of trust, contract, undertaking, agreement or other instrument to which
that Person is a party or by which it or any of its properties is bound or to
which it or any of its properties is subject.
"CONTRIBUTING GUARANTORS"as defined in Section 7.2.
"CONVERSION/CONTINUATION DATE" means the effective date of a
continuation or conversion, as the case may be, as set forth in the applicable
Conversion/Continuation Notice.
"CONVERSION/CONTINUATION NOTICE" means a notice in the form of Exhibit
A-2.
"COUNTERPART AGREEMENT" means the agreement in the form of Exhibit L.
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"CREDIT DATE" means the date of the making of a Loan.
"CREDIT DOCUMENT" means any of this Agreement, the Notes, Joinder
Agreements, if any, the Collateral Documents, and all other documents,
instruments or agreements executed and delivered by a Credit Party for the
benefit of Agents or any Lender in connection herewith, including Hedge
Agreements with any Lender Counterparty, in each case as may be amended,
supplemented or otherwise modified from time to time.
"CREDIT PARTY" means each Person (other than any Agent or any Lender or
any other representative thereof) from time to time party to a Credit Document.
"CURRENCY AGREEMENT" means any foreign exchange contract, currency swap
agreement, futures contract, option contract, synthetic cap or other similar
agreement or arrangement, each of which is for the purpose of hedging the
foreign currency risk associated with Company's and its Subsidiaries'
operations.
"DARK FIBER LEASES" as defined in Section 6.1(i).
"DEFAULT" means a condition or event that, after notice or lapse of
time or both, would constitute an Event of Default.
"DELAYED DRAW TERM LOAN COMMITMENT" means the Commitment of a Lender to
make or otherwise fund a Delayed Draw Term Loan to Borrower and "DELAYED DRAW
TERM LOAN COMMITMENTS" means such commitments of all Lenders in the aggregate.
The amount of each Lender's Delayed Draw Term Loan Commitment, if any is set
forth in Appendix A or in the applicable Assignment Agreement, subject to any
adjustment or reduction pursuant to the terms and conditions hereof. The
aggregate amount of the Delayed Draw Term Loan Commitments as of the Closing
Date is $150,000,000.
"DELAYED DRAW TERM LOAN COMMITMENT PERIOD" means the time period
commencing on the Closing Date through to and including the Delayed Draw Term
Loan Commitment Termination Date.
"DELAYED DRAW TERM LOAN COMMITMENT TERMINATION DATE" means the earlier
to occur of (i) the date the Delayed Draw Term Loan Commitments are permanently
reduced to zero pursuant to Sections 2.10 or 2.11, (ii) the date of the
termination of the Commitments pursuant to Section 8.1 and (iii) the date
occurring twenty-four (24) months after the Closing Date.
"DELAYED DRAW TERM LOAN EXPOSURE" means, with respect to any Lender, as
of any date of determination, the outstanding principal amount of the Delayed
Draw Term Loans of such Lender; provided, at any time prior to the making of the
Delayed Draw Term Loans, the Delayed Draw Term Loan Exposure of any Lender shall
be equal to such Lender's Delayed Draw Term Loan Commitment.
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"DELAYED DRAW TERM LOAN INSTALLMENT" as defined in Section 2.9(b).
"DELAYED DRAW TERM LOAN MATURITY DATE" means the earlier of (i)
December 31, 2006 and (ii) the date that all Delayed Draw Term Loans shall
become due and payable in full hereunder, whether by acceleration or otherwise.
"DELAYED DRAW TERM LOAN NOTE" means a promissory note in the form of
Exhibit B-2, as it may be amended, supplemented or otherwise modified from time
to time.
"DELAYED DRAW TERM LOANS" means any Delayed Draw Term Loans made by
Lender to the Borrower pursuant to Section 2.1(a)(ii) of this Agreement and any
New Delayed Draw Term Loans made by Lender to Borrower pursuant to Section
2.1(a)(iii) of this Agreement.
"DEPOSIT ACCOUNT" means a demand, time, savings, passbook or like
account with a bank, savings and loan association, credit union or like
organization, other than an account evidenced by a negotiable certificate of
deposit.
"DOLLARS" and the sign "$" mean the lawful money of the United States.
"DOMESTIC SUBSIDIARY" means any Subsidiary including an Unrestricted
Subsidiary organized under the laws of the United States of America, any State
thereof or the District of Columbia.
"ELIGIBLE ASSIGNEE" means (i) any Lender, any Affiliate of any Lender
and any Related Fund (any two or more Related Funds being treated as a single
Eligible Assignee for all purposes hereof), and (ii) any commercial bank,
insurance company, finance company, investment or mutual fund or other entity
that is an "accredited investor" (as defined in Regulation D under the
Securities Act) and which extends credit or buys loans as one of its businesses;
provided that no Affiliate of Company or Borrower shall be an Eligible Assignee
(it being understood that MSSF is not an Affiliate of Company or Borrower for
purposes of the definition of "Eligible Assignee").
"EMPLOYEE BENEFIT PLAN" means any "employee benefit plan" as defined in
Section 3(3) of ERISA which is or was maintained or contributed to by Company,
any of its Subsidiaries or any of their respective ERISA Affiliates.
"ENVIRONMENTAL CLAIM" means any investigation, notice, notice of
violation, claim, action, suit, proceeding, demand, abatement order or other
order or directive (conditional or otherwise), by any Governmental Authority or
any other Person, arising (i) pursuant to or in connection with any actual or
alleged violation of any Environmental Law; (ii) in connection with any
Hazardous Material or any actual or alleged Hazardous Materials Activity; or
(iii) in connection with any actual or alleged damage, injury, threat or harm to
health, safety, natural resources or the environment.
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"ENVIRONMENTAL LAWS" means any and all current or future foreign or
domestic, federal or state (or any subdivision of either of them), statutes,
ordinances, orders, rules, regulations, guidance documents, judgments,
Governmental Authorizations, or any other requirements of Governmental
Authorities relating to (i) environmental matters, including those relating to
any Hazardous Materials Activity; (ii) the generation, use, storage,
transportation or disposal of Hazardous Materials; or (iii) occupational safety
and health, industrial hygiene, land use or the protection of human, plant or
animal health or welfare, in any manner applicable to Company or any of its
Subsidiaries or any Facility.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and any successor thereto.
"ERISA AFFILIATE" means, as applied to any Person, (i) any corporation
which is a member of a controlled group of corporations within the meaning of
Section 414(b) of the Internal Revenue Code of which that Person is a member;
(ii) any trade or business (whether or not incorporated) which is a member of a
group of trades or businesses under common control within the meaning of Section
414(c) of the Internal Revenue Code of which that Person is a member; and (iii)
any member of an affiliated service group within the meaning of Section 414(m)
or (o) of the Internal Revenue Code of which that Person, any corporation
described in clause (i) above or any trade or business described in clause (ii)
above is a member. Any former ERISA Affiliate of Company or any of its
Subsidiaries shall continue to be considered an ERISA Affiliate of Company or
such Subsidiary within the meaning of this definition with respect to the period
such entity was an ERISA Affiliate of Company or such Subsidiary and with
respect to liabilities arising after such period for which Company or such
Subsidiary could be liable under the Internal Revenue Code or ERISA.
"ERISA EVENT" means (i) a "reportable event" within the meaning of
Section 4043 of ERISA and the regulations issued thereunder with respect to any
Pension Plan (excluding those for which the provision for 30-day notice to the
PBGC has been waived by regulation); (ii) the failure to meet the minimum
funding standard of Section 412 of the Internal Revenue Code with respect to any
Pension Plan (whether or not waived in accordance with Section 412(d) of the
Internal Revenue Code) or the failure to make by its due date a required
installment under Section 412(m) of the Internal Revenue Code with respect to
any Pension Plan or the failure to make any required contribution to a
Multiemployer Plan; (iii) the provision by the administrator of any Pension Plan
pursuant to Section 4041(a)(2) of ERISA of a notice of intent to terminate such
plan in a distress termination described in Section 4041(c) of ERISA; (iv) the
withdrawal by Company, any of its Subsidiaries or any of their respective ERISA
Affiliates from any Pension Plan with two or more contributing sponsors or the
termination of any such Pension Plan resulting in liability pursuant to Section
4063 or 4064 of ERISA; (v) the institution by the PBGC of proceedings to
terminate any Pension Plan, or the occurrence of any event or condition which
might constitute grounds under ERISA for the termination of, or the appointment
of a trustee to administer, any Pension Plan; (vi) the imposition of liability
on Company, any of its Subsidiaries or any of their respective ERISA Affiliates
pursuant to Section 4062(e) or 4069 of ERISA or by reason of the application of
Section 4212(c) of ERISA; (vii) the withdrawal of Company, any of its
Subsidiaries or any of their respective
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ERISA Affiliates in a complete or partial withdrawal (within the meaning of
Sections 4203 and 4205 of ERISA) from any Multiemployer Plan if there is any
potential liability therefor, or the receipt by Company, any of its Subsidiaries
or any of their respective ERISA Affiliates of notice from any Multiemployer
Plan that it is in reorganization or insolvency pursuant to Section 4241 or 4245
of ERISA, or that it intends to terminate or has terminated under Section 4041A
or 4042 of ERISA; (viii) the occurrence of an act or omission which could give
rise to the imposition on Company, any of its Subsidiaries or any of their
respective ERISA Affiliates of fines, penalties, taxes or related charges under
Chapter 43 of the Internal Revenue Code or under Section 409, Section 502(c),
(i) or (l), or Section 4071 of ERISA in respect of any Employee Benefit Plan;
(ix) the assertion of a material claim (other than routine claims for benefits)
against any Employee Benefit Plan other than a Multiemployer Plan or the assets
thereof, or against Company, any of its Subsidiaries or any of their respective
ERISA Affiliates in connection with any Employee Benefit Plan; (x) receipt from
the Internal Revenue Service of notice of the failure of any Pension Plan (or
any other Employee Benefit Plan intended to be qualified under Section 401(a) of
the Internal Revenue Code) to qualify under Section 401(a) of the Internal
Revenue Code, or the failure of any trust forming part of any Pension Plan to
qualify for exemption from taxation under Section 501(a) of the Internal Revenue
Code; or (xi) the imposition of a Lien pursuant to Section 401(a)(29) or 412(n)
of the Internal Revenue Code or pursuant to ERISA with respect to any Pension
Plan.
"EURODOLLAR RATE LOAN" means a Loan bearing interest at a rate
determined by reference to the Adjusted Eurodollar Rate.
"EVENT OF DEFAULT" means each of the events set forth in Section 8.1.
"EXCESS PROCEEDS AMOUNT" means a cumulative amount, as of any date of
determination, equal to the sum of (i) $300,000,000, (ii) the net cash proceeds
of any equity Securities issued pursuant to the "green shoe" in connection with
the Company's offering of equity Securities most recently completed prior to the
Closing Date, and (iii) the net cash proceeds of any other issuance of equity
Securities by Company after the Closing Date which have been contributed as
common equity to the Borrower, less the Excess Proceeds Usage as of such date.
"EXCESS PROCEEDS GEOGRAPHIC MARKET" means up to six (6) Geographic
Markets designated in writing by Borrower to Sole Lead Arranger and
Administrative Agent as an Excess Proceeds Geographic Market; provided that, at
the time of any such designation, the Excess Proceeds Amount is not less than
the product of (y) the number of Excess Proceeds Geographic Markets so
designated times (z) $50,000,000; provided further that Borrower may not
designate more than four (4) such Excess Proceeds Geographic Markets in any
Fiscal Year.
"EXCESS PROCEEDS USAGE" means a cumulative amount, as of any date of
determination equal to the sum of (i) the amount of Investments made pursuant to
Section 6.5(m), (ii) the net cash proceeds of any equity Securities issued
pursuant to the "green shoe" in connection with the Company's offering of equity
Securities most recently completed prior to the Closing Date, plus the net cash
proceeds of any other issuance of equity Securities by Company after the Closing
Date to
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the extent utilized to pay all or any portion of the purchase price of a
Permitted Acquisition and (iii) the product of (y) $50,000,000 times (z) each
Geographic Market designated by Borrower as an Excess Proceeds Geographic
Market.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended
from time to time, and any successor statute.
"EXISTING CREDIT AGREEMENT" means that certain Credit and Guaranty
Agreement, dated as of April 1, 1999 by and among Company, Borrower (as
successor to Allegiance Finance Company, Inc.), Guarantors (as defined therein),
the lenders party thereto, GSCP and TDSI as Co-Lead Arrangers, MSSF, as
Documentation Agent, and the Managing Agents and Co-Agents listed on the
signature pages thereof.
"EXISTING INDENTURES" means, collectively, the Indenture dated as of
February 3, 1998 between Allegiance Telecom, Inc. and The Bank of New York,
relating to the 11-3/4% Senior Discount Notes due 2008, and the Indenture dated
as of July 7, 1998 between Allegiance Telecom, Inc. and The Bank of New York,
relating to the 12-7/8% Senior Notes due 2008; in each case as in effect as of
the Closing Date and without giving effect to any extension, restatement,
amendment, modification or supplement thereof or waiver or consent with respect
thereto dated after the date hereof.
"FACILITIES" means any real property (including all buildings, fixtures
or other improvements located thereon) now, hereafter or heretofore owned,
leased, operated or used by Company or any of its Subsidiaries or any of their
respective predecessors or Affiliates, but excluding for all purposes under this
Agreement (other than with respect to rights purported to be granted pursuant to
the Collateral Documents as security for the Obligations) all Co-Location Sites.
"FACILITIES USAGE" means a fraction, calculated as of the last day of
each Fiscal Quarter, the numerator of which is equal to the average daily Total
Utilization of Commitments during such Fiscal Quarter and the denominator of
which is equal to the average daily aggregate Revolving Loan Commitments for all
Lenders during such Fiscal Quarter plus the average daily aggregate Delayed Draw
Term Loan Commitments for such Fiscal Quarter.
"FAIR SHARE CONTRIBUTION AMOUNT" as defined in Section 7.2.
"FAIR SHARE" as defined in Section 7.2.
"FAIR SHARE SHORTFALL" as defined in Section 7.2.
"FCC" means the Federal Communications Commission.
"FEDERAL FUNDS EFFECTIVE RATE" means for any day, the rate per annum
(carried out to the fifth decimal place) equal to the weighted average of the
rates on overnight Federal funds
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transactions with members of the Federal Reserve System arranged by Federal
funds brokers on such day, as published by the Federal Reserve Bank of New York
on the Business Day next succeeding such day; provided that (i) if such day is
not a Business Day, the Federal Funds Rate for such day shall be such rate on
such transactions on the next preceding Business Day as so published on the next
succeeding Business Day, and (ii) if no such rate is so published on such next
succeeding Business Day, the Federal Funds Rate for such day shall be the
average rate charged to Administrative Agent, in its capacity as a Lender, on
such day on such transactions as determined by Administrative Agent.
"FINANCIAL OFFICER CERTIFICATION" means, with respect to the financial
statements for which such certification is required, the certification of the
chief financial officer, senior vice president of finance and accounting or
treasurer of Company that such financial statements fairly present, in all
material respects, the financial condition of Company and its Subsidiaries as at
the dates indicated and the results of their operations and their cash flows for
the periods indicated, subject to changes resulting from audit and normal
year-end adjustments.
"FINANCIAL PLAN" as defined in Section 5.1(j).
"FIRST PRIORITY" means, with respect to any Lien purported to be
created in any Collateral pursuant to any Collateral Document, that such Lien is
the only Lien to which such Collateral is subject, other than and subject to
Permitted Liens.
"FISCAL QUARTER" means a fiscal quarter of any Fiscal Year.
"FISCAL YEAR" means the fiscal year of Company and its Subsidiaries
ending on December 31 of each calendar year.
"FLEET BOSTON" means BankBoston, N.A..
"FLOOD HAZARD PROPERTY" means a Real Estate Asset located in an area
designated by the Federal Emergency Management Agency as having special flood or
mud slide hazards.
"FOREIGN SUBSIDIARY" means any Subsidiary (including an Unrestricted
Subsidiary) that is not a Domestic Subsidiary.
"FUNDING GUARANTORS" as defined in Section 7.2.
"FUNDING NOTICE" means a notice in the form of Exhibit A-1.
"GAAP" means United States generally accepted accounting principles in
effect as of the date of determination thereof.
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"GEOGRAPHIC MARKET" means each particular geographic market or one or
more related geographic markets in the United States which is (i) identified on
Schedule 1.1 of this Agreement, (ii) designated to constitute a Geographic
Market by Borrower in accordance with paragraph (vi) of the definition of
"Permitted Acquisition" or (iii) constitutes an Excess Proceeds Geographic
Market, in which, in each case, one or more Subsidiaries of the Company conducts
business operations.
"GOVERNMENTAL ACTS" means any act or omission, whether rightful or
wrongful, of any present or future de jure or de facto government or
Governmental Authority.
"GOVERNMENTAL AUTHORITY" means any federal, state, municipal, national
or other governmental department, commission, board, bureau, court, agency or
instrumentality or political subdivision thereof or any entity or officer
exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to any government or any court, in each case whether
associated with a state of the United States, the United States, or a foreign
entity or government.
"GOVERNMENTAL AUTHORIZATION" means any permit, license, authorization,
plan, directive, consent order or consent decree of or from any Governmental
Authority.
"GSCP" means Goldman Sachs Credit Partners L.P.
"GUARANTEED OBLIGATIONS" as defined in Section 7.1.
"GUARANTOR" means each of Company and each direct and indirect
Subsidiary of Company (other than Borrower) party hereto.
"GUARANTY" means the guaranty of each Guarantor set forth in Section 7.
"HAZARDOUS MATERIALS" means any chemical, material or substance,
exposure to which is prohibited, limited or regulated by any Governmental
Authority or which may or could pose a hazard to the health and safety of the
owners, occupants or any Persons in the vicinity of any Facility or to the
indoor or outdoor environment.
"HAZARDOUS MATERIALS ACTIVITY" means any past, current, proposed or
threatened activity, event or occurrence involving any Hazardous Materials,
including the use, manufacture, possession, storage, holding, presence,
existence, location, Release, threatened Release, discharge, placement,
generation, transportation, processing, construction, treatment, abatement,
removal, remediation, disposal, disposition or handling of any Hazardous
Materials, and any corrective action or response action with respect to any of
the foregoing.
"HEDGE AGREEMENT" means an Interest Rate Agreement or a Currency
Agreement entered into in the ordinary course of Company's or any of its
Subsidiaries' businesses and not for speculative purposes.
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"HIGHEST LAWFUL RATE" means the maximum lawful interest rate, if any,
that at any time or from time to time may be contracted for, charged, or
received under the laws applicable to any Lender which are presently in effect
or, to the extent allowed by law, under such applicable laws which may hereafter
be in effect and which allow a higher maximum nonusurious interest rate than
applicable laws now allow.
"HISTORICAL FINANCIAL STATEMENTS" means the audited financial
statements of Company and its Subsidiaries for Fiscal Years 1997 and 1998,
consisting of balance sheets and the related consolidated statements of income,
stockholders' equity and cash flows for such periods, certified by the chief
financial officer of Company that they fairly present, in all material respects,
the financial condition of Company and its Subsidiaries as at the dates
indicated and the results of their operations and their cash flows for the
periods indicated, subject to changes resulting from audit and normal year-end
adjustments.
"HOLLAND" means, collectively, Mr. Royce Holland, his direct
descendants, any entity controlled by any of the foregoing or any trust for the
benefit of any of the foregoing.
"INCREASED AMOUNT DATE" as defined in Section 2.1(a)(iii).
"INCREASED-COST LENDERS" as defined in Section 2.21.
"INDEBTEDNESS", as applied to any Person, means, without duplication,
(i) all indebtedness for borrowed money; (ii) that portion of obligations with
respect to Capital Leases that is properly classified as a liability on a
balance sheet in conformity with GAAP; (iii) notes payable and drafts accepted
representing extensions of credit whether or not representing obligations for
borrowed money; (iv) any obligation owed for all or any part of the deferred
purchase price of property or services (excluding any such obligations incurred
under ERISA and ordinary course trade payables and accrued expenses), which
purchase price is (a) due more than six months from the date of incurrence of
the obligation in respect thereof or (b) evidenced by a note or similar written
instrument; (v) all indebtedness secured by any Lien on any property or asset
owned or held by that Person regardless of whether the indebtedness secured
thereby shall have been assumed by that Person or is nonrecourse to the credit
of that Person; (vi) the face amount of any letter of credit issued for the
account of that Person or as to which that Person is otherwise liable for
reimbursement of drawings; (vii) the direct or indirect guaranty, endorsement
(otherwise than for collection or deposit in the ordinary course of business),
co-making, discounting with recourse or sale with recourse by such Person of the
Indebtedness of another; (viii) any obligation of such Person the primary
purpose or intent of which is to provide assurance to an obligee that the
Indebtedness of the obligor thereof will be paid or discharged, or any agreement
relating thereto will be complied with, or the holders thereof will be protected
(in whole or in part) against loss in respect thereof; and (ix) any liability of
such Person for the Indebtedness of another through any agreement (contingent or
otherwise) (a) to purchase, repurchase or otherwise acquire such Indebtedness or
any security therefor, or to provide funds for the payment or discharge of such
Indebtedness (whether in the form of loans, advances, stock purchases, capital
contributions or otherwise) or (b) to maintain the
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solvency or any balance sheet item, level of income or financial condition of
another if, in the case of any agreement described under subclauses (a) or (b)
of this clause (ix), the primary purpose or intent thereof is as described in
clause (viii) above; and (x) obligations under Hedge Agreements; provided in no
event shall an obligation under Hedge Agreements be deemed "Indebtedness" for
any purpose under Sections 6.6, 6.7 and 6.8.
"INDEMNIFIED LIABILITIES" means, collectively, any and all liabilities,
obligations, losses, damages (including natural resource damages), penalties,
actions, judgments, suits, claims (including Environmental Claims), costs
(including the costs of any investigation, study, sampling, testing, abatement,
cleanup, removal, remediation or other response action necessary to remove,
remediate, clean up or abate any Hazardous Materials Activity), expenses and
disbursements of any kind or nature whatsoever (including the reasonable fees
and disbursements of counsel for Indemnitees in connection with any
investigative, administrative or judicial proceeding commenced or threatened by
any Person, whether or not any such Indemnitee shall be designated as a party or
a potential party thereto, and any fees or expenses incurred by Indemnitees in
enforcing this indemnity), whether direct, indirect or consequential and whether
based on any federal, state or foreign laws, statutes, rules or regulations
(including securities and commercial laws, statutes, rules or regulations and
Environmental Laws), on common law or equitable cause or on contract or
otherwise, that may be imposed on, incurred by, or asserted against any such
Indemnitee, in any manner relating to or arising out of (i) this Agreement or
the other Credit Documents or the transactions contemplated hereby or thereby
(including Lenders' agreement to make Loans or the use or intended use of the
proceeds thereof or the use or intended use of any thereof, or any enforcement
of any of the Credit Documents (including any sale of, collection from, or other
realization upon any of the Collateral or the enforcement of the Guaranty));
(ii) the statements contained in the commitment letter executed and delivered by
any Lender to Company with respect thereto; or (iii) any Environmental Claim or
any Hazardous Materials Activity relating to or arising from, directly or
indirectly, any past or present activity, operation, land ownership, or practice
of Company or any of its Subsidiaries.
"INDEMNITEE" as defined in Section 10.3.
"INITIAL FUNDING DATE" means the date on which the first Loan is made
hereunder.
"INSTALLMENT DATE" as defined in Section 2.9.
"INTELLECTUAL PROPERTY COLLATERAL" means all of the Intellectual
Property subject to the Lien of the Pledge and Security Agreement.
"INTEREST COVERAGE RATIO" means the ratio as of the last day of any
Fiscal Quarter of (i) Annualized Consolidated EBITDA to (ii) Consolidated Cash
Interest Expense for the four-Fiscal Quarter period then ended, in each case as
set forth in the most recent Compliance Certificate delivered by Borrower to
Administrative Agent pursuant to Section 5.1(d).
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"INTEREST PAYMENT DATE" means with respect to (i) any Base Rate Loan,
each March 31, June 30, September 30 and December 31 of each year, commencing on
the first such date to occur after the Closing Date; and (ii) any Eurodollar
Rate Loan, the last day of each Interest Period applicable to such Loan;
provided that in the case of each Interest Period of longer than three months
"Interest Payment Date" shall also include each date that is three months, or an
integral multiple thereof, after the commencement of such Interest Period.
"INTEREST PERIOD" means, in connection with a Eurodollar Rate Loan, an
interest period of one, two, three or six-months, as selected by Borrower in the
applicable Notice, (i) initially, commencing on the Credit Date or
Conversion/Continuation Date thereof, as the case may be; and (ii) thereafter,
commencing on the day on which the immediately preceding Interest Period
expires; provided that (a) if an Interest Period would otherwise expire on a day
that is not a Business Day, such Interest Period shall expire on the next
succeeding Business Day unless no further Business Day occurs in such month, in
which case such Interest Period shall expire on the immediately preceding
Business Day; (b) any Interest Period that begins on the last Business Day of a
calendar month (or on a day for which there is no numerically corresponding day
in the calendar month at the end of such Interest Period) shall, subject to
clauses (c) through (f) of this definition, end on the last Business Day of a
calendar month; (c) no Interest Period with respect to any portion of any New
Term Loans, if any, shall extend beyond the New Term Loan Maturity Date; (d) no
Interest Period with respect to any portion of the Revolving Loans shall extend
beyond the Revolving Loan Commitment Termination Date; (e) no Interest Period
with respect to any portion of Revolving Loans shall extend beyond a date on
which Borrower is required to make a scheduled reduction of Revolving Loan
Commitments, unless the sum of (1) the aggregate principal amount of Revolving
Loans that are Base Rate Loans, and (2) the aggregate principal amount of
Revolving Loans that are Eurodollar Rate Loans with Interest Periods expiring on
or before such date of reduction equals or exceeds the amount required to be
paid with respect to the Revolving Loan Commitments on such date; and (f) no
Interest Period with respect to any portion of New Term Loans, if any, shall
extend beyond a date on which Borrower is required to make a scheduled payment
of principal of such New Term Loans, unless the sum of (1) the aggregate
principal amount of such New Term Loans that are Base Rate Loans and, (2) the
aggregate principal amount of such New Term Loans that are Eurodollar Rate Loans
with Interest Periods expiring on or before such date equals or exceeds the
principal amount required to be paid on such New Term Loans on such date.
"INTEREST RATE AGREEMENT" means any interest rate swap agreement,
interest rate cap agreement, interest rate collar agreement or other similar
agreement or arrangement, each of which is for the purpose of hedging the
interest rate exposure associated with Company's and its Subsidiaries'
operations.
"INTEREST RATE DETERMINATION DATE" means, with respect to any Interest
Period, the date that is two Business Days prior to the first day of such
Interest Period.
"INTERNAL REVENUE CODE" means the Internal Revenue Code of 1986, as
amended to the date hereof and from time to time hereafter, and any successor
statute.
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"INVESTMENT" means (i) any direct or indirect purchase or other
acquisition by Company or any of its Subsidiaries of, or of a beneficial
interest in, any of the Securities of any other Person (other than a Guarantor);
(ii) any direct or indirect redemption, retirement, purchase or other
acquisition for value, by any Subsidiary of Company from any Person (other than
Company or any Guarantor), of any equity Securities of such Subsidiary; and
(iii) any direct or indirect loan, advance (other than advances to employees for
moving, entertainment and travel expenses, drawing accounts and similar
expenditures in the ordinary course of business) or capital contribution by
Company or any of its Subsidiaries to any other Person (other than Company),
including all indebtedness and accounts receivable from that other Person that
are not current assets or did not arise from sales to that other Person in the
ordinary course of business. The amount of any Investment shall be the original
cost of such Investment plus the cost of all additions thereto, without any
adjustments for increases or decreases in value, or write-ups, write-downs or
write-offs with respect to such Investment.
"INVESTMENT COMPANY ACT" means the Investment Company Act of 1940, as
amended.
"INVESTMENT PROPERTY" as defined in the Pledge and Security Agreement.
"JOINDER AGREEMENT" means a joinder agreement substantially in the form
of Exhibit H, or as may be amended, supplemented or otherwise modified from time
to time.
"JOINT VENTURE" means a joint venture, partnership or other similar
arrangement, whether in corporate, partnership or other legal form; provided
that in no event shall any corporate Subsidiary of any Person be considered to
be a Joint Venture to which such Person is a party.
"LEASEHOLD PROPERTY" means any leasehold interest of any Credit Party
as lessee under any lease of real property, other than any such leasehold
interest designated from time to time by Administrative Agent in its sole
discretion as not being required to be included in the Collateral.
"LENDER" means any person who becomes a Lender under this Agreement as
of the Closing Date or pursuant to Section 2.1(a)(iii) and their respective
permitted successors and assigns.
"LENDER COUNTERPARTY" means each Lender or Affiliate thereof
counterparty to a Hedge Agreement.
"LIEN" means any lien, mortgage, pledge, assignment, security interest,
charge or encumbrance of any kind (including any conditional sale or other title
retention agreement, any lease in the nature thereof, and any agreement to give
any security interest) and any option, trust or other preferential arrangement
having the practical effect of any of the foregoing.
"LOAN" or "LOANS" means any Loan made by a Lender to Borrower pursuant
to Section 2.1(a)(i), 2.1(a)(ii) or 2.1(a)(iii) of this Agreement.
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"MANAGING AGENTS" means each of the Managing Agents listed on the
signature pages of this Agreement.
"MARGIN STOCK" as defined in Regulation U of the Board of Governors of
the Federal Reserve System as in effect from time to time.
"MATERIAL ADVERSE EFFECT" means a material adverse effect on (i) the
business, operations, properties, assets, condition (financial or otherwise) or
prospects of Company and its Subsidiaries on a consolidated basis or (ii) the
ability of any Agent or any Lender to enforce any of their rights or to collect
any of the Obligations then due and payable.
"MATERIAL CONTRACT" means any contract or other arrangement to which
Company or any of its Subsidiaries is a party (other than the Credit Documents)
for which breach, nonperformance, cancellation or failure to renew could
reasonably be expected to have a Material Adverse Effect.
"MATERIAL REAL ESTATE ASSET" means (i) all fee-owned Real Estate Assets
having a fair market value in excess of $2,000,000 as of the date of the
acquisition thereof and (ii) all Leasehold Properties other than those (a) with
respect to which the aggregate payments under the term of the lease are less
than $2,000,000 per annum, or (b) that relate to a site the loss of which would
not otherwise have a Material Adverse Effect.
"MOODY'S" means Moody's Investor Services, Inc.
"MORTGAGE" means a mortgage, deed of trust or similar instrument in the
form of Exhibit J, as it may be amended, supplemented or otherwise modified from
time to time.
"MORTGAGED PROPERTY" as defined in Section 5.10.
"MULTIEMPLOYER PLAN" means any Employee Benefit Plan which is a
"multiemployer plan" as defined in Section 3(37) of ERISA.
"NAIC" means The National Association of Insurance Commissioners, and
any successor thereto.
"NARRATIVE REPORT" means, with respect to the financial statements for
which such narrative report is required, a narrative report describing the
operations of Company and its Subsidiaries in the form prepared for presentation
to senior management thereof for the applicable month, Fiscal Quarter or Fiscal
Year and for the period from the beginning of the then current Fiscal Year to
the end of such period to which such financial statements relate.
"NET ASSET SALE PROCEEDS" means, with respect to any Asset Sale, an
amount equal to: (i) Cash payments (including any Cash received by way of
deferred payment pursuant to, or by monetization of, a note receivable or
otherwise, but only as and when so received) received from
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such Asset Sale, minus (ii) any bona fide direct costs incurred in connection
with such Asset Sale, including (a) income or gains taxes reasonably estimated
to be actually payable as a result of any gain recognized in connection with
such Asset Sale, (b) payment of the outstanding principal amount of, premium or
penalty, if any, and interest on any Indebtedness (other than the Loans) that is
secured by a Lien on the stock or assets in question and that is required to be
repaid under the terms thereof as a result of such Asset Sale, (c) attorney's
fees, accountants fees, investment banking fees and other customary costs, fees,
expenses and commissions actually incurred in connection therewith, and (d) the
amount of any reasonable reserve established in accordance with GAAP against any
liabilities associated with the assets sold or disposed of; provided that the
amount of any subsequent reduction of such reserve (other than in connection
with a payment in respect of such liability) shall be deemed to be Net Asset
Sale Proceeds occurring on the date of such reduction.
"NET INSURANCE/CONDEMNATION PROCEEDS" means an amount equal to: (i) any
Cash payments or proceeds received by Company or any of its Subsidiaries (a)
under any casualty insurance policy in respect of a covered loss thereunder or
(b) as a result of the taking of any assets of Company or any of its
Subsidiaries by any Person pursuant to the power of eminent domain, condemnation
or otherwise, or pursuant to a sale of any such assets to a purchaser with such
power under threat of such a taking, minus (ii) (a) any actual and reasonable
documented costs incurred by Company or any of its Subsidiaries in connection
with the adjustment or settlement of any claims of Company or such Subsidiary in
respect thereof, and (b) any bona fide direct costs incurred in connection with
any sale of such assets as referred to in clause (i)(b) of this definition,
including income taxes reasonably estimated to be actually payable as a result
of any gain recognized in connection therewith.
"NEW DELAYED DRAW TERM LOANS" as defined in Section 2.1(a)(iii).
"NEW DELAYED DRAW TERM LOAN COMMITMENTS" as defined in Section
2.1(a)(iii).
"NEW REVOLVING LOAN" as defined in Section 2.1(a)(iii).
"NEW REVOLVING LOAN COMMITMENTS" as defined in Section 2.1(a)(iii).
"NEW REVOLVING LOAN LENDER" as defined in Section 2.1(a)(iii).
"NEW TERM LOAN" as defined in Section 2.1(a)(iii).
"NEW TERM LOAN COMMITMENTS" as defined in Section 2.1(a)(iii).
"NEW TERM LOAN EXPOSURE" means, with respect to any Lender as of any
date of determination (i) prior to the funding of the New Term Loans that
Lender's New Term Loan Commitment, if any, and (ii) after the funding of the New
Term Loans, the outstanding principal amount of the New Term Loan of that
Lender.
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"NEW TERM LOAN LENDER" as defined in Section 2.1(a)(iii).
"NEW TERM LOAN MATURITY DATE" means the date that New Term Loans of a
Series shall become due and payable in full hereunder, as specified in the
applicable Joinder Agreement.
"NEW TERM LOAN NOTE" means a promissory note in the form of Exhibit
B-3, as it may be amended, supplemented or otherwise modified from time to time.
"NON-US LENDER" as defined in Section 2.18(c).
"NOTE" means a Revolving Loan Note, Delayed Draw Term Loan Note or a
New Term Loan Note.
"NOTICE" means a Funding Notice or a Conversion/Continuation Notice.
"OBLIGATIONS" means, with respect to any Credit Party, obligations of
such Credit Party, whether now existing or hereafter made, incurred or created,
whether absolute or contingent, liquidated or unliquidated, whether due or not
due, and however arising under or in connection herewith and any other Credit
Document and any Hedge Agreement with a Lender Counterparty (including, without
limitation, with respect to a Hedge Agreement, obligations owed thereunder to
any person who was a Lender or an Affiliate of a Lender at the time such Hedge
Agreement was entered into), including those arising under successive borrowing
transactions hereunder which shall either continue the Obligations of such
Credit Party from time to time or renew them after they have been satisfied and
including interest which, but for the filing of a petition in bankruptcy with
respect to such Credit Party, would have accrued on any Obligation, whether or
not a claim is allowed against such Credit Party for such interest in the
related bankruptcy proceeding.
"OBLIGEE GUARANTOR" as defined in Section 7.7.
"ORGANIZATIONAL DOCUMENTS" means (i) with respect to any corporation,
its certificate or articles of incorporation, as amended, and its by-laws, as
amended, (ii) with respect to any limited partnership, its certificate of
limited partnership, as amended, and its partnership agreement, as amended,
(iii) with respect to any general partnership, its partnership agreement, as
amended, and (iv) with respect to any limited liability company, its certificate
of formation or articles of organization, as amended, and its operating
agreement, as amended. In the event any term or condition of this Agreement or
any other Credit Document requires any Organizational Document to be certified
by a secretary of state or similar governmental official, the reference to any
such "Organizational Document" shall only be to a document of a type customarily
certified by such governmental official.
"PBGC" means the Pension Benefit Guaranty Corporation or any successor
thereto.
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"PENSION PLAN" means any Employee Benefit Plan, other than a
Multiemployer Plan, which is subject to Section 412 of the Internal Revenue Code
or Section 302 of ERISA.
"PERMITTED ACQUISITION" means any acquisition, whether by purchase,
merger or otherwise, of all or substantially all of the assets of, all of the
equity Securities of, or a business line or a division of, any Person; provided
that:
(1) immediately prior to, and after giving effect thereto, no
Default or Event of Default shall have occurred and be continuing or
would result therefrom;
(2) all transactions in connection therewith shall be consummated
in accordance with all applicable laws and in conformity with all
applicable Governmental Authorizations;
(3) all of the equity Securities (except for any such Securities
in the nature of directors qualifying shares required pursuant to
applicable law) acquired or otherwise issued by such Person (or any
newly formed Subsidiary of Company in connection with such acquisition)
shall be owned 100% by Borrower or a Subsidiary, and Company and
Borrower shall have taken, or caused to be taken, as of the date such
Person becomes a Subsidiary of Borrower, each of the actions set forth
in Section 5.10;
(4) (A) the cash consideration paid by Company or any of its
Subsidiaries for such acquisition shall be less than $1,000,000, or (B)
the aggregate amount of all acquisitions occurring after the Closing
Date, the individual Cash component of the purchase price of which is
greater than $1,000,000 in each case, which are financed in whole or in
part with Indebtedness (including all Indebtedness incurred, repaid or
assumed in connection with all such acquisitions) and/or Cash on hand,
shall not exceed (excluding the amount of equity Securities used in
connection with or used to finance such acquisitions) an amount equal
to $300,000,000;
(5) all Persons, assets or divisions acquired shall be in the
same business or lines of business engaged in by Borrower and/or its
Subsidiaries on the Closing Date and similar or related businesses, or
such other lines of business as may be consented to by Requisite
Lenders;
(6) the principal operations of all Persons, assets or divisions
acquired shall be located only in those twenty seven (27) Geographic
Markets specified in Schedule 1.1 (or substitution Geographic Markets
reasonably acceptable to the Sole Lead Arranger and the Administrative
Agent) plus up to an additional nine (9) Geographic Markets that
Borrower designates in writing to the Sole Lead Arranger and the
Administrative Agent as a Geographic Market that it anticipates
operating in; provided that Permitted Acquisitions outside such thirty
six (36) Geographic Markets shall be permitted if such principal
operations, assets or divisions acquired are related to Company's core
CLEC switched access business as conducted as of the Closing Date or
similar or related businesses, including,
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without limitation, data communications, Internet access, Internet
portal, web hosting, application hosting, and communication equipment
collocation businesses; and
(7) Company and its Subsidiaries shall be in compliance with,
immediately before and after giving pro forma effect to any
acquisition, Sections 6.6 or 6.7, as applicable, and Company shall have
delivered to Administrative Agent a certificate in the form of a
Compliance Certificate evidencing such compliance with such Sections.
"PERMITTED EQUIPMENT FINANCING" means one or more purchase money,
vendor or similar equipment financing facilities (i) in an aggregate principal
amount not in excess of $50,000,000 outstanding at any time, (ii) pursuant to
which Borrower or any of its Subsidiaries may be advanced funds principally to
purchase or lease network equipment or services from the provider of such
financing or its affiliates, (iii) which may be secured only by the assets being
financed thereby and (iv) the form and substance of which are reasonably
satisfactory to the Sole Lead Arranger and Requisite Lenders.
"PERMITTED LIENS" means each of the Liens permitted pursuant to Section
6.2.
"PERSON" means and includes natural persons, corporations, limited
partnerships, general partnerships, limited liability companies, limited
liability partnerships, joint stock companies, Joint Ventures, associations,
companies, trusts, banks, trust companies, land trusts, business trusts or other
organizations, whether or not legal entities, and governments (whether federal,
state or local, domestic or foreign, and including political subdivisions
thereof) and agencies or other administrative or regulatory bodies thereof.
"PLAN OF CORRECTION" as defined in Section 4.20.
"PLEDGE AND SECURITY AGREEMENT" means the Pledge and Security Agreement
in the form of Exhibit I, as it may be amended, supplemented or otherwise
modified from time to time.
"PRE-OVERHEAD EBITDA" means, for any Fiscal Quarter, an amount
determined for the operations of a Subsidiary of the Company in a Geographic
Market, to the extent positive, equal to (i) the sum of the amounts for such
period of (a) the net income of such market on a consolidated basis determined
in accordance with GAAP, (b) total interest expense (including that portion
attributable to Capital Leases in accordance with GAAP and capitalized interest)
with respect to all outstanding Indebtedness of such market, including all
commissions, discounts and other fees and charges owed with respect to letters
of credit and bankers' acceptance financing and net costs under Interest Rate
Agreements, (c) provisions for franchise taxes and taxes of such market based on
income for such market, (d) total depreciation expense of such market, (e) total
amortization expense of such market, and (f) other non-cash items reducing the
net income of such market (including management ownership allocation charge and
non-cash deferred compensation), minus the sum of (ii) (a) any net extraordinary
gains or net non-cash extraordinary losses of such Person for such market and
(b) all other non-cash items increasing the net income of such market; all of
the
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foregoing as calculated quarterly, on a basis which excludes all amounts
attributable to corporate overhead expense of Company or any of its Subsidiaries
(other than the Subsidiary which operates in the subject Geographic Market to
the extent such overhead is allocable to such Geographic Market), and in a
manner consistent with the calculations made and delivered pursuant to Section
3.1(f) on the Closing Date (it being understood that all corporate overhead
expense is allocated as of the Closing Date by Company to Allegiance Service
Corporation, and such practice will continue in the same manner after the
Closing Date). It is expressly understood that, with respect to each Geographic
Market (i) only those operations of a particular Subsidiary that have positive
Pre-Overhead EBITDA shall be included in the calculation of Pre-Overhead EBITDA
(ii) any negative Pre-Overhead EBITDA of a Subsidiary in another Geographic
Market shall not be included in such calculation and (iii) any negative
Pre-Overhead EBITDA of another Subsidiary operating in such Geographic Market
shall not be included in such calculation.
"PRIME RATE" means the rate that The Toronto-Dominion Bank, New York
branch, announces from time to time as its prime lending rate, as in effect from
time to time. The Prime Rate is a reference rate and does not necessarily
represent the lowest or best rate actually charged to any customer. TD or any
other Lender may make commercial loans or other loans at rates of interest at,
above or below the Prime Rate.
"PRINCIPAL OFFICE" means the Administrative Agent's "Principal Office"
as set forth on Appendix B, or such other office as such Person may from time to
time designate in writing to Borrower, Administrative Agent and each Lender.
"PROJECTIONS" as defined in Section 4.5.
"PRO FORMA ADJUSTMENT" means for purposes of determining compliance
with the financial covenants set forth in Section 6.6(a), the minimum Revenues
specified in such Section shall be increased for any Fiscal Quarter in which a
Permitted Acquisition has occurred and each succeeding Fiscal Quarter thereafter
by 100% of the average quarterly Revenues of the entity or assets being acquired
calculated for the immediately preceding four quarter period using the
historical financial statements of such entity or assets; and all such Pro Forma
Adjustments shall be accompanied by a Financial Officer Certification.
"PRO FORMA CONSOLIDATED DEBT SERVICE" means, as of any date of
determination, the sum, without duplication, of (i) Consolidated Cash Interest
Expense and (ii) all scheduled amortization (including any payment or prepayment
of principal of, premium, if any, or interest on, or redemption, purchase,
retirement, defeasance (including in-substance or legal defeasance), sinking
fund or similar payment) in respect of Indebtedness, in each case payable by
Company and its Subsidiaries during the immediately succeeding four Fiscal
Quarters assuming, for purposes of calculating Consolidated Cash Interest
Expense for any such succeeding four Fiscal Quarter period, Indebtedness
outstanding as of the date of such calculation shall remain outstanding during
such four Fiscal Quarter period (except to the extent of any scheduled
amortization, redemption, retirement or similar payment scheduled during such
four Fiscal Quarter period) and that the average interest rate applicable to
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outstanding Indebtedness of the Credit Parties as of the date of such
calculation applies with respect to Indebtedness outstanding during such four
Fiscal Quarter period.
"PRO FORMA DEBT SERVICE COVERAGE RATIO" means the ratio as of the last
day of any Fiscal Quarter of (i) Annualized Consolidated EBITDA for any period
then ended to (ii) Pro Forma Consolidated Debt Service, in each case as set
forth in the most recent Compliance Certificate delivered by Borrower to
Administrative Agent pursuant to Section 5.1(d).
"PRO RATA SHARE" means (i) with respect to all payments, computations
and other matters relating to the Revolving Loan Commitment or the Revolving
Loans of any Lender, the percentage obtained by dividing (x) the Revolving Loan
Exposure of that Lender by (y) the aggregate Revolving Loan Exposure of all
Lenders, (ii) with respect to all payments, computations and other matters
relating to the Delayed Draw Term Loan Commitment or the Delayed Draw Term
Loans, the percentage obtained by dividing (x) the Delayed Draw Term Loan
Exposure of that Lender by the aggregate Delayed Draw Term Loan Exposure of all
Lenders, (iii) with respect to all payments, computations and other matters
relating to the New Term Loan Commitments, if any, or the New Term Loan, if any,
of any Lender, the percentage obtained by dividing (x) the New Term Loan
Exposure of that Lender for a Series by (y) the sum of the aggregate New Term
Loan Exposure of all Lenders for such Series, and (iv) for all other purposes
with respect to each Lender, the percentage obtained by dividing (x) the sum of
the New Term Loan Exposure of that Lender for a Series plus the Revolving Loan
Exposure of that Lender plus the Delayed Draw Loan Exposure of that Lender by
(y) the sum of the aggregate New Term Loan Exposure of all Lenders for such
Series plus the aggregate Revolving Loan Exposure of all Lenders plus the sum of
the aggregate Delayed Draw Term Loan Exposure of all Lenders, in any such case
as the applicable percentage may be adjusted by assignments permitted pursuant
to Section 10.6. The Pro Rata Share of each Lender as of the Closing Date for
purposes of each of clauses (i), (ii), (iii) and (iv) of the preceding sentence
is set forth opposite the name of that Lender in Appendix A.
"REAL ESTATE ASSET" means, at any time of determination, any interest
then owned by any Credit Party in any real property (whether fee or leasehold).
"RECORD DOCUMENT" means, with respect to any Leasehold Property, (i)
the lease evidencing such Leasehold Property or a memorandum thereof, executed
and acknowledged by the owner of the affected real property, as lessor, or (ii)
if such Leasehold Property was acquired or subleased from the holder of a
Recorded Leasehold Interest, the applicable assignment or sublease document,
executed and acknowledged by such holder, in each case in form sufficient to
give such constructive notice upon recordation and otherwise in form reasonably
satisfactory to Administrative Agent.
"RECORDED LEASEHOLD INTEREST" means a Leasehold Property with respect
to which a Record Document has been recorded in all places necessary or
desirable, in Administrative Agent's reasonable judgment, to give constructive
notice of such Leasehold Property to third-party purchasers and encumbrancers of
the affected real property.
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"REGISTER" as defined in Section 2.4(b).
"REGULATION D" means Regulation D of the Board of Governors of the
Federal Reserve System, as in effect from time to time.
"RELATED FUND" means, with respect to any Lender that is an investment
fund, any other investment fund that invests in commercial loans and that is
managed or advised by the same investment advisor as such Lender or by an
Affiliate of such investment advisor.
"RELEASE" means any release, spill, emission, leaking, pumping,
pouring, injection, escaping, deposit, disposal, discharge, dispersal, dumping,
leaching or migration of any Hazardous Material into the indoor or outdoor
environment (including the abandonment or disposal of any barrels, containers or
other closed receptacles containing any Hazardous Material), including the
movement of any Hazardous Material through the air, soil, surface water or
groundwater.
"REPLACEMENT LENDER" as defined in Section 2.21.
"REQUISITE CLASS LENDERS" means, at any time of determination (i) for
the Class of Lenders having Revolving Loan Exposure, Lenders having or holding
at least a majority of the sum of the aggregate Revolving Loan Exposure of all
Lenders, (ii) for the Class of Lenders having Delayed Draw Term Loan Exposure,
Lenders having or holding at least a majority of the sum of the aggregate
Delayed Draw Term Loan Exposure of all Lenders and (iii) for each Class of
Lenders having New Term Loan Exposure, if any, Lenders having or holding at
least a majority of the sum of the aggregate New Term Loan Exposure of such
Lenders.
"REQUISITE LENDERS" means one or more Lenders having or holding
Revolving Loan Exposure, Delayed Draw Term Loan Exposure and/or New Term Loan
Exposure for a Series representing more than 50% of the sum of (i)the aggregate
Revolving Loan Exposure of all Lenders (ii) the aggregate Delayed Draw Term Loan
Exposure of all Lenders and (iii) the aggregate New Term Loan Exposure of all
Lenders for each Series.
"RESTRICTED JUNIOR PAYMENT" means (i) any dividend or other
distribution, direct or indirect, on account of any shares of any class of stock
of Company or Borrower now or hereafter outstanding, except a dividend payable
solely in shares of that class of stock to the holders of that class, (ii) any
redemption, retirement, sinking fund or similar payment, purchase or other
acquisition for value, direct or indirect, of any shares of any class of stock
of Company or Borrower now or hereafter outstanding, (iii) any payment made to
retire, or to obtain the surrender of, any outstanding warrants, options or
other rights to acquire shares of any class of stock of Company or Borrower now
or hereafter outstanding, and (iv) any payment or prepayment of principal of,
premium, if any, or interest on, or redemption, purchase, retirement, defeasance
(including in-substance or legal defeasance), sinking fund or similar payment
with respect to any Subordinated Indebtedness or Indebtedness outstanding under
the Existing Indentures; provided that the foregoing will not prohibit
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payments in respect of repurchases of stock from former directors, officers,
employees, or from consultants, of Company in an aggregate amount not to exceed
$2,500,000.
"REVENUES" means, for any Fiscal Quarter, the gross revenues of Company
and its Subsidiaries on a consolidated basis for such period taken as a single
accounting period determined in conformity with GAAP.
"REVOLVING LOAN COMMITMENT" means the commitment of a Lender to make
Revolving Loans to Borrower pursuant to subsection 2.1(a)(i) or New Revolving
Loans pursuant to subsection 2.1(a)(iii), and "REVOLVING LOAN COMMITMENTS" means
such commitments of all Lenders in the aggregate. The amount of each Lender's
Revolving Loan Commitment, if any, is set forth in Appendix A or in the
applicable Assignment Agreement, subject to any adjustment or reduction pursuant
to the terms and conditions hereof. The aggregate amount of the Revolving Loan
Commitments as of the Closing Date is $350,000,000.
"REVOLVING LOAN COMMITMENT PERIOD" means the period commencing on the
Closing Date to but excluding the Revolving Loan Commitment Termination Date.
"REVOLVING LOAN COMMITMENT TERMINATION DATE" means the earliest to
occur of (i) the Revolving Loan Maturity Date, (ii) the date the Revolving Loan
Commitments are permanently reduced to zero pursuant to Sections 2.10 or 2.11,
and (iii) the date of the termination of the Commitments pursuant to Section
8.1.
"REVOLVING LOAN EXPOSURE" means, with respect to any Lender as of any
date of determination, (i) prior to the termination of the Revolving Loan
Commitments, such Lender's Revolving Loan Commitment; and (ii) after the
termination of the Revolving Loan Commitments, the aggregate outstanding
principal amount of the Revolving Loans of such Lender.
"REVOLVING LOAN INSTALLMENT" as defined in Section 2.9(a).
"REVOLVING LOAN MATURITY DATE" means the earlier of (i) December 31,
2006 and (ii) the date that all Revolving Loans shall become due and payable in
full hereunder, whether by acceleration or otherwise.
"REVOLVING LOAN NOTE" means a promissory note in the form of Exhibit
B-1, as it may be amended, supplemented or otherwise modified from time to time.
"REVOLVING LOANS" means any Revolving Loans made by Lenders to Borrower
pursuant to Section 2.1(a)(i) of this Agreement and any New Revolving Loans made
by Lenders to Borrower pursuant to Section 2.1(a)(iii) of this Agreement.
"RS DESIGNATION" as defined in Section 6.17.
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"S&P" means Standard & Poor's Ratings Group, a division of The
McGraw-Hill Companies.
"SECURITIES" means any stock, shares, partnership interests, voting
trust certificates, certificates of interest or participation in any
profit-sharing agreement or arrangement, options, warrants, bonds, debentures,
notes, or other evidences of indebtedness, secured or unsecured, convertible,
subordinated or otherwise, or in general any instruments commonly known as
"securities" or any certificates of interest, shares or participations in
temporary or interim certificates for the purchase or acquisition of, or any
right to subscribe to, purchase or acquire, any of the foregoing.
"SECURITIES ACT" means the Securities Act of 1933, as amended from time
to time, and any successor statute.
"SENIOR LEVERAGE RATIO" means the ratio, as of the last day of any
Fiscal Quarter, of (a) Senior Secured Debt outstanding as of such day to (b)
Annualized Consolidated EBITDA; in each case as set forth in the most recent
Compliance Certificate delivered by Borrower to Administrative Agent pursuant to
Section 5.1(d).
"SENIOR SECURED DEBT" means an amount equal to the sum of Total
Utilization of Commitments and the outstanding principal amount of all Permitted
Equipment Financings, all secured trade payables and all Capital Leases of, in
each case, Company and its Subsidiaries; provided Capital Lease obligations with
respect to Dark Fiber Leases shall be excluded from Senior Secured Debt for
purposes of calculations made under Section 6.6(b), but shall be included for
all other purposes under this Agreement.
"SERIES" as defined in Section 2.1(a)(iii).
"SOLE LEAD ARRANGER" as defined in the preamble hereto.
"SOLVENT" means, with respect to any Person, that as of the date of
determination both (i) (a) the then fair saleable value of the property of such
Person is (1) greater than the total amount of liabilities (including contingent
liabilities) of such Person and (2) not less than the amount that will be
required to pay the probable liabilities on such Person's then existing debts as
they become absolute and matured considering all financing alternatives and
potential asset sales reasonably available to such Person; (b) such Person's
capital is not unreasonably small in relation to its business or any
contemplated or undertaken transaction; and (c) such Person does not intend to
incur, or believe (nor should it reasonably believe) that it will incur, debts
beyond its ability to pay such debts as they become due; and (ii) such Person is
"solvent" within the meaning given that term and similar terms under applicable
laws relating to fraudulent transfers and conveyances. For purposes of this
definition, the amount of any contingent liability at any time shall be computed
as the amount that, in light of all of the facts and circumstances existing at
such time, represents the amount that can reasonably be expected to become an
actual or matured liability.
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"STAGE 1" shall mean the period from the Closing Date to December 31,
2002.
"STAGE 2" shall mean the period from January 1, 2003 to the later of
(i) the Revolving Loan Maturity Date and (ii) any New Term Loan Maturity Date.
"SUBORDINATED INDEBTEDNESS" means Indebtedness outstanding under (A)
the Existing Indentures and (B) Indebtedness incurred by Company (i) which is
unsecured, (ii) which is structurally subordinated to the payment in full in
cash of all Obligations, (iii) which shall not mature or amortize until at least
six months beyond the Revolving Loan Maturity Date, or if later any New Term
Loan Maturity Date, if any and (iv) the provisions of the definitive
documentation of which (A) shall not contain covenants more restrictive than
those contained herein, (B) shall not provide for any mandatory prepayments or
redemptions at any time when similar payments are not required hereunder and (C)
shall otherwise be reasonably satisfactory to Administrative Agent.
"SUBSIDIARY" means, with respect to any Person, any corporation,
partnership, limited liability company, association, joint venture or other
business entity of which more than 50% of the total voting power of shares of
stock or other ownership interests entitled (without regard to the occurrence of
any contingency) to vote in the election of the Person or Persons (whether
directors, managers, trustees or other Persons performing similar functions)
having the power to direct or cause the direction of the management and policies
thereof is at the time owned or controlled, directly or indirectly, by that
Person or one or more of the other Subsidiaries of that Person or a combination
thereof, and which is also a "Restricted Subsidiary" as defined in the Existing
Indentures; provided that in determining the percentage of ownership interests
of any Person controlled by another Person, no ownership interest in the nature
of a "qualifying share" of the former Person shall be deemed to be outstanding.
Unless otherwise expressly provided, an "Unrestricted Subsidiary" shall not be
considered a Subsidiary for the purposes of this Agreement.
"SUPPLEMENTAL COLLATERAL AGENT" as defined in Section 9.8(c).
"SYNDICATION AGENT" as defined in the preamble hereto.
"SYSTEMS" means any of the hardware, firmware or software systems
associated with information processing and delivery, operations or services
(e.g., security and alarms, elevators, communications, and HVAC) operated by,
provided to or otherwise reasonably necessary to the business or operations of
Company and its Subsidiaries.
"TAX" means any present or future tax, levy, impost, duty, charge, fee,
deduction or withholding of any nature and whatever called, by whomsoever, on
whomsoever and wherever imposed, levied, collected, withheld or assessed;
provided that "Tax on the overall net income" of a Person shall be construed as
a reference to a tax imposed by the jurisdiction in which that Person is
organized or in which that Person's principal office (and/or, in the case of a
Lender, its lending office) is located or in which that Person (and/or, in the
case of a Lender, its lending office) is
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deemed to be doing business on all or part of the net income, profits or gains
(whether worldwide, or only insofar as such income, profits or gains are
considered to arise in or to relate to a particular jurisdiction, or otherwise)
of that Person (and/or, in the case of a Lender, its lending office).
"TD" means Toronto Dominion (Texas), Inc.
"TDSI" means TD Securities (USA) Inc.
"TERM LOANS" means Delayed Draw Term Loans and New Term Loans.
"TERMINATED LENDER" as defined in Section 2.21.
"TOTAL CAPITALIZATION" means the sum of (a) Consolidated Total Debt and
(b) paid-in-equity capital (including preferred stock but excluding additional
equity issued as pay-in-kind dividends on issued and outstanding equity
securities) and excluding any accumulated deficits resulting from operations,
less the amount of Investments made pursuant to Section 6.5(m).
"TOTAL LEVERAGE RATIO" means the ratio as of the last day of any Fiscal
Quarter of (a) Consolidated Total Debt to (b) Annualized Consolidated EBITDA; in
each case as set forth in the most recent Compliance Certificate delivered by
Company to Administrative Agent pursuant to Section 5.1(d).
"TOTAL UTILIZATION OF COMMITMENTS" means, as at any date of
determination, the sum of the aggregate principal amount of all outstanding
Loans.
"TOTAL UTILIZATION OF DELAYED DRAW TERM LOAN COMMITMENTS" means, as of
any date of determination, the sum of the aggregate outstanding principal amount
of all Delayed Draw Term Loans.
"TOTAL UTILIZATION OF REVOLVING LOAN COMMITMENTS" means, as of any date
of determination, the sum of the aggregate outstanding principal amount of all
Revolving Loans.
"TRANSACTION COSTS" means the fees, costs and expenses payable by
Borrower on or before the Closing Date in connection with the transactions
contemplated by the Credit Documents.
"TYPE OF LOAN" means a Base Rate Loan or a Eurodollar Rate Loan.
"UNRESTRICTED SUBSIDIARY" means (i) each Subsidiary (with such term
defined for purposes of this definition without giving effect to the last
sentence in the definition of such term) of Company that shall be designated an
"Unrestricted Subsidiary" pursuant to and in compliance with Section 6.17, (ii)
each Foreign Subsidiary and (iii) each Subsidiary of an Unrestricted Subsidiary.
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"UCC" means the Uniform Commercial Code (or any similar or equivalent
legislation) as in effect in any applicable jurisdiction.
"YEAR 2000 ISSUES" means limitations in the capacity or readiness to
handle date information for the Year 1999 or years beginning January 1, 2000 of
any of the Systems.
1.2. Accounting Terms. Except as otherwise expressly provided herein,
all accounting terms not otherwise defined herein shall have the meanings
assigned to them in conformity with GAAP. Financial statements and other
information required to be delivered by Borrower to Lenders pursuant to Sections
5.1(a), 5.1(b) and 5.1(c) shall be prepared in accordance with GAAP as in effect
at the time of such preparation (and delivered together with the reconciliation
statements provided for in Section 5.1(e), if applicable). Subject to the
foregoing, calculations in connection with the definitions, covenants and other
provisions hereof shall utilize accounting principles and policies in conformity
with those used to prepare the Historical Financial Statements.
1.3. Interpretation, etc. Any of the terms defined herein may, unless
the context otherwise requires, be used in the singular or the plural, depending
on the reference. References herein to any Section, Appendix, Schedule or
Exhibit shall be to a Section, an Appendix, a Schedule or an Exhibit, as the
case may be, hereof unless otherwise specifically provided. The use herein of
the word "include" or "including," when following any general statement, term or
matter, shall not be construed to limit such statement, term or matter to the
specific items or matters set forth immediately following such word or to
similar items or matters, whether or not nonlimiting language (such as "without
limitation" or "but not limited to" or words of similar import) is used with
reference thereto, but rather shall be deemed to refer to all other items or
matters that fall within the broadest possible scope of such general statement,
term or matter.
SECTION 2. AMOUNTS AND TERMS OF COMMITMENTS AND LOANS
2.1. Loans
(1) Loans.
(1) Revolving Loans. During the Revolving Loan Commitment Period,
subject to the terms and conditions hereof, each Lender severally
agrees to make Revolving Loans to Borrower in the aggregate amount up
to but not exceeding such Lender's Revolving Loan Commitment as of the
Closing Date; provided that after giving effect to the making of any
Revolving Loans in no event shall the Total Utilization of Revolving
Loan Commitments exceed the Revolving Loan Commitments then in effect.
Amounts borrowed pursuant to this Section 2.1(a)(i) may be repaid and
reborrowed during the Revolving Loan Commitment Period. Each Lender's
Revolving Loan Commitment shall expire on the Revolving Loan Commitment
Termination Date and all Revolving Loans and all other amounts owed
hereunder with respect to the Revolving Loans and the Revolving Loan
Commitments shall be paid in full no later than such date.
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(2) Delayed Draw Term Loans. During the Delayed Draw Term Loan
Commitment Period, subject to the terms and conditions hereof, each
Lender severally agrees to make Delayed Draw Term Loans to Borrower in
the aggregate amount up to but not exceeding such Lender's Delayed Draw
Term Loan Commitment. Borrower may make one or more drawings on the
Delayed Draw Term Loan Commitments during the Delayed Draw Term Loan
Commitment Period. Any amounts borrowed under this Section 2.1(a)(ii)
and subsequently repaid or prepaid may not be reborrowed. Subject to
Sections 2.10 and 2.11, all amounts owed hereunder with respect to the
Delayed Draw Term Loans shall be paid in full no later than the Delayed
Draw Term Loan Maturity Date. Each Lender's Delayed Draw Term Loan
Commitment shall terminate immediately and without further action upon
the full funding of such Lender's Delayed Draw Term Loan Commitment.
(3) Incremental Facilities. Borrower may by written notice to
Sole Lead Arranger elect to request (A) an increase to the existing
Revolving Loan Commitments (any such increase, the "NEW REVOLVING LOAN
COMMITMENTS"), (B) an increase to the existing Delayed Draw Term Loan
Commitments ("NEW DELAYED DRAW TERM LOAN COMMITMENTS") and/or (C) the
establishment of one or more new term loan commitments (the "NEW TERM
LOAN COMMITMENTS"), by an amount not in excess of $200,000,000 in the
aggregate and not less than $25,000,000 individually (or such lesser
amount which shall be approved by Administrative Agent and Syndication
Agent or such lesser amount that shall constitute the difference
between $200,000,000 and all such New Revolving Loan Commitments, New
Delayed Draw Term Loan Commitments and New Term Loan Commitments), and
integral multiples of $5,000,000 in excess of that amount, provided,
however, that on and after January 1, 2004, Borrower may only elect the
establishment of one or more New Term Loan Commitments. Each such
notice shall specify (A) the date (each, an "INCREASED AMOUNT DATE") on
which Borrower proposes that the New Revolving Loan Commitments, New
Delayed Draw Term Loan Commitments or the New Term Loan Commitments, as
applicable, shall be effective and that Loans be made pursuant to the
New Term Loan Commitments ("NEW TERM LOANS"), which shall be a date not
less than 10 Business Days after the date on which such notice is
delivered to Administrative Agent and (B) the identity of each Lender
or other Person (each, a "NEW REVOLVING LOAN LENDER", "NEW DELAYED DRAW
TERM LOAN LENDER" or a "NEW TERM LOAN LENDER", as applicable) to whom
Borrower proposes any portion of such New Revolving Loan Commitments,
New Delayed Draw Term Loan Commitments or New Term Loan Commitments, as
applicable, be allocated and the amounts of such allocations; provided
that any Lender approached to provide all or a portion of the New
Revolving Loan Commitments, New Delayed Draw Term Loan Commitments or
New Term Loan Commitments may elect or decline, in its sole discretion,
to provide a New Revolving Loan Commitment, New Delayed Draw Term Loan
Commitment or a New Term Loan Commitment. Such New Revolving Loan
Commitments, New Delayed Draw Term Loan Commitments or New Term Loan
Commitments shall become effective and any such Series of New Term
Loans shall be made, as applicable, as of such Increased Amount Date;
provided that (1) no Default or Event of Default shall exist on such
Increased Amount Date before or after giving effect to such New
Revolving Loan
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Commitments, New Delayed Draw Term Loan Commitments or New Term Loan
Commitments, as applicable; (2) both before and after giving effect to
the making of any Series of New Term Loans each of the conditions set
forth in Section 3.2 shall be satisfied; (3) each increase in the
Revolving Loan Commitments, Delayed Draw Term Loan Commitments or New
Term Loan Commitments, as applicable, shall be effected pursuant to one
or more Joinder Agreements executed and delivered to Administrative
Agent, and each shall be recorded in the Register, each of which shall
be subject to the requirements set forth in Section 2.18(c); (4)
Borrower shall make any payments required pursuant to Section 2.16(c)
in connection with the New Revolving Loan Commitments or New Delayed
Draw Term Loan Commitments, as applicable, and (5) Borrower shall
deliver or cause to be delivered any legal opinions or other documents
reasonably requested by Administrative Agent in connection with any
such transaction. Any New Term Loans made may be, at the Borrower's
option, a separate series ("SERIES") of New Term Loans for all purposes
of this Agreement.
On any Increased Amount Date on which New Revolving Loan
Commitments are effected, subject to the satisfaction of the foregoing
terms and conditions, (a) each of the Revolving Lenders shall assign to
each of the New Revolving Loan Lenders, and each of the New Revolving
Loan Lenders shall purchase from each of the Revolving Loan Lenders, at
the principal amount thereof (together with accrued interest), such
interests in the Revolving Loans outstanding on such Increased Amount
Date as shall be necessary in order that, after giving effect to all
such assignments and purchases, such Revolving Loans will be held by
existing Revolving Loan Lenders and New Revolving Loan Lenders ratably
in accordance with their Revolving Loan Commitments after giving effect
to the addition of such New Revolving Loan Commitments to the Revolving
Loan Commitments, (b) each New Revolving Loan Commitment shall be
deemed for all purposes a Revolving Loan Commitment and each Loan made
thereunder (a "NEW REVOLVING LOAN") shall be deemed, for all purposes,
a Revolving Loan and (c) each New Revolving Loan Lender shall become a
Lender with respect to the New Revolving Loan Commitment and all
matters relating thereto.
On any Increased Amount Date on which New Delayed Draw Term
Loan Commitments are effected, subject to the satisfaction of the
foregoing terms and conditions, (a) each of the Delayed Draw Term Loan
Lenders shall assign to each of the New Delayed Draw Term Loan Lenders,
and each of the New Delayed Draw Term Loan Lenders shall purchase from
each of the Delayed Draw Term Loan Lenders, at the principal amount
thereof (together with accrued interest), such interests in the Delayed
Draw Term Loan outstanding on such Increased Amount Date as shall be
necessary in order that, after giving effect to all such assignments
and purchases, such Delayed Draw Term Loan will be held by existing
Delayed Draw Term Loan Lenders and New Delayed Draw Term Loan Lenders
ratably in accordance with their Delayed Draw Term Loan Commitments
after giving effect to the addition of such New Delayed Draw Term Loan
Commitments to the Delayed Draw Term Loan Commitments, (b) each New
Delayed Draw Term Loan Commitment shall be deemed
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for all purposes a Delayed Draw Term Loan Commitment and each Loan made
thereunder (a "NEW DELAYED DRAW TERM LOAN") shall be deemed, for all
purposes, a Delayed Draw Term Loan and (c) each New Delayed Draw Term
Loan Lender shall become a Lender with respect to the New Delayed Draw
Term Loan Commitment and all matters relating thereto.
On any Increased Amount Date on which any New Term Loan
Commitments of any Series are effective, subject to the satisfaction of
the foregoing terms and conditions, (i) each New Term Loan Lender of
any Series shall make a New Term Loan to Borrower in an amount equal to
its New Term Loan Commitment of such Series, and (ii) each New Term
Loan Lender of any Series shall become a Lender hereunder with respect
to the New Term Loan Commitment of such Series and the New Term Loans
of such Series made pursuant thereto.
The Administrative Agent shall notify the Lenders promptly
upon receipt of Borrower's notice of each Increased Amount Date and in
respect thereof the New Revolving Loan Commitments and the New
Revolving Loan Lenders, the New Delayed Draw Term Loan Commitments and
the New Delayed Draw Term Loan Lenders or the Series of New Term Loan
Commitments and the New Term Loan Lenders of such Series, as
applicable, and, in the case of each notice to any Revolving Loan
Lender, the respective interests in such Revolving Loan Lender's
Revolving Loans subject to the assignments contemplated by this
section.
The terms and provisions of the New Term Loans of any Series
and New Term Loan Commitments of any Series shall be, except as
otherwise set forth herein or in the Joinder Agreement, identical to
the Revolving Loans in the case of New Revolving Loans, and identical
to Delayed Draw Term Loans in the case of Term Loans and in any event
(i) the weighted average life to maturity of all New Term Loans of any
Series, shall be no shorter than the weighted average life to maturity
of the Revolving Loans or the Term Loans (ii) the final maturity of all
New Term Loans of any Series shall be no longer than six months prior
to the maturity of any Subordinated Indebtedness and (iii) the rate of
interest applicable to New Term Loans of any Series shall be determined
by Borrower and applicable new Lenders and shall be set forth in each
applicable Joinder Agreement; provided however that in the case of New
Term Loans the Applicable Margin shall not be greater than the
Applicable Margin to the Delayed Draw Term Loans. Each Joinder
Agreement may, without the consent of any other Lenders, effect such
amendments to this Agreement and the other Credit Documents as may be
necessary or appropriate, in the opinion of the Syndication Agent and
the Administrative Agent, to effect the provision of this Section
2.1(a)(iii).
(2) Borrowing Mechanics for Loans.
(1) Loans (other than New Term Loans) shall be made in a minimum
amount of $5,000,000 and integral multiples of $1,000,000 in excess
thereof.
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(2) Whenever Borrower desires that Lenders make Loans, Borrower
shall deliver to Administrative Agent telephonic notice, followed by a
fully executed and delivered Funding Notice no later than 10:00 a.m.
(New York City time) at least three Business Days in advance of the
proposed Credit Date in the case of a Eurodollar Rate Loan, and at
least one Business Day in advance of the proposed Credit Date in the
case of a Loan that is a Base Rate Loan. Except as otherwise provided
herein, a Funding Notice for a Loan that is a Eurodollar Rate Loan
shall be irrevocable on and after the related Interest Rate
Determination Date, and Borrower shall be bound to make a borrowing in
accordance therewith.
(3) Notice of receipt of each Funding Notice in respect of Loans,
together with the amount of each Lender's Pro Rata Share thereof, if
any, together with the applicable interest rate, shall be provided by
Administrative Agent to each applicable Lender by telefacsimile with
reasonable promptness, but not later than 2:00 p.m. (New York City
time) on the same day as Administrative Agent's receipt of such Notice
from Borrower.
(4) Each Lender shall make the amount of its Loan available to
Administrative Agent not later than 12:00 Noon (New York City time) on
the applicable Credit Date by wire transfer of same day funds in
Dollars, at the Administrative Agent's Principal Office. Except as
provided herein, upon satisfaction or waiver of the conditions
precedent specified herein, Administrative Agent shall make the
proceeds of such Loans available to Borrower on the applicable Credit
Date by causing an amount of same day funds in Dollars equal to the
proceeds of all such Loans received by Administrative Agent from
Lenders to be credited to the account of Borrower at the Administrative
Agent's Principal Office or such other account as may be designated in
writing to Administrative Agent by Borrower.
2.2. Pro Rata Shares; Availability of Funds. (a) All Loans shall be
made by Lenders simultaneously and proportionately to their respective Pro Rata
Shares, it being understood that no Lender shall be responsible for any default
by any other Lender in such other Lender's obligation to make a Loan requested
hereunder nor shall the Commitment of any Lender be increased or decreased as a
result of a default by any other Lender in such other Lender's obligation to
make a Loan requested hereunder.
(1) Unless Administrative Agent shall have been notified by any Lender
prior to the applicable Credit Date that such Lender does not intend to make
available to Administrative Agent the amount of such Lender's Loan requested on
such Credit Date, Administrative Agent may assume that such Lender has made such
amount available to Administrative Agent on such Credit Date and Administrative
Agent may, in its sole discretion, but shall not be obligated to, make available
to Borrower corresponding amount on such Credit Date. If such corresponding
amount is not in fact made available to Administrative Agent by such Lender,
Administrative Agent shall be entitled to recover such corresponding amount on
demand from such Lender together with interest thereon, for each day from such
Credit Date until the date such amount is paid to Administrative Agent, at the
customary rate set by Administrative Agent for the correction of errors among
banks for three Business Days and thereafter at the Base Rate. If such Lender
does not pay such corresponding
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amount forthwith upon Administrative Agent's demand therefor, Administrative
Agent shall promptly notify Borrower and Borrower shall immediately pay such
corresponding amount to Administrative Agent together with interest thereon, for
each day from such Credit Date until the date such amount is paid to
Administrative Agent, at the rate payable hereunder for Base Rate Loans for such
Type of Loans. Nothing in this Section 2.2(b) shall be deemed to relieve any
Lender from its obligation to fulfill its Commitments hereunder or to prejudice
any rights that Borrower may have against any Lender as a result of any default
by such Lender hereunder.
2.3. Use of Proceeds. The proceeds of the Loans shall be used by
Borrower and its Subsidiaries to provide (y) general corporate purposes
including working capital financing in an amount outstanding hereunder not to
exceed $100,000,000 and (z) purchase money financing for the cost of design,
development, acquisition, construction, installation, improvement,
transportation or integration of equipment, inventory, and network assets. No
portion of the proceeds of any Loan shall be used by Borrower or any of its
Subsidiaries in any manner that might cause such Loan or the application of such
proceeds to violate Regulation T, Regulation U or Regulation X of the Board of
Governors of the Federal Reserve System or any other regulation thereof or to
violate the Exchange Act, in each case as in effect on the date or dates of such
Loan and such use of proceeds.
2.4. Evidence of Debt; Register; Lenders' Books and Records; Notes. (a)
Each Lender shall maintain on its internal records an account or accounts with
respect to the Loans to Borrower by such Lender, including the amounts of the
Loans made by it and each repayment and prepayment in respect thereof. Any such
recordation shall be conclusive and binding on Borrower, absent manifest error;
provided that failure to make any such recordation, or any error in such
recordation, shall not affect any Lender's Commitments or Borrower's Obligations
in respect of any applicable Loans; and provided further that in the event of
any inconsistency between the Register and any Lender's records, the
recordations in the Register shall govern.
(1) Administrative Agent shall maintain at its Principal Office a
register for the recordation of the names and addresses of Lenders and the
Commitments and Loans of each Lender from time to time (the "REGISTER"). The
Register shall be available for inspection by Borrower or any Lender at any
reasonable time and from time to time upon reasonable prior notice.
Administrative Agent shall record in the Register the Commitments and the Loans,
and each repayment or prepayment in respect of the principal amount of the
Loans, and any such recordation shall be conclusive and binding on Borrower and
each Lender, absent manifest error; provided that failure to make any such
recordation, or any error in such recordation, shall not affect any Lender's
Commitments or Borrower's Obligations in respect of any Loan. Borrower hereby
designates TD to serve as Borrower's agent solely for purposes of maintaining
the Register as provided in this Section 2.4, and Borrower hereby agrees that,
to the extent TD serves in such capacity, TD and its officers, directors,
employees, agents and affiliates shall constitute "INDEMNITEES".
(b) If so requested by any Lender by written notice to Borrower (with a
copy to Administrative Agent) at least two Business Days prior to the Closing
Date, or at any time thereafter, Borrower shall execute and deliver to such
Lender (and/or, if applicable and if so specified in such
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notice, to any Person who is an assignee of such Lender pursuant to Section
10.6) on the Closing Date (or, if such notice is delivered after the Closing
Date, promptly after Borrower's receipt of such notice) a Note or Notes to
evidence such Lender's Loans.
2.5. Interest Payments. (a) Except as otherwise set forth herein, each
Loan shall bear interest on the unpaid principal amount thereof from the date
made through repayment (whether by acceleration or otherwise) as follows:
(1) if a Base Rate Loan, at the Base Rate plus the Applicable
Margin; or
(2) if a Eurodollar Rate Loan, at the Adjusted Eurodollar Rate
plus the Applicable Margin.
(2) The basis for determining the rate of interest with respect to any
Loan and the Interest Period with respect to any Eurodollar Rate Loan, shall be
selected by Borrower and notified to Administrative Agent and Lenders pursuant
to the applicable Funding Notice or Conversion/Continuation Notice, as the case
may be. If on any day a Loan is outstanding with respect to which a Funding
Notice or Conversion/Continuation Notice has not been delivered to
Administrative Agent in accordance with the terms hereof specifying the
applicable basis for determining the rate of interest, then for that day such
Loan shall be a Base Rate Loan.
(3) In connection with Eurodollar Rate Loans there shall be no more
than twelve (12) Interest Periods outstanding at any time; provided that such
number may be increased to fifteen (15) at the request of Borrower in connection
with New Term Loans. In the event Borrower fails to specify an Interest Period
for any Eurodollar Rate Loan in the applicable Funding Notice or
Conversion/Continuation Notice, Borrower shall be deemed to have selected an
Interest Period of one month. A soon as practicable after 10:00 A.M. (New York
City time) on each Interest Rate Determination Date, Administrative Agent shall
determine (which determination shall, absent manifest error, be final,
conclusive and binding upon all parties) the interest rate that shall apply to
the Eurodollar Rate Loans for which an interest rate is then being determined
for the applicable Interest Period and shall promptly give notice thereof (in
writing or by telephone confirmed in writing) to Borrower and each Lender.
(4) Interest payable pursuant to Section 2.5(a) shall be computed (i)
in the case of Base Rate Loans on the basis of a 365-day or 366-day year, as the
case may be, and (ii) in the case of Eurodollar Rate Loans, on the basis of a
360-day year, in each case for the actual number of days elapsed in the period
during which it accrues. In computing interest on any Loan, the date of the
making of such Loan or the first day of an Interest Period applicable to such
Loan or, with respect to a Base Rate Loan being converted from a Eurodollar Rate
Loan, the date of conversion of such Eurodollar Rate Loan to such Base Rate
Loan, as the case may be, shall be included, and the date of payment of such
Loan or the expiration date of an Interest Period applicable to such Loan or,
with respect to a Base Rate Loan being converted to a Eurodollar Rate Loan, the
date of conversion of such Base Rate Loan to such Eurodollar Rate Loan, as the
case may be, shall be excluded; provided
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that if a Loan is repaid on the same day on which it is made, one day's interest
shall be paid on that Loan.
(5) Except as otherwise set forth herein, interest on each Loan shall
be payable in arrears on and to (i) each Interest Payment Date applicable to
that Loan; (ii) any prepayment of that Loan, whether voluntary or mandatory, to
the extent accrued on the amount being prepaid; and (iii) at maturity, including
final maturity.
2.6. Conversion/Continuation. (a) So long as no Default or Event of
Default shall have occurred and then be continuing, Borrower shall have the
option:
(1) to convert at any time all or any part of any Loan equal to
$5,000,000 and integral multiples of $1,000,000 in excess of that
amount from one Type of Loan to another Type of Loan; provided that a
Eurodollar Rate Loan may only be converted into a Base Rate Loan on the
expiration of the Interest Period applicable to such Eurodollar Rate
Loan unless Borrower shall pay all amounts due under Section 2.16 in
connection with any such conversion; or
(2) upon the expiration of any Interest Period applicable to any
Eurodollar Rate Loan, to continue all or any portion of such Loan equal
to $5,000,000 and integral multiples of $1,000,000 in excess of that
amount as a Eurodollar Rate Loan.
(2) The Borrower shall deliver a Conversion/Continuation Notice to
Administrative Agent no later than 10:00 A.M. (New York City time) at least one
Business Day in advance of the proposed conversion date (in the case of a
conversion to a Base Rate Loan) and at least three Business Days in advance of
the proposed conversion/continuation date (in the case of a conversion to, or a
continuation of, a Eurodollar Rate Loan). Except as otherwise provided herein, a
Conversion/Continuation Notice for conversion to, or continuation of, any
Eurodollar Rate Loans (or telephonic notice in lieu thereof) shall be
irrevocable on and after the related Interest Rate Determination Date, and
Borrower shall be bound to effect a conversion or continuation in accordance
therewith.
2.7. Default Interest. Upon the occurrence and during the continuance
of an Event of Default of the type specified in Section 8.1(a), the principal
amount of all Loans, and, to the extent permitted by applicable law, any
interest payments on the Loans or any fees or other amounts owed hereunder not
paid when due, in each case whether at stated maturity, by notice of prepayment,
by acceleration or otherwise, shall thereafter bear interest (including
post-petition interest in any proceeding under the Bankruptcy Code or other
applicable bankruptcy laws) payable on demand at a rate that is 2% per annum in
excess of the interest rate otherwise payable hereunder with respect to the
applicable Loans (or, in the case of any such fees and other amounts, at a rate
which is 2% per annum in excess of the interest rate otherwise payable hereunder
for Base Rate Loans); provided that in the case of Eurodollar Rate Loans, upon
the expiration of the Interest Period in effect at the time any such increase in
interest rate is effective such Eurodollar Rate Loans shall thereupon become
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Base Rate Loans and shall thereafter bear interest payable upon demand at a rate
which is 2% per annum in excess of the interest rate otherwise payable hereunder
for Base Rate Loans. Payment or acceptance of the increased rates of interest
provided for in this Section 2.7 is not a permitted alternative to timely
payment and shall not constitute a waiver of any Event of Default or otherwise
prejudice or limit any rights or remedies of Administrative Agent or any Lender.
2.8. Fees. (a) Borrower agrees to pay to Lenders having Revolving Loan
Exposure and/or Delayed Draw Term Loan Exposure through Administrative Agent a
commitment fee equal to the average daily unused Commitments of such Lender
during the preceding quarter multiplied by the Applicable Commitment Fee
Percentage. All fees referred to in this Section 2.8(a) shall be paid to
Administrative Agent at its Principal Office and upon receipt, Administrative
Agent shall promptly distribute to each Lender its Pro Rata Share thereof.
(1) All fees referred to in Section 2.8(a) shall be calculated on the
basis of a 360-day year and the actual number of days elapsed and shall be
payable (i) quarterly in arrears on March 31, June 30, September 30 and December
31 of each year commencing on the first such date to occur after the Closing
Date, (ii) on the Delayed Draw Term Loan Commitment Termination Date and (iii)
on the Revolving Loan Commitment Termination Date.
(2) In addition to the foregoing fees, Borrower agrees to pay to Agents
such other fees in the amounts and at the times separately agreed upon by
Borrower and such Agents thereby.
(3) In addition, Borrower agrees to pay such commitment and other fees
as may be payable in connection with New Term Loans as set forth in the
applicable Joinder Agreement or otherwise agreed to in writing by Borrower.
2.9. Scheduled Payments/Reductions.
(1) The total Revolving Loan Commitments hereunder shall be permanently
reduced in the aggregate annual percentages set forth below in consecutive
quarterly installments (each, a "REDUCTION") on March 31, June 30, September 30
and December 31 of each year (each, a "REDUCTION DATE") occurring in each of the
Fiscal Years set forth below, commencing March 31, 2004, with 25% of each annual
amount being applied in reducing the Revolving Loan Commitments in consecutive
quarterly installments (each, a "REVOLVING LOAN INSTALLMENT") on the last day of
each Fiscal Quarter (each, an "INSTALLMENT DATE"):
<TABLE>
<CAPTION>
REVOLVING LOAN
FISCAL YEAR COMMITMENT REDUCTIONS
<S> <C>
2004 20%
2005 30%
2006 50%
</TABLE>
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<PAGE> 48
Notwithstanding the foregoing, such Reductions shall be reduced in connection
with any voluntary or mandatory reductions of the Revolving Loan Commitments in
accordance with Sections 2.10, 2.11 and 2.12.
(2) The principal amounts of the Delayed Draw Term Loans (other than
New Term Loans) shall be repaid in the aggregate annual percentages set forth
below in consecutive quarterly installments (each, a "DELAYED DRAW TERM LOAN
INSTALLMENT") on each Installment Date occurring in each of the Fiscal Years set
forth below, commencing March 31, 2004, with 25% of each annual amount being
paid on each Installment Date:
<TABLE>
<CAPTION>
DELAYED DRAW TERM LOAN
FISCAL YEAR INSTALLMENTS
<S> <C>
2004 20%
2005 30%
2006 50%
</TABLE>
Notwithstanding anything to the contrary set forth above the scheduled repayment
and reduction provisions with respect to New Term Loans shall be set forth in
each applicable Joinder Agreement.
Further notwithstanding the foregoing, (i) such Delayed Draw Term Loan
Installments shall be reduced in connection with any voluntary or mandatory
reduction or prepayments of the Delayed Draw Term Loan Commitments and/or the
Delayed Draw Term Loans in accordance with Section 2.10, 2.11 and 2.12 and (ii)
the Delayed Draw Term Loans, together with all other amounts owed hereunder with
respect thereto, shall be paid in full no later than the Delayed Draw Term Loan
Maturity Date.
(3) Provisions with respect to scheduled repayments of New Term Loans
shall be as set forth in each applicable Joinder Agreement.
2.10. Voluntary Prepayments/Reductions.
(1) Prepayments.
(1) Any time and from time to time Borrower may prepay any Loans
on any Business Day in whole or in part without premium (but subject to
Section 2.16) in any
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aggregate minimum amount of $5,000,000 and integral multiples of $1,000,000 in
excess of that amount.
(2) All such prepayments shall be made:
(1) upon not less than one Business Day's prior written
or telephonic notice, in the case of Base Rate Loans
and
(2) upon not less than three Business Days' prior written
or telephonic notice, in the case of Eurodollar Rate
Loans;
in each case given to Administrative Agent by 12:00 noon (New York City
time) on the date required and, if given by telephone, promptly
confirmed in writing to Administrative Agent (and Administrative Agent
will promptly transmit such telephonic or original notice by
telefacsimile or telephone to each Lender). Upon the giving of any such
notice, the principal amount of the Loans specified in such notice
shall become due and payable on the prepayment date specified therein.
Any such prepayment made pursuant to this Section 2.10(a) shall not
reduce the Revolving Loan Commitments unless Borrower has so requested
in accordance with Section 2.10(b).
(2) Reductions.
(1) Borrower may, upon not less than three Business Days' prior
written or telephonic notice confirmed in writing to Administrative
Agent (which original written or telephonic notice Administrative Agent
will promptly transmit by telefacsimile or telephone to each applicable
Lender), at any time and from time to time terminate in whole or
permanently reduce in part, without premium or penalty, the Revolving
Loan Commitments in an amount up to the amount by which the Revolving
Loan Commitments exceed the Total Utilization of Revolving Loan
Commitments at the time of such proposed termination or reduction plus
the amount that the Revolving Loans are prepaid pursuant to clause (a)
above; provided that any such partial reduction of the Revolving Loan
Commitments shall be in an aggregate minimum amount of $5,000,000 and
integral multiples of $1,000,000 in excess of that amount; provided
further that in the event that Borrower fails to specify otherwise any
such termination or permanent reduction shall be applied against the
scheduled Reductions set forth in Section 2.9 on a pro rata basis (in
accordance with the outstanding Revolving Loan Commitments at such
time).
(2) Borrower may, upon not less than three Business Days' prior
written or telephonic notice confirmed in writing to Administrative
Agent (which original written or telephonic notice Administrative Agent
will promptly transmit by telefacsimile or telephone to each applicable
Lender), at any time and from time to time terminate in whole or
permanently reduce in part, without premium or penalty, the Delayed
Draw Term Loan Commitments in an amount up to the amount by which the
Delayed Draw Term Loan
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Commitments exceed the Total Utilization of Delayed Draw Term Loan
Commitments at the time of such proposed termination or reduction;
provided, any such partial reduction of the Delayed Draw Term Loan
Commitments shall be in an aggregate minimum amount of $5,000,000 and
integral multiples of $1,000,000 in excess of that amount.
(3) Borrower's notice to Administrative Agent shall designate the
date (which shall be a Business Day) of such termination or reduction
and the amount of any partial reduction, and such termination or
reduction of the Revolving Loan Commitments and/or Delayed Draw Term
Loan Commitments, as applicable, shall be effective on the date
specified in Borrower's notice and shall reduce the Revolving Loan
Commitment and/or Delayed Draw Term Loan Commitment, as applicable of
each Lender proportionately to its Pro Rata Share thereof.
2.11. Mandatory Prepayments/Reductions. (a) Asset Sales. If, within the
period of two hundred seventy (270) days after the receipt by Borrower or any of
its Subsidiaries of Net Asset Sales Proceeds, Company has not invested such Net
Asset Sale Proceeds in the business of Borrower and its Subsidiaries, as
certified to Administrative Agent by Company, then, to the extent Borrower has
not previously done so, Company shall prepay Loans and the Commitments shall be
permanently reduced as set forth in Section 2.12, in either case in an amount
equal to the excess of such Net Asset Sale Proceeds over amounts invested as
aforesaid. Pending a determination whether any Net Asset Sale Proceeds will be
applied to prepay Loans and/or reduce Commitments pursuant to the preceding
sentence, such Net Asset Sale Proceeds shall be applied to prepay outstanding
Revolving Loans (without a reduction in the Revolving Loan Commitments).
(1) Insurance/Condemnation Proceeds. No later than the third Business
Day following the date of receipt by Company or any of its Subsidiaries, or
Administrative Agent as loss payee, of any Net Insurance/Condemnation Proceeds,
Borrower shall prepay the Loans and the Commitments shall be permanently reduced
as set forth in Section 2.12 in an aggregate amount equal to such Net
Insurance/Condemnation Proceeds; provided that so long as no Default or Event of
Default shall have occurred and be continuing, Company shall have the option,
through one or more of its Subsidiaries, to invest such Net
Insurance/Condemnation Proceeds within two hundred seventy (270) days of receipt
thereof in long term productive assets of the general type used in the business
of Borrower and its Subsidiaries, which investment may include the repair,
restoration or replacement of the applicable assets of Company or its
Subsidiaries; provided further that pending any such investment all such Net
Insurance/Condemnation Proceeds, as the case may be, shall be applied to prepay
outstanding Revolving Loans (without a reduction in Revolving Loan Commitments).
(2) Consolidated Excess Cash Flow. In the event that there shall be
Consolidated Excess Cash Flow for any Fiscal Year (commencing with Fiscal Year
2004), Borrower shall, no later than ninety (90) days after the end of such
Fiscal Year, prepay the Loans and the Commitments shall be permanently reduced
as set forth in Section 2.12 in an aggregate amount equal to 50% of such
Consolidated Excess Cash Flow.
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(3) Commitment Amounts. Borrower shall from time to time prepay the
Revolving Loans to the extent necessary so that the Total Utilization of
Revolving Loan Commitments shall not at any time exceed the Revolving Loan
Commitments then in effect. Borrower shall also from time to time prepay the
Delayed Draw Term Loans to the extent necessary so that the Total Utilization of
Delayed Draw Term Loan Commitments shall not at any time exceed the Delayed Draw
Term Loan Commitments then in effect.
(4) Certain Additional Payments. Concurrently with any prepayment of
the Loans and/or reduction of the Commitments pursuant to Sections 2.11(a), 2.11
(b) and 2.11(c), Borrower shall deliver to Administrative Agent a certificate of
an Authorized Officer demonstrating the calculation of the amount of the
applicable net proceeds or Consolidated Excess Cash Flow, as the case may be. In
the event that Borrower shall subsequently determine that the actual amount
received exceeded the amount set forth in such certificate, Borrower shall
promptly make an additional prepayment of the Loans and the Commitments shall be
permanently reduced in an amount equal to such excess, and Borrower shall
concurrently therewith deliver to Administrative Agent a certificate of an
Authorized Officer demonstrating the derivation of such excess.
2.12. Application of Prepayments/Reductions.
(1) Application of Voluntary Prepayments by Type of Loans. Any
prepayment of any Loan pursuant to Section 2.10(a) shall be applied as specified
by Borrower in the applicable notice of prepayment; provided that in the event
Borrower fails to specify the Loans to which any such prepayment shall be
applied, such prepayment shall be applied as follows:
first, to repay outstanding Revolving Loans to the full extent
thereof;
second, to repay outstanding Delayed Draw Term Loans on a pro
rata basis to the full extent thereof and shall be further applied to
each scheduled Delayed Draw Term Loan Installment of principal of
Delayed Draw Term Loans on a pro rata basis; and
third, to prepay the New Term Loans if any, on a pro rata
basis to each scheduled installment of principal of the New Term Loans
(pro rata in the case of New Term Loans among each outstanding Series).
(2) Application of Mandatory Prepayments by Type of Loans. Any amount
required to be paid pursuant to Sections 2.11(a), (b) and (c) shall be applied
on a pro rata basis against Revolving Loans, Delayed Draw Term Loans and New
Term Loans (pro rata in the case of New Term Loans among each outstanding
Series), if any, and shall be further applied to reduce the Revolving Loan
Commitments by the amount allocable to Revolving Loans and to reduce the Delayed
Draw Term Loan Commitments by an amount, if any, equal to the excess of the
amount allocable to the Delayed Draw Term Loans over the amount of the Delayed
Draw Term Loans outstanding immediately prior to the making of any such
mandatory prepayment; provided that any such reduction of Revolving Loan
Commitments shall be applied against the scheduled Reductions
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set forth in Section 2.9 on a pro rata basis (in accordance with the outstanding
Revolving Loan Commitments of such time); provided that with respect to New Term
Loans, a lesser amount may be required to be prepaid or waived if set forth in
the applicable Joinder Agreement; provided that, any such amounts waived or not
used to prepay New Term Loans shall be used to further prepay, on a pro rata
basis, Revolving Loans and Delayed Draw Term Loans.
(3) Application of Prepayments of Loans to Base Rate Loans and
Eurodollar Rate Loans. Considering each Class of Loans being prepaid separately,
any prepayment thereof shall be applied first to Base Rate Loans to the full
extent thereof before application to Eurodollar Rate Loans, in each case in a
manner which minimizes the amount of any payments required to be made by
Borrower pursuant to Section 2.16(c).
2.13. Allocation of Certain Payments and Proceeds. If an Event of
Default shall have occurred and not otherwise be waived, and the maturity of the
Obligations shall have been accelerated pursuant to Section 8.1, all payments or
proceeds received by Agents hereunder in respect of any of the Obligations,
shall be applied by Agents in the following order:
first, amounts due to the Agents pursuant to Section 10.2;
second, amounts due to Lenders, if any, pursuant to Sections
2.16, 2.17 or 2.18, to be applied for the ratable benefit of Lenders
without distinction or preference as among them;
third, amounts due to Lenders pursuant to Sections 2.8 and 10.2,
to be applied for the ratable benefit of Lenders without distinction or
preference as among them;
fourth, amounts due to Agents pursuant to Section 2.8, to be
applied in accordance therewith;
fifth, payments of interest on Loans, without distinction or
preference as among them;
sixth, payments of principal on Loans, and all Obligations then
payable to any Lender Counterparty pursuant to a Hedge Agreement
permitted hereby, to be applied for the ratable benefit of Lenders and
such Lender Counterparties, without distinction or preference as among
them;
seventh, amounts due to Indemnitees pursuant to Section 10.3, to
be applied for the ratable benefit thereof;
eighth, payments of all other Obligations due under any of the
Credit Documents, if any, to be applied for the ratable benefit of
Lenders and Agents; and
ninth, any surplus remaining after application as provided for
herein, to Borrower or as otherwise may be required by applicable law.
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2.14. General Provisions Regarding Payments. (a) All payments by
Borrower of principal, interest, fees and other Obligations shall be made in
Dollars in same day funds, without defense, setoff or counterclaim, free of any
restriction or condition, and delivered to Administrative Agent not later than
12:00 Noon (New York City time) on the date due at the Administrative Agent's
Principal Office for the account of Lenders; funds received by Administrative
Agent after that time on such due date shall be deemed to have been paid by
Borrower on the next succeeding Business Day.
(1) All payments in respect of the principal amount of any Loan shall
include payment of accrued interest on the principal amount being repaid or
prepaid, and all such payments (and, in any event, any payments in respect of
any Loan on a date when interest is due and payable with respect to such Loan)
shall be applied to the payment of interest before application to principal.
(2) Administrative Agent shall promptly distribute to each Lender at
such address as such Lender shall indicate in writing, such Lender's applicable
Pro Rata Share, giving effect to any adjustments in Pro Rata Shares on and after
the Closing Date, of all payments and prepayments of principal and interest due
hereunder, together with all other amounts due thereto, including, without
limitation, all fees payable with respect thereto, to the extent received by
Administrative Agent.
(3) Notwithstanding the foregoing provisions hereof, if any
Conversion/Continuation Notice is withdrawn as to any Affected Lender or if any
Affected Lender makes Base Rate Loans in lieu of its Pro Rata Share of any
Eurodollar Rate Loans, Administrative Agent shall give effect thereto in
apportioning payments received thereafter.
(4) Subject to the provisos set forth in the definition of "INTEREST
PERIOD", whenever any payment to be made hereunder shall be stated to be due on
a day that is not a Business Day, such payment shall be made on the next
succeeding Business Day and such extension of time shall be included in the
computation of the payment of interest hereunder or of the Commitment fees
hereunder, as the case may be.
(5) Borrower hereby authorizes Administrative Agent to charge
Borrower's or Company's accounts with Administrative Agent in order to cause
timely payment to be made to Administrative Agent of all principal, interest,
fees and expenses due hereunder (subject to sufficient funds being available in
its accounts for that purpose).
(6) Administrative Agent shall deem any payment by or on behalf of
Borrower hereunder that is not made in same day funds prior to 12:00 noon (New
York City time) on or before the due date to be a non-conforming payment. Any
such payment shall not be deemed to have been received by Administrative Agent
until the later of (i) the time such funds become available funds, and (ii) the
applicable next Business Day. Administrative Agent shall give prompt telephonic
notice to Borrower and each applicable Lender (confirmed in writing) if any
payment is non-conforming. Any non-conforming payment may constitute or become a
Default or Event of Default in accordance with
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<PAGE> 54
the terms of Section 8.1(a). Interest shall continue to accrue on any principal
as to which a non-conforming payment is made until such funds become available
funds (but in no event less than the period from the date of such payment to the
next succeeding applicable Business Day) at the rate determined pursuant to
Section 2.7 from the date such amount was due and payable until the date such
amount is paid in full.
2.15. Ratable Sharing. Lenders hereby agree among themselves that if
any of them shall, whether by voluntary payment (other than a voluntary
prepayment of Loans made and applied in accordance with the terms hereof), by
realization upon security, through the exercise of any right of set-off or
banker's lien, by counterclaim or cross action or by the enforcement of any
right under the Credit Documents or otherwise, or as adequate protection of a
deposit treated as cash collateral under the Bankruptcy Code, receive payment or
reduction of a proportion of the aggregate amount of principal, interest, fees
and other amounts then due and owing to such Lender hereunder or under the other
Credit Documents (collectively, the "AGGREGATE AMOUNTS DUE" to such Lender)
which is greater than the proportion received by any other Lender in respect of
the Aggregate Amounts Due to such other Lender, then the Lender receiving such
proportionately greater payment shall (a) notify Administrative Agent and each
other Lender of the receipt of such payment and (b) apply a portion of such
payment to purchase participations (which it shall be deemed to have purchased
from each seller of a participation simultaneously upon the receipt by such
seller of its portion of such payment) in the Aggregate Amounts Due to the other
Lenders so that all such recoveries of Aggregate Amounts Due shall be shared by
all Lenders in proportion to the Aggregate Amounts Due to them; provided that,
if all or part of such proportionately greater payment received by such
purchasing Lender is thereafter recovered from such Lender upon the bankruptcy
or reorganization of Borrower or otherwise, those purchases shall be rescinded
and the purchase prices paid for such participations shall be returned to such
purchasing Lender ratably to the extent of such recovery, but without interest.
Borrower expressly consents to the foregoing arrangement and agrees that any
holder of a participation so purchased may exercise any and all rights of
banker's lien, set-off or counterclaim with respect to any and all monies owing
by Borrower to that holder with respect thereto as fully as if that holder were
owed the amount of the participation held by that holder.
2.16. Making or Maintaining Eurodollar Rate Loans. (a) In the event
that Administrative Agent shall have determined (which determination shall be
final and conclusive and binding upon all parties hereto), on any Interest Rate
Determination Date with respect to any Eurodollar Rate Loans, that by reason of
circumstances affecting the London interbank market adequate and fair means do
not exist for ascertaining the interest rate applicable to such Loans on the
basis provided for in the definition of Adjusted Eurodollar Rate, Administrative
Agent shall on such date give notice (by telefacsimile or by telephone confirmed
in writing) to Borrower and each Lender of such determination, whereupon (i) no
Loans may be made as, or converted to, Eurodollar Rate Loans until such time as
Administrative Agent notifies Borrower and Lenders that the circumstances giving
rise to such notice no longer exist, and (ii) any Funding Notice or
Conversion/Continuation Notice given by Borrower with respect to the Loans in
respect of which such determination was made shall be deemed to be rescinded by
Borrower.
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(1) In the event that on any date any Lender shall have determined
(which determination shall be final and conclusive and binding upon all parties
hereto but shall be made only after consultation with Borrower and
Administrative Agent) that the making, maintaining or continuation of its
Eurodollar Rate Loans (i) has become unlawful as a result of compliance by such
Lender in good faith with any law, treaty, governmental rule, regulation,
guideline or order (or would conflict with any such treaty, governmental rule,
regulation, guideline or order not having the force of law even though the
failure to comply therewith would not be unlawful), or (ii) has become
impracticable, as a result of contingencies occurring after the date hereof
which materially and adversely affect the London interbank market or the
position of such Lender in that market, then, and in any such event, such Lender
shall be an "AFFECTED LENDER" and it shall on that day give notice (by
telefacsimile or by telephone confirmed in writing) to Borrower and
Administrative Agent of such determination (which notice Administrative Agent
shall promptly transmit to each other Lender). Thereafter (1) the obligation of
the Affected Lender to make or to continue Loans as, or to convert Loans to,
Eurodollar Rate Loans shall be suspended until such notice shall be withdrawn by
the Affected Lender, (2) to the extent such determination by the Affected Lender
relates to a Eurodollar Rate Loan then being requested by Borrower pursuant to a
Funding Notice or a Conversion/Continuation Notice, the Affected Lender shall
make such Loan as (or convert such Loan to, as the case may be) a Base Rate
Loan, (3) the Affected Lender's obligation to maintain its outstanding
Eurodollar Rate Loans (the "AFFECTED LOANS") shall be terminated at the earlier
to occur of the expiration of the Interest Period then in effect with respect to
the Affected Loans or when required by law, and the Affected Loans shall
automatically convert into Base Rate Loans on the date of such termination.
Notwithstanding the foregoing, to the extent a determination by an Affected
Lender as described above relates to a Eurodollar Rate Loan then being requested
by Borrower pursuant to a Funding Notice or a Conversion/Continuation Notice,
Borrower shall have the option, subject to the provisions of Section 2.17(c), to
rescind such Funding Notice or Conversion/Continuation Notice as to all Lenders
by giving notice (by telefacsimile or by telephone confirmed in writing) to
Administrative Agent of such rescission on the date on which the Affected Lender
gives notice of its determination as described above (which notice of rescission
Administrative Agent shall promptly transmit to each other Lender). Except as
provided in the immediately preceding sentence, nothing in this Section 2.16(b)
shall affect the obligation of any Lender other than an Affected Lender to make
or maintain Loans as, or to convert Loans to, Eurodollar Rate Loans in
accordance with the terms hereof.
(2) Borrower shall compensate each Lender, upon written request by such
Lender (which request shall set forth the basis for requesting such amounts),
for all reasonable losses, expenses and liabilities (including any interest paid
by such Lender to lenders of funds borrowed by it to make or carry its
Eurodollar Rate Loans and any loss, expense or liability sustained by such
Lender in connection with the liquidation or re-employment of such funds but
excluding loss of anticipated profits) which such Lender may sustain: (i) if for
any reason (other than a default by such Lender) a borrowing of any Eurodollar
Rate Loan does not occur on a date specified therefor in a Funding Notice or a
telephonic request for borrowing, or a conversion to or continuation of any
Eurodollar Rate Loan does not occur on a date specified therefor in a
Conversion/Continuation Notice or a telephonic request for conversion or
continuation; (ii) if any prepayment or other principal payment
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or any conversion of any of its Eurodollar Rate Loans occurs on a date prior to
the last day of an Interest Period applicable to that Loan; (iii) if any
prepayment of any of its Eurodollar Rate Loans is not made on any date specified
in a notice of prepayment given by Borrower; or as a consequence of any other
default by Borrower in the repayment of its Eurodollar Rate Loans when required
by the terms hereof.
(3) Any Lender may make, carry or transfer Eurodollar Rate Loans at,
to, or for the account of any of its branch offices or the office of an
Affiliate of such Lender.
(4) Calculation of all amounts payable to a Lender under this Section
2.16 and under Section 2.17 shall be made as though such Lender had actually
funded each of its relevant Eurodollar Rate Loans through the purchase of a
Eurodollar deposit bearing interest at the rate obtained pursuant to clause (i)
of the definition of Adjusted Eurodollar Rate in an amount equal to the amount
of such Eurodollar Rate Loan and having a maturity comparable to the relevant
Interest Period and through the transfer of such Eurodollar deposit from an
offshore office of such Lender to a domestic office of such Lender in the United
States; provided that each Lender may fund each of its Eurodollar Rate Loans in
any manner it sees fit and the foregoing assumptions shall be utilized only for
the purposes of calculating amounts payable under this Section 2.16 and under
Section 2.17.
2.17. Increased Costs; Capital Adequacy.
(1) Subject to the provisions of Section 2.18 (which shall be
controlling with respect to the matters covered thereby), in the event that any
Lender shall determine (which determination shall, absent manifest error, be
final and conclusive and binding upon all parties hereto) that any law, treaty
or governmental rule, regulation or order, or any change therein or in the
interpretation, administration or application thereof (including the
introduction of any new law, treaty or governmental rule, regulation or order),
or any determination of a court or Governmental Authority, in each case that
becomes effective after the date hereof, or compliance by such Lender with any
guideline, request or directive issued or made after the date hereof by any
central bank or other governmental or quasi-governmental authority (whether or
not having the force of law): (i) subjects such Lender (or its applicable
lending office) to any additional Tax (other than any Tax on the overall net
income of such Lender) with respect to this Agreement or any of its obligations
hereunder or any payments to such Lender (or its applicable lending office) of
principal, interest, fees or any other amount payable hereunder; (ii) imposes,
modifies or holds applicable any reserve (including any marginal, emergency,
supplemental, special or other reserve), special deposit, compulsory loan, FDIC
insurance or similar requirement against assets held by, or deposits or other
liabilities in or for the account of, or advances or loans by, or other credit
extended by, or any other acquisition of funds by, any office of such Lender
(other than any such reserve or other requirements with respect to Eurodollar
Rate Loans that are reflected in the definition of Adjusted Eurodollar Rate); or
(iii) imposes any other condition (other than with respect to a Tax matter) on
or affecting such Lender (or its applicable lending office) or its obligations
hereunder or the London interbank market; and the result of any of the foregoing
is to increase the cost to such Lender of agreeing to make, making or
maintaining Loans hereunder or to reduce any amount received or receivable by
such Lender (or
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its applicable lending office) with respect thereto; then, in any such case,
Borrower shall pay to such Lender within 10 days upon receipt of the statement
referred to in the next sentence, such additional amount or amounts (in the form
of an increased rate of, or a different method of calculating, interest or
otherwise as such Lender in its sole discretion shall determine) as may be
necessary to compensate such Lender for any such increased cost or reduction in
amounts received or receivable hereunder; provided that Borrower shall not be
obligated to reimburse any Lender for such increase or reduction for any period
180 days prior to such Lender providing notice if such Lender was aware of the
circumstances that existed which would cause such increase or reduction during
such 180 day period. Such Lender shall deliver to Borrower (with a copy to
Administrative Agent) a written statement, setting forth in reasonable detail
the basis for calculating the additional amounts owed to such Lender under this
Section 2.17(a), which statement shall be conclusive and binding upon all
parties hereto absent manifest error.
(2) In the event that any Lender shall have determined that the
adoption, effectiveness, phase-in or applicability after the date hereof of any
law, rule or regulation (or any provision thereof) regarding capital adequacy,
or any change therein or in the interpretation or administration thereof by any
Governmental Authority, central bank or comparable agency charged with the
interpretation or administration thereof, or compliance by any Lender (or its
applicable lending office) with any guideline, request or directive regarding
capital adequacy (whether or not having the force of law) of any such
Governmental Authority, central bank or comparable agency, has or would have the
effect of reducing the rate of return on the capital of such Lender or any
corporation controlling such Lender as a consequence of, or with reference to,
such Lender's Loans or Commitments or other obligations hereunder with respect
to the Loans to a level below that which such Lender or such controlling
corporation could have achieved but for such adoption, effectiveness, phase-in,
applicability, change or compliance (taking into consideration the policies of
such Lender or such controlling corporation with regard to capital adequacy),
then from time to time, within 10 days after receipt by Borrower from such
Lender of the statement referred to in the next sentence, Borrower shall pay to
such Lender such additional amount or amounts as will compensate such Lender or
such controlling corporation on an after-tax basis for such reduction; provided
that Borrower shall not be obligated to reimburse any Lender for such increase
or reduction for any period 180 days prior to such Lender providing notice if
such Lender was aware of the circumstances that existed which would cause such
increase or reduction during such 180 day period. Such Lender shall deliver to
Borrower (with a copy to Administrative Agent) a written statement, setting
forth in reasonable detail the basis of the calculation of such additional
amounts, which statement shall be conclusive and binding upon all parties hereto
absent manifest error.
2.18. Taxes; Withholding, Etc. (a) All sums payable by any Credit Party
hereunder and the other Credit Documents shall (except to the extent required by
law) be paid free and clear of, and without any deduction or withholding on
account of, any Tax (other than a Tax on the overall net income of any Lender)
imposed, levied, collected, withheld or assessed by or within the United States
or any political subdivision in or of the United States or any other
jurisdiction from or to which a payment is made by or on behalf of any Credit
Party or by any federation or organization of which the United States or any
such jurisdiction is a member at the time of payment.
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(1) If any Credit Party or any other Person is required by law to make
any deduction or withholding on account of any such Tax from any sum paid or
payable by any Credit Party to Administrative Agent or any Lender under any of
the Credit Documents: (i) Borrower shall notify Administrative Agent of any such
requirement or any change in any such requirement as soon as Borrower becomes
aware of it; (ii) Borrower shall pay any such Tax before the date on which
penalties attach thereto, such payment to be made (if the liability to pay is
imposed on any Credit Party) for its own account or (if that liability is
imposed on Administrative Agent or such Lender, as the case may be) on behalf of
and in the name of Administrative Agent or such Lender; (iii) the sum payable by
such Credit Party in respect of which the relevant deduction, withholding or
payment is required shall be increased to the extent necessary to ensure that,
after the making of that deduction, withholding or payment, Administrative Agent
or such Lender, as the case may be, receives on the due date a net sum equal to
what it would have received had no such deduction, withholding or payment been
required or made; and (iv) within thirty (30) days after paying any sum from
which it is required by law to make any deduction or withholding, and within
thirty (30) days after the due date of payment of any Tax which it is required
by clause (ii) above to pay, Borrower shall deliver to Administrative Agent
evidence satisfactory to the other affected parties of such deduction,
withholding or payment and of the remittance thereof to the relevant taxing or
other authority; provided that no such additional amount shall be required to be
paid to any Lender under clause (iii) above except to the extent that any change
after the date hereof (in the case of each Lender listed on the signature pages
hereof on the Closing Date) or after the effective date of the Assignment
Agreement or Joinder Agreement pursuant to which such Lender became a Lender (in
the case of each other Lender) in any such requirement for a deduction,
withholding or payment as is mentioned therein shall result in an increase in
the rate of such deduction, withholding or payment from that in effect at the
date hereof or at the date of such Assignment Agreement, as the case may be, in
respect of payments to such Lender.
(2) Each Lender that is organized under the laws of any jurisdiction
other than the United States or any state or other political subdivision thereof
(a "NON-US LENDER") shall deliver to Administrative Agent for transmission to
Borrower, on or prior to the Closing Date (in the case of each Lender listed on
the signature pages hereof on the Closing Date) or on or prior to the date of
the Assignment Agreement or Joinder Agreement pursuant to which it becomes a
Lender (in the case of each other Lender), and at such other times as may be
necessary in the determination of Borrower or Administrative Agent (each in the
reasonable exercise of its discretion), (i) two original copies of Internal
Revenue Service Form 1001 or 4224 (or any successor forms, including Form W-8BEN
or W-8ECI), properly completed and duly executed by such Lender, together with
any other certificate or statement of exemption required under the Internal
Revenue Code or the regulations issued thereunder to establish that such Lender
is not subject to deduction or withholding of United States federal income tax
with respect to any payments to such Lender of principal, interest, fees or
other amounts payable under any of the Credit Documents, or (ii) if such Lender
is not a "bank" or other Person described in Section 881(c)(3) of the Internal
Revenue Code and cannot deliver either Internal Revenue Service Form 1001 or
4224 pursuant to clause (i) above, a Certificate re Non-Bank Status together
with two original copies of Internal Revenue Service Form W-8 (or any successor
form), properly completed and duly executed by such Lender, together with any
other certificate or
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statement of exemption required under the Internal Revenue Code or the
regulations issued thereunder to establish that such Lender is not subject to
deduction or withholding of United States federal income tax with respect to any
payments to such Lender of interest payable under any of the Credit Documents.
Each Lender required to deliver any forms, certificates or other evidence with
respect to United States federal income tax withholding matters pursuant to this
Section 2.18(c) hereby agrees, from time to time after the initial delivery by
such Lender of such forms, certificates or other evidence, whenever a lapse in
time or change in circumstances renders such forms, certificates or other
evidence obsolete or inaccurate in any material respect, that such Lender shall
promptly deliver to Administrative Agent for transmission to Borrower two new
original copies of Internal Revenue Service Form 1001 or 4224, or a Certificate
re Non-Bank Status and two original copies of Internal Revenue Service Form W-8,
as the case may be, properly completed and duly executed by such Lender,
together with any other certificate or statement of exemption required in order
to confirm or establish that such Lender is not subject to deduction or
withholding of United States federal income tax with respect to payments to such
Lender under the Credit Documents, or notify Administrative Agent and Borrower
of its inability to deliver any such forms, certificates or other evidence.
Borrower shall not be required to pay any additional amount under Section
2.18(b)(iii) if such Lender shall have failed to deliver the forms, certificates
or other evidence referred to in the second sentence of this Section 2.18(c), or
to notify Administrative Agent and Borrower of its inability to deliver any such
forms, certificates or other evidence, as the case may be; provided that if such
Lender shall have satisfied the requirements of the first sentence of this
Section 2.18(c) on the Closing Date or on the date of the Assignment Agreement
or Joinder Agreement pursuant to which it became a Lender, as applicable,
nothing in this last sentence of Section 2.18(c) shall relieve Borrower of its
obligation to pay any additional amounts pursuant to Section 2.18(a) in the
event that, as a result of any change in any applicable law, treaty or
governmental rule, regulation or order, or any change in the interpretation,
administration or application thereof, such Lender is no longer properly
entitled to deliver forms, certificates or other evidence at a subsequent date
establishing the fact that such Lender is not subject to withholding as
described herein.
(3) If any Tax is refunded to Administrative Agent, it will pay such
refund to Borrower to the extent Administrative Agent determines in its sole
discretion that such refund is attributable to any Tax paid by Borrower and to
the extent Borrower has previously indemnified the Administrative Agent therefor
pursuant to this Section 2.18, net of expenses and without interest except any
interest (net of taxes) included in such refund. Borrower shall return such
refund (together with any taxes, penalties or other charges) in the event any
Agent or any Lender is required to repay such refund. Notwithstanding the
foregoing, nothing in this Section 2.18 shall be construed to (i) entitle
Borrower or any other Persons to (A) any information determined by any Agent or
Lender, in each case, in its sole discretion, to be confidential or proprietary
information of such Agent or Lender, (B) any tax or financial information of
such Agent or Lender, or (C) inspect or review any books and records of any
Agent or Lender, or (ii) interfere with the rights of any Agent or Lender to
conduct its fiscal or tax affairs in such matter as it deems fit. A certificate
as to the amount of such payment or liability delivered to Borrower by
Administrative Agent on its own behalf or on behalf of any Lender or Agent shall
be conclusive absent manifest error.
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2.19. Obligation to Mitigate. Each Lender agrees that, as promptly as
practicable after the officer of such Lender responsible for administering its
Loans becomes aware of the occurrence of an event or the existence of a
condition that would cause such Lender to become an Affected Lender or that
would entitle such Lender to receive payments under Sections 2.16, 2.17 or 2.18,
it will, to the extent not inconsistent with the internal policies of such
Lender and any applicable legal or regulatory restrictions, (i) use reasonable
efforts to make, issue, fund or maintain its applicable Commitment or Loans,
including any Affected Loans, through another office of such Lender, or (ii)
take such other measures as such Lender may deem reasonable, if as a result
thereof the circumstances which would cause such Lender to be an Affected Lender
would cease to exist or the additional amounts which would otherwise be required
to be paid to such Lender pursuant to Sections 2.16, 2.17 or 2.18 would be
materially reduced and if, as determined by such Lender in its sole discretion,
the making, issuing, funding or maintaining of such Commitments or Loans through
such other office or in accordance with such other measures, as the case may be,
would not otherwise adversely affect such Commitments or Loans or the interests
of such Lender; provided that such Lender will not be obligated to utilize such
other office pursuant to this Section 2.19 unless Borrower agrees to pay all
incremental expenses incurred by such Lender as a result of utilizing such other
office as described in clause (i) above. A certificate as to the amount of any
such expenses payable by Borrower pursuant to this Section 2.19 (setting forth
in reasonable detail the basis for requesting such amount) submitted by such
Lender to Borrower (with a copy to Administrative Agent) shall be conclusive
absent manifest error.
2.20. Defaulting Lenders. Anything contained herein to the contrary
notwithstanding, in the event that any Lender defaults (a "DEFAULTING LENDER")
in its obligation to fund (a "FUNDING DEFAULT") any Loan (a "DEFAULTED LOAN"),
then (a) during such period when such default is continuing with respect to such
Defaulting Lender (the "DEFAULT PERIOD"), such Defaulting Lender shall be deemed
not to be a "Lender" for purposes of voting on any matters (including the
granting of any consents or waivers) with respect to any of the Credit
Documents; (b) to the extent permitted by applicable law, until such time as
such unfunded amount with respect to such Defaulting Lender shall have been
reduced to zero, (i) any voluntary prepayment of the Loans shall, if Borrower so
directs at the time of making such voluntary prepayment, be applied to the Loans
of other Lenders as if such Defaulting Lender had no Loans outstanding and the
Revolving Loan Exposure and Delayed Draw Term Loan Exposure of such Defaulting
Lender were zero, and (ii) any mandatory prepayment of the Loans shall, if
Borrower so directs at the time of making such mandatory prepayment, be applied
to the Loans of other Lenders (but not to the Revolving Loans of such Defaulting
Lender) as if such Defaulting Lender had funded all Defaulted Loans of such
Defaulting Lender, it being understood and agreed that Borrower shall be
entitled to retain any portion of any mandatory prepayment of the Loans that is
not paid to such Defaulting Lender solely as a result of the operation of the
provisions of this clause (b); (c) such Defaulting Lender's Revolving Loan
Commitment and Delayed Draw Term Loan Commitment shall be excluded for purposes
of calculating the commitment fee payable to Lenders in respect of any day
during any Default Period with respect to such Defaulting Lender, and such
Defaulting Lender shall not be entitled to receive any commitment fee pursuant
to Section 2.8 with respect to such Defaulting Lender's Revolving
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Commitment and Delayed Draw Term Loan Commitment in respect of any Default
Period with respect to such Defaulting Lender; and (d) the Total Utilization of
Commitments as at any date of determination shall be calculated as if such
Defaulting Lender had funded all Defaulted Loans of such Defaulting Lender. No
Commitment of any Lender shall be increased or otherwise affected, and, except
as otherwise expressly provided in this Section 2.20, performance by Borrower of
its obligations hereunder and the other Credit Documents shall not be excused or
otherwise modified as a result of any Funding Default or the operation of this
Section 2.20. The rights and remedies against a Defaulting Lender under this
Section 2.20 are in addition to other rights and remedies which Borrower may
have against such Defaulting Lender with respect to any Funding Default and
which Administrative Agent or any Lender may have against such Defaulting Lender
with respect to any Funding Default.
2.21. Removal or Replacement of a Lender. Anything contained herein to
the contrary notwithstanding, in the event that: (a) any Lender (an
"INCREASED-COST LENDER") shall give notice to Borrower that such Lender is an
Affected Lender or that such Lender is entitled to receive payments under
Sections 2.16, 2.17 or 2.18, the circumstances which have caused such Lender to
be an Affected Lender or which entitle such Lender to receive such payments
shall remain in effect, and such Lender shall fail to withdraw such notice
within five Business Days after Borrower's request for such withdrawal; or (b)
any Lender shall become a Defaulting Lender, the Default Period for such
Defaulting Lender shall remain in effect, and such Defaulting Lender shall fail
to cure the default as a result of which it has become a Defaulting Lender
within five Business Days after Borrower's request that it cure such default; or
(c) in connection with any proposed amendment, modification, termination, waiver
or consent with respect to any of the provisions hereof as contemplated by
Section 10.5(b), the consent of Requisite Lenders shall have been obtained but
the consent of one or more of such other Lenders (each a "NON-CONSENTING
LENDER") whose consent is required shall not have been obtained, and the failure
to obtain Non-Consenting Lenders' consents does not result solely from the
exercise of Non-Consenting Lenders' rights (and the withholding of any required
consents by Non-Consenting Lenders) pursuant to the proviso to Section
10.5(c)(i); then, with respect to each such Increased-Cost Lender, Defaulting
Lender or Non-Consenting Lender (the "TERMINATED LENDER"), Borrower may, by
giving written notice to Administrative Agent and any Terminated Lender of its
election to do so, elect to:
(A) cause such Terminated Lender (and such Terminated Lender
hereby irrevocably agrees) to assign its outstanding Loans and its
Commitments, if any, in full to one or more Eligible Assignees (each a
"REPLACEMENT LENDER") in accordance with the provisions of Section 10.6
and Terminated Lender shall pay any fees payable thereunder in
connection with such assignment; provided that (1) on the date of such
assignment, Borrower shall pay any amounts payable to such Terminated
Lender pursuant to Sections 2.16(c), 2.17 or 2.18 or otherwise as if it
were a prepayment, and shall pay the assignment fee specified in
Section 10.6(d) and (2) in the event such Terminated Lender is a
Non-Consenting Lender, each Replacement Lender shall consent, at the
time of such assignment, to each matter in respect of which such
Terminated Lender was a Non-Consenting Lender; provided that Borrower
may not make such election with respect to any Non-Consenting Lender
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Borrower also makes such election with respect to each other Terminated
Lender which is a Non-Consenting Lender; and upon the prepayment of all
amounts due and owing to any Terminated Lender pursuant to Sections
2.16(c), 2.17 and 2.18 and the assignment of such Terminated Lender's
Commitments, if any, and such Terminated Lender shall no longer
constitute a "Lender" for purposes hereof; provided that any rights of
such Terminated Lender to indemnification hereunder shall survive as to
such Terminated Lender; or
(B)(1) terminate the Commitment of such Terminated Lender upon
receipt by such Terminated Lender of such notice and (2) prepay on the
date of such termination any outstanding Loans, if any, made by such
Terminated Lender, together with accrued and unpaid interest thereon
and any other amounts payable to such Terminated Lender hereunder
pursuant to Sections 2.16(c), 2.17 and 2.18 or otherwise; provided
that, in the event such Terminated Lender has any Loans outstanding at
the time of such termination, the written consent of Administrative
Agent and all Lenders (which consent shall not be unreasonably withheld
or delayed) shall be required in order for Borrower to make such
election; and provided further that Borrower may not make such election
with respect to any Non-Consenting Lender unless Borrower also makes
such election with respect to each other Terminated Lender which is a
Non-Consenting Lender.
SECTION 3. CONDITIONS PRECEDENT
The obligation of Lenders to make Loans hereunder is subject to the
satisfaction of the following conditions:
3.1. Conditions to Effectiveness of the Agreement. Each of the
following conditions must be satisfied or waived in accordance with Section 10.5
on or before the Closing Date:
(1) CREDIT DOCUMENTS. Administrative Agent shall have received
sufficient copies of each Credit Document originally executed and delivered by
each applicable Credit Party for each Lender.
(2) ORGANIZATIONAL DOCUMENTS; INCUMBENCY. Administrative Agent shall
have received sufficient copies of each Organizational Document originally
executed and delivered by each Credit Party, as applicable, and, to the extent
applicable, certified as of a recent date by the appropriate governmental
official, for each Lender and its counsel, each dated the Closing Date or a
recent date prior thereto, together (i) with signature and incumbency
certificates of the officers of such Person executing the Credit Documents to
which it is a party (ii) resolutions of the Board of Directors or similar
governing body of each Credit Party approving and authorizing the execution,
delivery and performance of this Agreement and the other Credit Documents to
which it is a party or by which it or its assets may be bound as of the Closing
Date, certified as of the Closing Date by its secretary or an assistant
secretary as being in full force and effect without modification or amendment;
(iii) a good standing certificate from the applicable Governmental Authority of
each Credit Party's jurisdiction of incorporation, organization or formation and
in each jurisdiction in
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which it is qualified as a foreign corporation or other entity to do business,
each dated a recent date prior to the Effective Date; and (iv) such other
documents as Administrative Agent may reasonably request.
(3) ORGANIZATIONAL AND CAPITAL STRUCTURE. The organizational structure
and the capital structure of Company and its Subsidiaries shall be as set forth
on Schedule 4.1.
(4) GOVERNMENTAL AUTHORIZATIONS AND CONSENTS. Except as set forth on
Schedules 4.2 and 4.10(b), each Credit Party shall have obtained all
Governmental Authorizations and all consents of other Persons, in each case that
are necessary or advisable in connection with the transactions contemplated by
the Credit Documents and each of the foregoing shall be in full force and
effect. No action, request for stay, petition for review or rehearing,
reconsideration, or appeal with respect to any of the foregoing shall be
pending, and the time for any applicable agency to take action to set aside its
consent on its own motion shall have expired.
(5) PERSONAL AND MIXED PROPERTY COLLATERAL. In order to create in favor
of Administrative Agent, for the benefit of Lenders, a valid and, subject to any
filing and/or recording referred to herein, perfected First Priority security
interest in the Collateral, Administrative Agent shall have received:
(1) certificates (which certificates shall be accompanied by
irrevocable undated stock powers, duly endorsed in blank and otherwise
satisfactory in form and substance to Administrative Agent)
representing all capital stock pledged pursuant to the Pledge and
Security Agreement;
(2) (1) the results of a recent search, by a Person satisfactory
to Syndication Agent and Administrative Agent, of UCC financing
statements in all jurisdictions where each Credit Party is located,
together with copies of all such filings disclosed by such search, and
(2) UCC termination statements duly executed by all applicable Persons
for filing in all applicable jurisdictions as may be necessary to
terminate any effective UCC financing statements or fixture filings
disclosed in such search (other than any such financing statements or
fixture filings in respect of Permitted Liens);
(3) UCC financing statements, duly executed by each applicable
Credit Party with respect to all personal and mixed property Collateral
of such Credit Party, for filing in all jurisdictions as may be
necessary or, in the opinion of Syndication Agent and Administrative
Agent, desirable to perfect the security interests created in such
Collateral pursuant to the Collateral Documents under the UCC;
(4) an opinion of counsel (which counsel shall be reasonably
satisfactory to Syndication Agent and Administrative Agent) with
respect to the creation and perfection of the security interests in
favor of Administrative Agent in such Collateral and such other matters
governed by the laws of each jurisdiction in which any Credit Party or
any personal
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or mixed property Collateral is located as Syndication Agent and
Administrative Agent may reasonably request, in each case in form and
substance reasonably satisfactory to Syndication Agent and
Administrative Agent; and
(5) evidence that each Credit Party shall have taken or caused to
be taken any other action, executed and delivered or caused to be
executed and delivered any other agreement, document and instrument,
and made or caused to be made any other filing and recording (other
than as set forth herein) reasonably required by Syndication Agent and
Administrative Agent.
(6) FINANCIAL STATEMENTS; PROJECTIONS. Lenders shall have received from
Company (i) the Historical Financial Statements, (ii) copies of all management
reports and management letters prepared for Company and its Subsidiaries by
Arthur Andersen LLP or other independent certified public accountants of
recognized national standing, (iii) a pro forma balance sheet as at December 31,
1999 and an income and cash flow statement for the twelve-month period ending
December 31, 1999, in each case for Company and its Subsidiaries, prepared in
accordance with GAAP on a consolidated basis and reflecting the transactions
contemplated hereby, and (iv) a financial forecast dated January 2000 for
Company and its Subsidiaries for the period from Fiscal Year 2000 through and
including Fiscal Year 2007 (with Fiscal Years 2000, 2001 and 2002 detailed by
Fiscal Quarter together with (x) with respect to the Fiscal Year 2000, a
quarterly Annualized Adjusted EBITDA analysis and (y) with respect to the Fiscal
Years 2001 and 2002, an Annualized Adjusted EBITDA analysis, in each case with
respect to each of Company's and its subsidiaries principal markets, on a
Geographic Market-by-Geographic Market basis); and all of the foregoing
financial statements and other information will not be inconsistent, in any
material respect, with any information previously provided to Lenders.
(7) EVIDENCE OF INSURANCE. Syndication Agent and Administrative Agent
shall have received a certificate from Company's insurance broker or other
evidence satisfactory to it that all insurance required to be maintained
pursuant to Section 5.6 is in full force and effect and that Administrative
Agent on behalf of Lenders has been named as additional insured and/or loss
payee thereunder to the extent required under Section 5.6.
(8) OPINIONS OF COUNSEL TO CREDIT PARTIES. Lenders and their respective
counsel shall have received originally executed copies of the favorable written
opinions of (i) Kirkland & Ellis and the General Counsel of Company, counsel for
Credit Parties, (ii) Winstead Sechrest & Minnick, Texas local counsel to Company
and (iii) Swidler, Berlin Shereff Friedman, LLP special regulatory counsel to
the Company, in the forms of Exhibits D-1, D-2, D-3 and D-4, respectively, and
as to such other matters as Administrative Agent or Syndication Agent may
reasonably request, and otherwise in forms and substance reasonably satisfactory
to Administrative Agent and Syndication Agent and its counsel, dated the Closing
Date.
(9) OPINIONS OF COUNSEL TO SYNDICATION AGENT AND ADMINISTRATIVE AGENT.
Lenders shall have received originally executed copies of one or more favorable
written opinions of Skadden,
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Arps, Slate, Meagher & Flom LLP, counsel to Syndication Agent and Administrative
Agent, dated the Closing Date, in form and substance reasonably satisfactory to
Syndication Agent and Administrative Agent.
(10) FEES. Borrower shall have paid to Syndication Agent,
Administrative Agent and Co-Documentation Agents, for distribution (as
appropriate) to Syndication Agent, Administrative Agent, Co-Documentation Agents
and Lenders, the fees payable on the Closing Date referred to in Section 2.8.
(11) SOLVENCY CERTIFICATE. On the Closing Date, Syndication Agent,
Administrative Agent and Lenders shall have received a solvency certificate from
the chief financial officer of Company dated the Closing Date and addressed to
Syndication Agent, Administrative Agent and Lenders, in form and substance
satisfactory to Syndication Agent and Administrative Agent and with appropriate
attachments.
(12) COMPLETION OF PROCEEDINGS. All corporate and other proceedings
taken or to be taken in connection with the transactions contemplated hereby and
all documents incidental thereto not previously found acceptable by
Administrative Agent, acting on behalf of Lenders, or Syndication Agent and its
counsel shall be satisfactory in form and substance to Administrative Agent and
Syndication Agent and such counsel, and Administrative Agent, Syndication Agent
and such counsel shall have received all such counterpart originals or certified
copies of such documents as Administrative Agent or Syndication Agent may
reasonably request.
(13) EXISTING CREDIT AGREEMENT. All Loans and Obligations under the
Existing Credit Agreement shall have been repaid and the commitments thereunder
shall have been permanently terminated.
(14) LUCENT CONSENT. Company shall have used reasonable best efforts to
obtain from Lucent Technologies, Inc. ("LUCENT") a consent to the collateral
assignment to Administrative Agent and Lenders of rights existing under the
General Agreement between Company and Lucent dated as of October 16, 1997, as
amended, modified or otherwise supplemented from time to time, such consent in
form and substance reasonably satisfactory to Administrative Agent.
(15) CLOSING DATE CERTIFICATE. Borrower shall have delivered to
Syndication Agent and Administrative Agent an originally executed Closing Date
Certificate, together with all attachments thereto.
Each Lender, by delivering its signature page to this Agreement on the
Closing Date, shall be deemed to have acknowledged receipt of, and consented to
and approved, each Credit Document and each other document required to be
approved by any Agent, Requisite Lenders or Lenders, as applicable, on or prior
to the Closing Date.
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3.2. Conditions to Each Loan. (a) The obligation of each Lender to make
any Loan on any Credit Date, including the Initial Funding Date, is subject to
the satisfaction, or waiver in accordance with Section 10.5, of the following
conditions precedent:
(1) Administrative Agent shall have received a fully executed and
delivered Funding Notice;
(2) after making any Revolving Loans requested on such Credit
Date, the Total Utilization of Revolving Loan Commitments shall not
exceed the Revolving Loan Commitments then in effect;
(3) after making any Delayed Draw Term Loans requested on such
Credit Date, the Total Utilization of Delayed Draw Term Loan
Commitments shall not exceed the Delayed Draw Term Loan Commitments
then in effect;
(4) no injunction or other restraining order shall have been
issued and no hearing to cause an injunction or other restraining order
to be issued shall be pending or noticed with respect to any action,
suit or proceeding seeking to enjoin or otherwise prevent the
consummation of, or to recover any damages or obtain relief as a result
of, the transactions contemplated hereby or the making of any Loan;
(5) as of such Credit Date, the representations and warranties
contained herein and in the other Credit Documents shall be true,
correct and complete in all material respects on and as of that Credit
Date to the same extent as though made on and as of that date, except
to the extent such representations and warranties specifically relate
to an earlier date, in which case such representations and warranties
shall have been true, correct and complete in all material respects on
and as of such earlier date;
(6) as of the first Credit Date, Lenders and their respective
counsel shall have received originally executed copies of the favorable
written opinion of Kirkland & Ellis, counsel for Credit Parties, in
form and substance satisfactory to Administrative Agent and its
counsel, to the effect that no Credit Party is required to be
registered as an "investment company" within the meaning of the
Investment Company Act; and
(7) as of such Credit Date, no event shall have occurred and be
continuing or would result from the consummation of the applicable Loan
that would constitute an Event of Default or a Default (it being
understood that, with respect to a breach of Section 5.13(b), 6.6 or
6.7 of this Agreement prior to the Initial Funding Date, such breach
shall not prohibit the making of Loans on the Initial Funding Date so
long as, as of the Initial Funding Date Credit Parties are in
compliance with Section 5.13(b) and, as of the Fiscal Quarter most
recently ended prior to the Initial Funding Date, Credit Parties were
in compliance with the provisions of Section 6.6 or 6.7, as
applicable).
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(2) Any Notice shall be executed by the chief executive officer, the
chief financial officer or the treasurer of Borrower or by the executive officer
thereof designated by the chief executive officer, the chief financial officer
or the treasurer of Borrower in a writing delivered to Administrative Agent. In
lieu of delivering a Notice, Borrower may give Administrative Agent telephonic
notice by the required time of any proposed borrowing or
conversion/continuation, as the case may be; provided that each such notice
shall be promptly confirmed in writing by delivery of the applicable Notice to
Administrative Agent on or before the applicable date of borrowing or,
continuation/conversion. Neither Administrative Agent nor any Lender shall incur
any liability to Borrower in acting upon any telephonic notice referred to above
that Administrative Agent believes in good faith to have been given by a duly
authorized officer or other person authorized on behalf of Borrower or for
otherwise acting in good faith.
SECTION 4. REPRESENTATIONS AND WARRANTIES
In order to induce Lenders to enter into this Agreement and to make
each Loan to be made thereby, each Credit Party represents and warrants to each
Lender on the Closing Date and on each Credit Date, that the following
statements are true, correct and complete:
4.1. Organization; Powers; Qualification. Each of Company and its
Subsidiaries including, on the Closing Date, Unrestricted Subsidiaries, if any
(a) is duly organized, validly existing and in good standing under the laws of
its jurisdiction of organization as identified in Schedule 4.1, (b) has all
requisite power and authority to own and operate its properties, to carry on its
business as now conducted and as proposed to be conducted, to enter into the
Credit Documents to which it is a party and to carry out the transactions
contemplated thereby, and (c) is qualified to do business and in good standing
in every jurisdiction where its assets are located and wherever necessary to
carry out its business and operations, except in jurisdictions where the failure
to be so qualified or in good standing has not had, and could not be reasonably
expected to have, a Material Adverse Effect. Schedule 4.1, as may be amended
pursuant to Sections 5.1(b) or (c), correctly sets forth the ownership interest
of Company and each of its Subsidiaries in their respective Subsidiaries.
4.2. Authorization of Credit Documents; No Conflict. The execution,
delivery and performance of the Credit Documents have been duly authorized by
all necessary action on the part of each Credit Party that is a party thereto.
Except as set forth on Schedule 4.2, the execution, delivery and performance by
Credit Parties of the Credit Documents to which they are parties and the
consummation of the transactions contemplated by the Credit Documents do not and
will not (a) violate any provision of any law or any governmental rule or
regulation applicable to Company or any of its Subsidiaries, any of the
Organizational Documents of Company or any of its Subsidiaries, or any order,
judgment or decree of any court or other agency of government binding on Company
or any of its Subsidiaries; (b) conflict with, result in a breach of or
constitute (with due notice or lapse of time or both) a default under any
Contractual Obligation of Company or any of its Subsidiaries; (c) result in or
require the creation or imposition of any Lien upon any of the properties or
assets of Company or any of its Subsidiaries (other than any Liens created under
any of the Credit Documents in favor of Administrative Agent on behalf of
Lenders); or (d) require any
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approval of stockholders or any approval or consent of any Person under any
Contractual Obligation of Company or any of its Subsidiaries.
4.3. Governmental Consents. The execution, delivery and performance by
Credit Parties of the Credit Documents to which they are parties and the
consummation of the transactions contemplated by the Credit Documents do not and
will not require any registration with, consent or approval of, or notice to, or
other action to, with or by, any Governmental Authority except as otherwise set
forth on Schedule 4.3, and except for filings and recordings with respect to the
Collateral to be made, or otherwise delivered to Administrative Agent, as of the
Closing Date.
4.4. Binding Obligation. Each Credit Document has been duly executed
and delivered by each Credit Party that is a party thereto and is the legally
valid and binding obligation of such Credit Party, enforceable against such
Credit Party in accordance with its respective terms, except as may be limited
by bankruptcy, insolvency, reorganization, moratorium or similar laws relating
to or limiting creditors' rights generally or by equitable principles relating
to enforceability.
4.5. Historical Financial Statements; Projections. The Historical
Financial Statements were prepared in conformity with GAAP and fairly present,
in all material respects, the financial position, on a consolidated basis, of
the Persons described in such financial statements as at the respective dates
thereof and the results of operations and cash flows, on a consolidated basis,
of the entities described therein for each of the periods then ended, subject,
in the case of any such unaudited financial statements, to changes resulting
from audit and normal year-end adjustments. On the Closing Date, neither Company
nor any of its Subsidiaries has any contingent liability or liability for taxes,
long-term lease or unusual forward or long-term commitment that is not reflected
in the Historical Financial Statements or the notes thereto and which in
accordance with GAAP would be required to be shown thereon and which in any such
case is material in relation to the business, operations, properties, assets,
condition (financial or otherwise) or prospects of Company and any of its
Subsidiaries taken as a whole. On and as of the Closing Date, the financial
forecast of Company and its Subsidiaries delivered pursuant to Section 3.1(f)
(the "PROJECTIONS") are based on good faith estimates and assumptions made by
the management of Company; provided that the Projections are not to be viewed as
facts and that actual results during the period or periods covered by the
Projections may differ from such Projections and that the differences may be
material; provided further that as of the Closing Date, management of Company
believed that the Projections were reasonable and attainable.
4.6. No Material Adverse Change; No Restricted Junior Payments. Since
December 31, 1998, no event or change has occurred that has caused or evidences,
either in any case or in the aggregate, a Material Adverse Effect, and since
such date neither Company nor any of its Subsidiaries has directly or indirectly
declared, ordered, paid or made, or set apart any sum or property for, any
Restricted Junior Payment or agreed to do so except as permitted pursuant to
Section 6.4.
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4.7. Adverse Proceedings, Etc. Except as set forth on Schedule 4.7,
there are no Adverse Proceedings, individually or in the aggregate, that could
reasonably be expected to have a Material Adverse Effect. Neither Company nor
any of its Subsidiaries (a) is in violation of any applicable laws (including
Environmental Laws) that, individually or in the aggregate, could reasonably be
expected to have a Material Adverse Effect, or (b) is subject to or in default
with respect to any final judgments, writs, injunctions, decrees, rules or
regulations of any court or any federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality, domestic or
foreign, that, individually or in the aggregate, could reasonably be expected to
have a Material Adverse Effect.
4.8. Payment of Taxes. Except as otherwise permitted under Section 5.3,
all tax returns and reports of Company and its Subsidiaries required to be filed
by any of them have been timely filed, and all taxes shown on such tax returns
to be due and payable and all assessments, fees and other governmental charges
upon Company and its Subsidiaries and upon their respective properties, assets,
income, businesses and franchises which are due and payable have been paid when
due and payable, except where the failure to do so could not reasonably be
expected to have a Material Adverse Effect. Company knows of no proposed tax
assessment against Company or any of its Subsidiaries which is not being
actively contested by Company or such Subsidiary in good faith and by
appropriate proceedings; provided that such reserves or other appropriate
provisions, if any, as shall be required in conformity with GAAP shall have been
made or provided therefor.
4.9. Title to Properties. (a) Company and its Subsidiaries have (i)
good, sufficient and legal title to (in the case of fee interests in real
property), (ii) valid leasehold interests in (in the case of leasehold interests
in real or personal property), or (iii) good title to (in the case of all other
personal property), all of their respective properties and assets reflected in
the Historical Financial Statements referred to in Section 4.5 and in the most
recent financial statements delivered pursuant to Section 5.1, in each case
except for (1) assets disposed of since the date of such financial statements in
the ordinary course of business or as otherwise permitted under Section 6.8 and
(2) minor defects in title that do not interfere with the ability of Company or
any of its Subsidiaries to conduct their business as currently conducted or to
utilize such properties for their intended purposes. Except as permitted by this
Agreement, all such properties and assets are free and clear of Liens.
(1) As of the Closing Date, Schedule 4.9(b) contains a true, accurate
and complete list of (i) all Real Estate Assets, and (ii) all leases, subleases
or assignments of leases (together with all amendments, modifications,
supplements, renewals or extensions of any thereof) affecting each Real Estate
Asset of any Credit Party, regardless of whether such Credit Party is the
landlord or tenant (whether directly or as an assignee or successor in interest)
under such lease, sublease or assignment. Except as specified in Schedule
4.9(b), each agreement listed in clause (ii) of the immediately preceding
sentence is in full force and effect and Company does not have knowledge of any
default that has occurred and is continuing thereunder, and each such agreement
constitutes the legally valid and binding obligation of each applicable Credit
Party, enforceable against such Credit Party in accordance with its terms,
except as enforcement may be limited by bankruptcy, insolvency,
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reorganization, moratorium or similar laws relating to or limiting creditors'
rights generally or by equitable principles.
4.10. Collateral. (a) The execution and delivery of the Collateral
Documents by the Credit Parties, together with the actions taken on or prior to
the date hereof pursuant to Section 3.1(e) hereof, are effective to create in
favor of Administrative Agent for the benefit of Lenders, as security for their
respective Obligations, a valid and perfected First Priority Lien on all of the
Collateral, and all filings and other actions necessary or desirable to perfect
and maintain the perfection and First Priority status of such Liens have been
duly made or taken and remain in full force and effect, other than the filing of
any UCC financing statements delivered to Administrative Agent for filing (but
not yet filed) and the periodic filing of UCC continuation statements in respect
of UCC financing statements filed by or on behalf of Administrative Agent.
(1) Except as set forth on Schedule 4.10(b), no authorization, approval
or other action by, and no notice to or filing with, any Governmental Authority
or regulatory body is required for either (i) the pledge or grant by any Credit
Party of the Liens purported to be created in favor of Administrative Agent
pursuant to any of the Collateral Documents or (ii) the exercise by
Administrative Agent of any rights or remedies in respect of any Collateral
(whether specifically granted or created pursuant to any of the Collateral
Documents or created or provided for by applicable law), except for filings or
recordings contemplated by Section 3.1(e) and except as may be required, in
connection with the disposition of any Investment Property, by laws generally
affecting the offering and sale of securities.
(2) Except with respect to any Permitted Lien and as may have been
filed in favor of Administrative Agent as contemplated by Section 3.1(e), no
effective UCC financing statement, fixture filing or other instrument similar in
effect covering all or any part of the Collateral is on file in any filing or
recording office.
(3) All information supplied to Administrative Agent by or on behalf of
any Credit Party with respect to any of the Collateral (in each case taken as a
whole with respect to any particular Collateral) is accurate and complete in all
material respects.
4.11. Environmental. No Credit Party nor any of its Subsidiaries nor
any of their respective Facilities or operations are subject to any outstanding
written order, consent decree or settlement agreement with any Person relating
to any Environmental Law, any Environmental Claim, or any Hazardous Materials
Activity that, individually or in the aggregate, could reasonably be expected to
have a Material Adverse Effect. No Credit Party nor any of its Subsidiaries has
received any letter or request for information under Section 104 of the
Comprehensive Environmental Response, Compensation, and Liability Act (42 U.S.C.
ss. 9604) or any comparable state law. There are and, to each Credit Party's
knowledge, have been no conditions, occurrences, or Hazardous Materials
Activities which could reasonably be expected to form the basis of an
Environmental Claim against Company or any of its Subsidiaries that,
individually or in the aggregate, could reasonably be expected to have a
Material Adverse Effect. Neither Company nor any of its Subsidiaries nor, to any
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Credit Party's knowledge, any predecessor of Company or any of its Subsidiaries
has filed any notice under any Environmental Law indicating past or present
treatment of Hazardous Materials at any Facility, and none of Company's or any
of its Subsidiaries' operations involves the generation, transportation,
treatment, storage or disposal of hazardous waste, as defined under 40 C.F.R.
Parts 260-270 or any state equivalent. Compliance by Company and its
Subsidiaries with all current or reasonably foreseeable future requirements
pursuant to or under Environmental Laws could not be reasonably expected to
have, individually or in the aggregate, a Material Adverse Effect. No event or
condition has occurred or is occurring with respect to Company or any of its
Subsidiaries relating to any Environmental Law, any Release of Hazardous
Materials, or any Hazardous Materials Activity which individually or in the
aggregate has had, or could reasonably be expected to have, a Material Adverse
Effect.
4.12. No Defaults; Material Contracts. No Credit Party is in default in
the performance, observance or fulfillment of any of the obligations, covenants
or conditions contained in any of its Contractual Obligations, and no condition
exists that, with the giving of notice or the lapse of time or both, could
constitute such a default, except where the consequences, direct or indirect, of
such default or defaults, if any, could not reasonably be expected to have a
Material Adverse Effect. Schedule 4.12 contains a true, correct and complete
list of all the Material Contracts in effect on the Closing Date, and except as
described thereon, all such Material Contracts are in full force and effect and
no defaults currently exist thereunder by any Credit Party or, to the knowledge
of any Credit Party, by any other Person.
4.13. Governmental Regulation. Neither Company nor any of its
Subsidiaries is subject to regulation under the Investment Company Act, Public
Utility Holding Company Act of 1935 or the Federal Power Act or under any other
federal or state statute or regulation which may limit its ability to incur
Indebtedness or which may otherwise render all or any portion of the Obligations
unenforceable.
4.14. Margin Stock. Neither Company nor any of its Subsidiaries is
engaged principally, or as one of its important activities, in the business of
extending credit for the purpose of purchasing or carrying any Margin Stock. No
part of the proceeds of the Loans made to such Credit Party will be used to
purchase or carry any such margin stock or to extend credit to others for the
purpose of purchasing or carrying any such margin stock or for any purpose that
violates, or is inconsistent with, the provisions of Regulation T, U or X of the
Board of Governors of the Federal Reserve System.
4.15. Employee Matters. There is no strike or work stoppage in
existence or threatened involving Company or any of its Subsidiaries that could
reasonably be expected to have a Material Adverse Effect.
4.16. Employee Benefit Plans. Company, each of its Subsidiaries and
each of their respective ERISA Affiliates are in compliance with all applicable
provisions and requirements of ERISA and the regulations and published
interpretations thereunder with respect to each Employee Benefit Plan, and have
performed all their obligations under each Employee Benefit Plan. Each
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Employee Benefit Plan which is intended to qualify under Section 401(a) of the
Internal Revenue Code is so qualified. No ERISA Event has occurred or is
reasonably expected to occur. Except to the extent required under Section 4980B
of the Internal Revenue Code, no Employee Benefit Plan provides health or
welfare benefits (through the purchase of insurance or otherwise) for any
retired or former employee of Company, any of its Subsidiaries or any of their
respective ERISA Affiliates. As of the most recent valuation date for any
Pension Plan, the amount of unfunded benefit liabilities (as defined in Section
4001(a)(18) of ERISA), individually or in the aggregate for all Pension Plans
(excluding for purposes of such computation any Pension Plans with respect to
which assets exceed benefit liabilities), does not exceed $5,000,000. As of the
most recent valuation date for each Multiemployer Plan for which the actuarial
report is available, the potential liability of Company, its Subsidiaries and
their respective ERISA Affiliates for a complete withdrawal from such
Multiemployer Plan (within the meaning of Section 4203 of ERISA), when
aggregated with such potential liability for a complete withdrawal from all
Multiemployer Plans, based on information available pursuant to Section 4221(e)
of ERISA, does not exceed $5,000,000.
4.17. Certain Fees. No broker's or finder's fee or commission will be
payable with respect hereto or any of the transactions contemplated hereby.
4.18. Solvency. Each Credit Party is and, upon the incurrence of any
Obligation by such Credit Party on any date on which this representation and
warranty is made, will be, Solvent.
4.19. Existing Indentures. Borrower has delivered to Syndication Agent
and Administrative Agent complete and correct copies of each Existing Indenture
and of all exhibits and schedules thereto.
4.20. Year 2000 Issues. Company and its Subsidiaries have (a) engaged
in a process of assessment of the existence of any Year 2000 Issues reasonably
appropriate to the scope and complexity of their respective Systems; (b) adopted
and have successfully implemented a plan of correction ("PLAN OF CORRECTION")
which Company reasonably believes has resulted in a substantial elimination of
any Year 2000 Issues before any processing failure of a System or of Systems due
to Year 2000 Issues which might have a material effect on the business,
operations or financial performance of Company and, in the case of all Systems
critical to the business or operations of Company and its Subsidiaries, a
virtually complete elimination of Year 2000 Issues; (c) adopted and have
successfully implemented validation procedures reasonably calculated to test on
an ongoing basis the sufficiency of the Plan of Correction, its implementation,
and the correction of Year 2000 Issues in any System; and (d) adopted and have
successfully implemented policies and procedures requiring regular reports to,
and monitoring by, senior management of Company concerning the foregoing
matters; it being understood with respect to the foregoing that no
representation or warranty is being made with respect to the Systems of Persons
to whose networks Company and its Subsidiaries are interconnected.
4.21. Disclosure. No representation or warranty of any Credit Party
contained in any Credit Document or in any other document, certificate or
written statement furnished to Lenders by or on
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behalf of Company or any of its Subsidiaries (other than projections and pro
forma financial information contained in such materials) for use in connection
with the transactions contemplated hereby contains any untrue statement of a
material fact or omits to state a material fact (known to Borrower or Company,
in the case of any document not furnished by either of them) necessary in order
to make the statements contained herein or therein not misleading in light of
the circumstances in which the same were made. Any projections and pro forma
financial information contained in such materials are based upon good faith
estimates and assumptions believed by Company to be reasonable at the time made,
it being recognized by Lenders that such projections as to future events are not
to be viewed as facts and that actual results during the period or periods
covered by any such projections may differ from the projected results. There are
no facts known (or which should upon the reasonable exercise of diligence be
known) to Company or Borrower (excluding matters of a general economic nature or
matters regarding the telecommunications industry which are generally available
to the public) that, individually or in the aggregate, could reasonably be
expected to result in a Material Adverse Effect and that have not been disclosed
herein or in such other documents, certificates and statements furnished to
Lenders for use in connection with the transactions contemplated hereby.
4.22. No Burdensome Restrictions. Neither Company nor any of its
Subsidiaries is a party to or bound by any Contractual Obligation which could
reasonably be expected to have a Material Adverse Effect.
SECTION 5. AFFIRMATIVE COVENANTS
Each Credit Party covenants and agrees that so long as any Commitment
is in effect and until payment in full of all Obligations (other than inchoate
indemnification obligations with respect to claims, losses or liabilities which
have not yet arisen and are not yet due and payable), each Credit Party shall
perform, and shall cause each of its Subsidiaries to perform, all covenants in
this Section 5 (it being understood that failure to comply with Section 5.13(b)
prior to the Initial Funding Date shall not result in an Event of Default;
provided that, Credit Parties shall, in any event, be in compliance with Section
5.13 as of the Initial Funding Date).
5.1. Financial Statements and Other Reports. Borrower will deliver to
Administrative Agent and Lenders:
(1) During Stage 1, in the event that there has been a funding of any
Loans, as soon as available and in any event within thirty (30) days after the
end of each month ending after the Closing Date, the consolidated balance sheet
of Company and its Subsidiaries as at the end of such month and the related
consolidated statements of income, stockholders' equity and cash flows of
Company and its Subsidiaries for such month and for the period from the
beginning of the then current Fiscal Year to the end of such month, setting
forth in each case in comparative form the corresponding figures for the
corresponding periods of the previous Fiscal Year and the corresponding figures
from the Financial Plan for the current Fiscal Year, to the extent prepared on a
monthly
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basis, all in reasonable detail, together with a Financial Officer Certification
and a Narrative Report with respect thereto;
(2) as soon as available and in any event within sixty (60) days after
the end of each of the first three Fiscal Quarters of each Fiscal Year, the
consolidated balance sheet of Company and its Subsidiaries as at the end of such
Fiscal Quarter and the related consolidated statements of income, stockholders'
equity and cash flows of Company and its Subsidiaries for such Fiscal Quarter
and for the period from the beginning of the then current Fiscal Year to the end
of such Fiscal Quarter, setting forth in each case in comparative form the
corresponding figures for the corresponding periods of the previous Fiscal Year
and the corresponding figures from the Financial Plan for the current Fiscal
Year, all in reasonable detail, together with (1) a Financial Officer
Certification, (2) a Narrative Report with respect thereto and (3) a revised
Schedule 4.1 (if necessary) reflecting all changes in the organizational
structure and capital structure of Company and its Subsidiaries since the
delivery of the last quarterly financial information, which revised Schedule 4.1
will be deemed to amend the then-existing Schedule 4.1 for all purposes under
this Agreement;
(3) as soon as available and in any event within ninety (90) days after
the end of each Fiscal Year, (i) the consolidated balance sheet of Company and
its Subsidiaries as at the end of such Fiscal Year and the related consolidated
statements of income, stockholders' equity and cash flows of Company and its
Subsidiaries for such Fiscal Year, setting forth in each case in comparative
form the corresponding figures for the previous Fiscal Year and the
corresponding figures from the Financial Plan for the Fiscal Year covered by
such financial statements, in reasonable detail, together with a Financial
Officer Certification and a Narrative Report with respect thereto; (ii) a report
thereon of Arthur Andersen LLP or other independent certified public accountants
of recognized national standing selected by Company and in form and substance
satisfactory to Administrative Agent, (which report shall be unqualified as to
going concern and scope of audit and shall state that such consolidated
financial statements fairly present in all material respects, the consolidated
financial position of Company and its Subsidiaries as at the dates indicated and
the results of their operations and their cash flows for the periods indicated
in conformity with GAAP applied on a basis consistent with prior years (except
as otherwise disclosed in such financial statements) and that the examination by
such accountants in connection with such consolidated financial statements has
been made in accordance with generally accepted auditing standards) together
with a written statement by such independent certified public accountants
stating (1) that their audit examination has included a review of the terms of
the Credit Documents, (2) whether, in connection therewith, any condition or
event that constitutes a Default or an Event of Default has come to their
attention and, if such a condition or event has come to their attention,
specifying the nature and period of existence thereof, and (3) that nothing has
come to their attention that causes them to believe that the information
contained in any Compliance Certificate is not correct or that the matters set
forth in such Compliance Certificate are not stated in accordance with the terms
hereof and (iii) a revised Schedule 4.1 (if necessary) reflecting all changes in
the organizational structure and capital structure of Company and its
Subsidiaries since the delivery of the last quarterly financial information,
which revised Schedule 4.1 will be deemed to amend the then-existing Schedule
4.1 for all purposes under this Agreement;
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(4) together with each delivery of financial statements of Company and
its Subsidiaries pursuant to Sections 5.1(b) and 5.1(c), a duly executed and
completed Compliance Certificate;
(5) if, as a result of any change in accounting principles and policies
from those used in the preparation of the Historical Financial Statements, the
consolidated financial statements of Company and its Subsidiaries delivered
pursuant to Sections 5.1(a), 5.1(b) or 5.1(c) will differ in any material
respect from the consolidated financial statements that would have been
delivered pursuant to such subdivisions had no such change in accounting
principles and policies been made, then together with the first delivery of such
financial statements after such change, one or more statements of reconciliation
for all such prior financial statements in form and substance satisfactory to
Administrative Agent;
(6) promptly upon their becoming available, copies of (i) all financial
statements, reports, notices and proxy statements sent or made available
generally by Company to its security holders acting in such capacity or by any
Subsidiary of Company to its security holders other than Company or another
Subsidiary of Company, (ii) all regular and periodic reports (but not including,
unless requested by Administrative Agent, routine reports regularly filed with
the FCC and state commissions with jurisdiction over telecommunications matters)
and all registration statements (other than on Form S-8 or a similar form) and
prospectuses, if any, filed by Company or any of its Subsidiaries with any
securities exchange or with the Securities and Exchange Commission or any
governmental or private regulatory authority, and (iii) all press releases and
other statements made available generally by Company or any of its Subsidiaries
to the public concerning material developments in the business of Company or any
of its Subsidiaries;
(7) promptly upon any officer of Borrower or Company obtaining
knowledge (i) of any condition or event that constitutes a Default or an Event
of Default or that notice has been given to Borrower or Company with respect
thereto; (ii) that any Person has given any notice to Company or any of its
Subsidiaries or taken any other action with respect to any event or condition
set forth in Section 8.1(b); (iii) of any condition or event of a type required
to be disclosed in a current report on Form 8-K of the Securities and Exchange
Commission; or (iv) of the occurrence of any event or change that has caused or
evidences, either in any case or in the aggregate, a Material Adverse Effect, a
certificate of an Authorized Officer specifying the nature and period of
existence of such condition, event or change, or specifying the notice given or
action taken by any such Person and the nature of such claimed Event of Default,
Default, default, event or condition, and what action Company has taken, is
taking and proposes to take with respect thereto;
(8) promptly upon any officer of Borrower or Company obtaining
knowledge of (i) the institution of, or non-frivolous threat of, any Adverse
Proceeding not previously disclosed in writing by Borrower or Company to
Lenders, or (ii) any material development in any Adverse Proceeding that, in the
case of either (i) or (ii) if adversely determined, could be reasonably expected
to have a Material Adverse Effect, or seeks to enjoin or otherwise prevent the
consummation of, or to recover any damages or obtain relief as a result of, the
transactions contemplated hereby, written notice
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thereof together with such other information as may be reasonably available to
Borrower or Company to enable Lenders and their counsel to evaluate such
matters;
(9) (i) promptly upon becoming aware of the occurrence of or
forthcoming occurrence of any ERISA Event, a written notice specifying the
nature thereof, what action Company, any of its Subsidiaries or any of their
respective ERISA Affiliates has taken, is taking or proposes to take with
respect thereto and, when known, any action taken or threatened by the Internal
Revenue Service, the Department of Labor or the PBGC with respect thereto; and
(ii) with reasonable promptness, copies of (1) each Schedule B (Actuarial
Information) to the annual report (Form 5500 Series) filed by Company, any of
its Subsidiaries or any of their respective ERISA Affiliates with the Internal
Revenue Service with respect to each Pension Plan; (2) all notices received by
Company, any of its Subsidiaries or any of their respective ERISA Affiliates
from a Multiemployer Plan sponsor concerning an ERISA Event; and (3) copies of
such other documents or governmental reports or filings relating to any Employee
Benefit Plan as Administrative Agent shall reasonably request;
(10) as soon as practicable and in any event no later than 10 days
prior to the beginning of each Fiscal Year, a consolidated plan and financial
forecast for such Fiscal Year and the next three succeeding Fiscal Years (a
"FINANCIAL PLAN") in substantially the same level of detail as that set forth in
the business plan and forecast included in the Confidential Information
Memorandum dated January 2000 relating to the transactions contemplated hereby,
including (i) a forecasted consolidated balance sheet and forecasted
consolidated statements of income and cash flows of Company and its Subsidiaries
for each such Fiscal Year, together with pro forma Compliance Certificates for
each such Fiscal Year and an explanation of the assumptions on which such
forecasts are based and (ii) during Stage 1, forecasted consolidated statements
of income and cash flows of Company and its Subsidiaries for each quarter of the
first such Fiscal Year included in a Financial Plan, together with an
explanation of the assumptions on which such forecasts are based;
(11) as soon as practicable and in any event by the last day of each
Fiscal Year, a report in form and substance satisfactory to Administrative Agent
outlining all material insurance coverage maintained as of the date of such
report by Company and its Subsidiaries and all material insurance coverage
planned to be maintained by Company and its Subsidiaries in the immediately
succeeding Fiscal Year;
(12) with reasonable promptness, written notice of any change in the
Board of Directors of Company;
(13) promptly, and in any event within ten (10) Business Days after any
Material Contract of Company or any of its Subsidiaries is terminated prior to
its scheduled term or amended in a manner that is materially adverse to Company
or such Subsidiary, as the case may be, or any new Material Contract is entered
into, a written statement describing such event, with copies of such material
amendments or new contracts, delivered to Administrative Agent (to the extent
such delivery is permitted by the terms of any such Material Contract, provided
that no such prohibition
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on delivery shall be effective if it were bargained for by Company or its
applicable Subsidiary with the intent of avoiding compliance with this Section
5.1(m)), and an explanation of any actions being taken with respect thereto; and
(14) with reasonable promptness, such other information and data with
respect to Company or any of its Subsidiaries as from time to time may be
reasonably requested by any Lender.
5.2. Contribution. Company and its Subsidiaries shall promptly upon the
receipt of any Cash proceeds after January 1, 2000 from (i) the incurrence of
Subordinated Indebtedness and (ii) the issuance of any equity Securities,
contribute all of such Cash proceeds to Borrower, net of underwriting discounts
and commissions and other reasonable costs and expenses associated therewith,
including reasonable legal fees and expenses.
5.3. Existence. Except as otherwise permitted under Section 6.9, each
Credit Party will, and will cause each of its Subsidiaries to, at all times
preserve and keep in full force and effect its existence and all rights and
franchises material to its business; provided that no Credit Party nor any of
its Subsidiaries shall be required to preserve any such existence, right or
franchise if such Person's Board of Directors (or similar governing body) shall
determine that the preservation thereof is no longer desirable in the conduct of
the business of such Person, and that the loss thereof is not disadvantageous in
any material respect to such Person or Lenders.
5.4. Payment of Taxes and Claims. Each Credit Party will, and will
cause each of its Subsidiaries and Unrestricted Subsidiaries to, pay all taxes,
assessments and other governmental charges imposed upon it or any of its
properties or assets or in respect of any of its income, businesses or
franchises before any penalty accrues thereon, and all claims (including claims
for labor, services, materials and supplies) for sums that have become due and
payable and that by law have or may become a Lien upon any of its properties or
assets, prior to the time when any penalty or fine shall be incurred with
respect thereto, except where the failure to do so could not reasonably be
expected to result in a Material Adverse Effect; provided that no such charge or
claim need be paid if it is being contested in good faith by appropriate
proceedings promptly instituted and diligently conducted, so long as such
reserve or other appropriate provision, if any, as shall be required in
conformity with GAAP shall have been made therefor, and in the case of a charge
or claim which has or may become a Lien against any of the Collateral, such
contest proceedings conclusively operate to stay the sale of any portion of the
Collateral to satisfy such charge or claim. Company will not, nor will it permit
any of its Subsidiaries to, file or consent to the filing of any consolidated
income tax return with any Person (other than Company or any of its
Subsidiaries).
5.5. Maintenance of Properties. Each Credit Party will, and will cause
each of its Subsidiaries to, maintain or cause to be maintained in good repair,
working order and condition, ordinary wear and tear excepted, all material
properties used or useful in the business of Company and its Subsidiaries and
from time to time will make or cause to be made all appropriate repairs,
renewals and replacements thereof.
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5.6. Insurance. Company will maintain or cause to be maintained, with
financially sound and reputable insurers, such public liability insurance, third
party property damage insurance, business interruption insurance and casualty
insurance with respect to liabilities, losses or damage in respect of the
assets, properties and businesses of Company and its Subsidiaries as may
customarily be carried or maintained under similar circumstances by Persons of
established reputation engaged in similar businesses, in each case in such
amounts (giving effect to self-insurance), with such deductibles, covering such
risks and otherwise on such terms and conditions as shall be customary for such
Persons. Without limiting the generality of the foregoing, Company will maintain
or cause to be maintained (a) flood insurance with respect to each Flood Hazard
Property that is located in a community that participates in the National Flood
Insurance Program, in each case in compliance with any applicable regulations of
the Board of Governors of the Federal Reserve System, and (b) replacement value
casualty insurance on the Collateral under such policies of insurance, with such
insurance companies, in such amounts, with such deductibles, and covering such
risks as are at all times carried or maintained under similar circumstances by
Persons of established reputation engaged in similar businesses. Each such
policy of insurance shall (i) name Administrative Agent for the benefit of
Lenders as an additional insured thereunder as its interests may appear and (ii)
in the case of each business interruption and casualty insurance policy, contain
a loss payable clause or endorsement, satisfactory in form and substance to
Administrative Agent, that names Administrative Agent for the benefit of Lenders
as the loss payee thereunder for any covered loss in excess of $1,000,000 and
provides for at least thirty (30) days prior written notice to Administrative
Agent of any modification adverse in any respect to Administrative Agent or
Lenders or cancellation of such policy.
5.7. Books and Records; Inspections; Lenders Meetings. Each Credit
Party will, and will cause each of its Subsidiaries to, keep proper books of
record and account in which full, true and correct entries are made of all
dealings and transactions in relation to its business and activities. Each
Credit Party will, and will cause each of its Subsidiaries to, permit any
authorized representatives designated by any Lender to visit and inspect any of
the Facilities of Company or of any of its Subsidiaries, to inspect, copy and
take extracts from its and their financial and accounting records, and to
discuss its and their affairs, finances and accounts with its and their officers
and independent public accountants, all upon reasonable notice and at such
reasonable times during normal business hours and as often as may reasonably be
requested. Borrower and Company will, upon the request of Administrative Agent
or Requisite Lenders, participate in a meeting of Administrative Agent and
Lenders once during each Fiscal Year to be held at Company's corporate offices
(or at such other location as may be agreed to by Borrower and Administrative
Agent) at such time as may be agreed to by Borrower and Administrative Agent.
1.1.
5.8. Compliance with Laws; Contractual Obligations. Each Credit Party
will comply, and shall cause each of its Subsidiaries, Unrestricted Subsidiaries
and all other Persons, if any, on or occupying any Facilities to comply, with
applicable laws, rules, regulations and orders of any Governmental Authority
(including all Environmental Laws), noncompliance with which could reasonably be
expected to have, individually or in the aggregate, a Material Adverse Effect.
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5.9. Environmental.
(1) ENVIRONMENTAL DISCLOSURE. Borrower will deliver to Administrative
Agent and Lenders:
(1) as soon as practicable following receipt thereof, copies of
all environmental audits, investigations, analyses and reports of any
kind or character, whether prepared by personnel of Company or any of
its Subsidiaries or any Unrestricted Subsidiaries or by independent
consultants, governmental authorities or any other Persons, with
respect to significant environmental matters at any Facility or with
respect to any Environmental Claims;
(2) promptly upon the occurrence thereof, written notice
describing in reasonable detail (1) any Release required to be reported
to any federal, state or local governmental or regulatory agency under
any applicable Environmental Laws, (2) any remedial action taken by
Company or any other Person in response to (A) any Hazardous Materials
Activities the existence of which has a reasonable possibility of
resulting in one or more Environmental Claims having, individually or
in the aggregate, a Material Adverse Effect, or (B) any Environmental
Claims that, individually or in the aggregate, have a reasonable
possibility of resulting in a Material Adverse Effect, and (3)
Company's discovery of any occurrence or condition on any real property
adjoining or in the vicinity of any Facility that could cause such
Facility or any part thereof to be subject to any material restrictions
on the ownership, occupancy, transferability or use thereof under any
Environmental Laws;
(3) as soon as practicable following the sending or receipt
thereof by Company or any of its Subsidiaries or any Unrestricted
Subsidiaries, a copy of any and all written communications with respect
to (1) any Environmental Claims that, individually or in the aggregate,
have a reasonable possibility of giving rise to a Material Adverse
Effect, (2) any Release required to be reported to any federal, state
or local governmental or regulatory agency, and (3) any request for
information from any governmental agency that suggests such agency is
investigating whether Company or any of its Subsidiaries or any
Unrestricted Subsidiaries may be potentially responsible for any
Hazardous Materials Activity;
(4) prompt written notice describing in reasonable detail (1) any
proposed acquisition of stock, assets, or property by Company or any of
its Subsidiaries or any Unrestricted Subsidiaries that could reasonably
be expected to (A) expose Company or any of its Subsidiaries to, or
result in, Environmental Claims that could reasonably be expected to
have, individually or in the aggregate, a Material Adverse Effect or
(B) affect the ability of Company or any of its Subsidiaries or any
Unrestricted Subsidiaries to maintain in full force and effect all
material Governmental Authorizations required under any Environmental
Laws for their respective operations and (2) any proposed action to be
taken by Company or any of its Subsidiaries or any Unrestricted
Subsidiaries to modify current operations in a manner that could
reasonably be expected to subject Company or any of its Subsidiaries or
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any Unrestricted Subsidiaries to any additional obligations or
requirements under any Environmental Laws; and
(5) with reasonable promptness, such other documents and
information as from time to time may be reasonably requested by
Administrative Agent in relation to any matters disclosed pursuant to
this Section 5.9(a).
(2) HAZARDOUS MATERIALS ACTIVITIES, ETC. Each Credit Party shall
promptly take, and shall cause each of its Subsidiaries or any Unrestricted
Subsidiaries promptly to take, any and all actions necessary to (i) cure any
violation of applicable Environmental Laws by such Credit Party or its
Subsidiaries or any Unrestricted Subsidiaries that could reasonably be expected
to have, individually or in the aggregate, a Material Adverse Effect, and (ii)
make an appropriate response to any Environmental Claim against such Credit
Party or any of its Subsidiaries or any Unrestricted Subsidiaries and discharge
any obligations it may have to any Person thereunder where failure to do so
could reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect.
5.10. Subsidiaries. In the event that any Person becomes a Subsidiary
of Company, Company shall (other than with respect to Borrower and any
Subsidiary of Borrower as of the Closing Date) promptly (i) contribute 100% of
the capital stock of such Subsidiary to Borrower, such that after each such
contribution, such Subsidiary is a subsidiary of Borrower, and deliver to
Administrative Agent certificates (accompanied by irrevocable undated stock
powers, duly endorsed in blank and otherwise satisfactory in form and substance
to Administrative Agent) representing such capital stock, which shall be pledged
pursuant to the Pledge and Security Agreement and shall deliver such other
additional agreements or instruments, each in form and substance to
Administrative Agent, as may be necessary or desirable to create in favor of
Administrative Agent, for the benefit of Lenders, a valid and perfected First
Priority security interest in 100% of the capital stock of such Subsidiary, (ii)
cause such Subsidiary to become a Guarantor hereunder and a Grantor under the
Pledge and Security Agreement by executing and delivering to Administrative
Agent a Counterpart Agreement, and (iii) take all such actions and execute and
deliver, or cause to be executed and delivered, all such documents, instruments,
agreements, and certificates similar to those described in Sections 3.1(b),
3.1(e) and 3.1(h). In the event that any Person becomes a first tier
Unrestricted Subsidiary, Company shall promptly, subject to applicable law, (a)
pledge all certificated shares of Capital Stock of such Unrestricted Subsidiary
(65% in the case of a Foreign Subsidiary) pursuant to the Pledge and Security
Agreement, and (b) take all such actions and execute and deliver, or cause to be
executed and delivered, all such documents, instruments, agreements, and
certificates as are similar to those described in Sections 3.1(b), 3.1(e) and
3.1(h) (to the extent applicable to a pledge of stock). With respect to each
such Subsidiary, Borrower shall promptly send to Administrative Agent written
notice setting forth with respect to such Person (i) the date on which such
Person became a Subsidiary of Company, and (ii) all of the data required to be
set forth in Schedule 4.1 with respect to all Subsidiaries of Company, and such
written notice shall be deemed to supplement Schedule 4.1 for all purposes
hereof. Notwithstanding the foregoing, if Company or any of its Subsidiaries
acquires a Person and liquidates or dissolves such Person within 30 days after
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the acquisition thereof in accordance with the provisions hereof, this Section
5.10 shall not require that any action be taken with respect to such Person.
5.11. Real Estate Assets. In the event that any Credit Party hereafter
acquires an interest in any Material Real Estate Asset and such interest has not
otherwise been made subject to the Lien of the Collateral Documents in favor of
Administrative Agent, for the benefit of Lenders, then such Credit Party,
contemporaneously with acquiring such Material Real Estate Asset, shall take all
such actions and execute and deliver, or cause to be executed and delivered, the
following:
(1) fully executed and notarized Mortgages, in proper form for
recording in all appropriate places in all applicable jurisdictions,
encumbering (each, a "MORTGAGED PROPERTY") (a) each such fee-owned
Material Real Estate Asset, and (b) each such Material Real Estate
Asset which is a Leasehold Property to the extent that such Credit
Party is able to obtain, after use of reasonable best efforts, (x) a
written consent of the related lessor to such mortgage in form and
substance satisfactory to Administrative Agent and (y) evidence that
such Leasehold Property is a Recorded Leasehold Interest;
(2) an opinion of counsel (which counsel shall be reasonably
satisfactory to Syndication Agent and Administrative Agent) in each
state in which such Material Real Estate Asset is located with respect
to the enforceability of the form(s) of Mortgages to be recorded in
such state and such other matters as Syndication Agent and
Administrative Agent may reasonably request, in each case in form and
substance reasonably satisfactory to Syndication Agent and
Administrative Agent;
(3) from time to time, at the request of Administrative Agent,
appraisals of each such Mortgaged Property as are required by law or
regulation;
(4) ALTA mortgagee title insurance policies or unconditional
commitments therefor issued by a title company with respect to each
such Mortgaged Property, together with a title report issued by a
title company with respect thereto, dated not more than thirty (30)
days prior to the effective date of such executed Mortgage and copies
of all recorded documents listed as exceptions to title or otherwise
referred to therein, each in form and substance reasonably
satisfactory to Syndication Agent and Administrative Agent;
(5) evidence of flood insurance with respect to each such
Mortgaged Property that is a Flood Hazard Property and that is located
in a community that participates in the National Flood Insurance
Program, in each case in compliance with any applicable regulations of
the Board of Governors of the Federal Reserve System, in form and
substance reasonably satisfactory to Syndication Agent and
Administrative Agent; and
(6) ALTA surveys of all such Mortgaged Properties which are not
Leasehold Properties, certified to Administrative Agent and dated not
more than thirty (30) days prior to the effective date of such executed
Mortgage.
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5.12. Interest Rate Protection. To the extent necessary, Company shall
maintain, or caused to be maintained, in effect one or more Interest Rate
Agreements for a term of not less than two years and otherwise in form and
substance reasonably satisfactory to Administrative Agent and Syndication Agent,
which Interest Rate Agreements shall at all times effectively limit the amount
of Indebtedness bearing interest at a floating rate to no more than 50% of the
aggregate principal amount of Consolidated Total Debt outstanding as of any date
of determination.
5.13. Certain Post Closing Matters.
(1) Within 45 days after the Closing Date, Company shall have used
reasonable best efforts to obtain from each Person identified on Schedule
5.13(a) an acknowledgment letter in favor of Administrative Agent, for the
benefit of Lenders, in the form of Exhibit K with respect to each corresponding
agreement listed on such Schedule 5.13(a).
(2) With respect to Allegiance Telecom of Pennsylvania, Inc.,
Allegiance Telecom of New Jersey, Inc. and Allegiance Telecom of Georgia, Inc.,
within three hundred-sixty (360) days following the Closing Date, Company shall
(i) effect the contribution by Company of 100% of the capital stock of any such
Subsidiaries that are not Subsidiaries of Borrower to Borrower, (ii) obtain all
consents and approvals necessary to enable each such Subsidiary to become a
Guarantor hereunder and to become a Grantor under the Pledge and Security
Agreement, (iii) cause each such Subsidiary to become a Guarantor and a Grantor
under the Pledge and Security Agreement, and (iv) take such actions and execute
and deliver, or cause to be executed and delivered, all such documents,
instruments, agreements, and certificates similar to those described in Sections
3.1(b), 3.1(e), 3.1(h) and 3.1(l), in connection with the foregoing to the
extent the same would have been required on the Closing Date as if such
Subsidiaries had been Guarantors as of the Closing Date.
SECTION 6. NEGATIVE COVENANTS
Each Credit Party covenants and agrees that, so long as any Commitment
is in effect and until payment in full of all Obligations (other than inchoate
indemnification obligations with respect to claims, losses or liabilities which
have not yet arisen and are not yet due and payable), such Credit Party shall
perform, and shall cause each of its Subsidiaries to perform, all covenants in
this Section 6 (it being understood that the covenants in Sections 6.6 and 6.7
will be measured during Stage 1 and Stage 2, respectively, but shall not result
in an Event of Default if any Credit Party shall not be in compliance therewith
at any time prior to the Initial Funding Date; provided that, Credit Parties
shall be required, in any event, to comply with Section 6.6 or 6.7, as
applicable, as of the Fiscal Quarter most recently ended prior to the Initial
Funding Date).
6.1. Indebtedness. No Credit Party shall, nor shall it permit any of
its Subsidiaries to, directly or indirectly, create, incur, assume or guaranty,
or otherwise become or remain directly or indirectly liable with respect to any
Indebtedness, except:
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(1) the Obligations, including any Indebtedness under any Hedge
Agreement with any Lender Counterparty;
(2) Indebtedness of any Subsidiary Guarantor to Borrower or to any
other Subsidiary Guarantor, or of Borrower to any Subsidiary Guarantor; provided
that (i) all such Indebtedness shall be evidenced by promissory notes and all
such notes shall be subject to a First Priority Lien pursuant to the Pledge and
Security Agreement, (ii) all such Indebtedness owed by Company to any of its
Subsidiaries shall be subordinated in right of payment to the payment in full of
the Obligations pursuant to the terms of the applicable promissory notes, and
any payment by any such Subsidiary of Company under any guaranty of the
Obligations shall result in a pro tanto reduction of the amount of any
Indebtedness owed by such Subsidiary to Company or to any of its Subsidiaries
for whose benefit such payment is made;
(3) Subordinated Indebtedness (excluding for purposes of this clause
(c) Indebtedness under the Existing Indentures); provided that in any case, as
of the date of the incurrence of such Subordinated Indebtedness, no event shall
have occurred and be continuing or would result from such incurrence that would
result in a Default or Event of Default;
(4) Indebtedness incurred by Company or any of its Subsidiaries arising
from agreements providing for indemnification, adjustment of purchase price or
similar obligations, or from guaranties or letters of credit, surety bonds or
performance bonds securing the performance of Company or any such Subsidiary
pursuant to such agreements, in connection with acquisitions or dispositions of
any business, assets or Subsidiary of Company or any of its Subsidiaries not
prohibited by this Agreement;
(5) Indebtedness which may be deemed to exist pursuant to any
guaranties, performance, surety, statutory, appeal or similar obligations
obtained in the ordinary course of business;
(6) Indebtedness in respect of netting services, overdraft protections
and otherwise in connection with Deposit Accounts;
(7) guaranties in the ordinary course of business of the obligations of
suppliers, customers, franchisees and licensees of Company and its Subsidiaries;
(8) Indebtedness of Company outstanding under the Existing Indentures;
(9) Indebtedness with respect to (A) leases and rights to use fiber
optic cable incurred in the ordinary course of business ("DARK FIBER LEASES"),
which for all purposes under this Agreement shall be deemed to constitute and
shall be accounted for as Capital Leases in an aggregate amount not to exceed at
any time $225,000,000 and (B) other Capital Leases in an aggregate amount not to
exceed at any time $10,000,000;
(10) Permitted Equipment Financings;
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(11) Indebtedness incurred or assumed by Company or any of its
Subsidiaries in connection with any Permitted Acquisition;
(12) Indebtedness in the form of notes issued by Company or any of its
Subsidiaries in connection with the repurchase of Securities from any director,
officer, employee or consultant in an aggregate amount not to exceed $5,000,000;
(13) Indebtedness in the form of letters of credit for the account of
Company or any of its Subsidiaries in an aggregate face amount not to exceed
$15,000,000 at any time outstanding;
(14) Indebtedness not otherwise permitted under this Section 6.1 in an
aggregate amount not to exceed $15,000,000 at any time outstanding; and
(15) extensions, renewals and replacements of any such Indebtedness
listed in clauses (h), (j) and (k) above, that do not in any such case increase
the outstanding principal amount thereof.
6.2. Liens. No Credit Party shall, nor shall it permit any of its
Subsidiaries to, directly or indirectly, create, incur, assume or permit to
exist any Lien on or with respect to any property or asset of any kind
(including any document or instrument in respect of goods or accounts
receivable) of Company or any of its Subsidiaries, whether now owned or
hereafter acquired, or any income or profits therefrom, or file or permit the
filing of, or permit to remain in effect, any financing statement or other
similar notice of any Lien with respect to any such property, asset, income or
profits under the UCC of any State or under any similar recording or notice
statute, except:
(1) Liens in favor of Administrative Agent, as agent, for the benefit
of Lenders and Lender Counterparties granted pursuant to any Credit Document;
(2) Liens for taxes, assessments or governmental charges or claims that
are not yet due or are being contested in good faith by appropriate proceedings,
so long as such reserves or other appropriate provisions, if any, as shall be
required by GAAP shall have been made for any such contested amounts;
(3) statutory Liens of landlords, carriers, warehousemen, mechanics,
repairmen, workmen and materialmen, and other Liens imposed by law, in each case
incurred in the ordinary course of business (i) for amounts not yet overdue or
(ii) for amounts that are overdue and that (in the case of any such amounts
overdue for a period in excess of five days) are being contested in good faith
by appropriate proceedings, so long as such reserves or other appropriate
provisions, if any, as shall be required by GAAP shall have been made for any
such contested amounts;
(4) Liens incurred or deposits made in the ordinary course of business
in connection with workers' compensation, unemployment insurance and other types
of social security, deposits made in the ordinary course of business with
utility companies, and Liens incurred or deposits made in the
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ordinary course of business to secure the performance of tenders, statutory or
regulatory obligations, surety and appeal bonds, bids, leases, government
contracts, trade contracts, performance and return-of-money bonds and other
similar obligations (exclusive of obligations for the payment of borrowed
money), so long as no foreclosure, sale or similar proceedings have been
commenced with respect to any portion of the Collateral on account thereof;
(5) easements, rights-of-way, restrictions, encroachments, and other
minor defects or irregularities in title, and other similar encumbrances in each
case which do not and will not interfere in any material respect with the
ordinary conduct of the business of Company or any of its Subsidiaries;
(6) any interest or title of a lessor or sublessor under any lease
permitted hereunder;
(7) Liens solely on any cash earnest money deposits made by Company or
any of its Subsidiaries in connection with any letter of intent or purchase
agreement entered into by it;
(8) Liens incurred in connection with the purchase or shipping of goods
or assets on the related assets and proceeds thereof in favor of the seller or
shipper of such goods or assets;
(9) Liens arising from filing precautionary UCC financing statements
relating solely to leases entered into the ordinary course of business
(including Capital Leases permitted hereunder);
(10) 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;
(11) any zoning or similar law or right reserved to or vested in any
governmental office or agency to control or regulate the use of any real
property;
(12) licenses of patents, trademarks and other intellectual property
rights granted by Company or any of its Subsidiaries in the ordinary course of
business and not interfering in any respect with the ordinary conduct of the
business of Company or such Subsidiary;
(13) judgment liens not constituting an Event of Default pursuant to
Section 8.1(h);
(14) Liens described in Schedule 6.2 or on a title report delivered
pursuant to Section 5.11;
(15) Liens securing Indebtedness permitted pursuant to Section 6.1(j);
provided that any such Lien shall encumber only the assets acquired with the
proceeds of such Indebtedness;
(16) Liens existing on any property or assets acquired pursuant to a
Permitted Acquisition prior to the acquisition thereof by Borrower or any of its
Subsidiaries or existing on any property or asset of any Person that becomes a
Subsidiary (other than by RS Designation) after the date hereof prior to the
time such Person becomes a Subsidiary; provided that (i) such Lien is not
created in
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contemplation of or in connection with such acquisition or such Person becoming
a Subsidiary, as the case may be, (ii) such Lien shall not apply to any other
property or assets of Borrower or any of its Subsidiaries and (iii) such Lien
shall secure only those obligations which it secures on the date of such
acquisition or the date such Person becomes a Subsidiary, as the case may be,
and extensions, renewals and replacements thereof that do not increase the
outstanding principal amount thereof;
(17) Liens securing reimbursement obligations with respect to letters
of credit permitted pursuant to Section 6.1(m); and
(18) Liens that secure other obligations in an aggregate principal
amount not to exceed $5,000,000 at any time outstanding.
6.3. Equitable Lien; No Further Negative Pledges. If any Credit Party
or any of its Subsidiaries shall create or assume any Lien upon any of its
properties or assets, whether now owned or hereafter acquired, other than
Permitted Liens, it shall make or cause to be made effective provision whereby
the Obligations will be secured by such Lien equally and ratably with any and
all other Indebtedness secured thereby as long as any such Indebtedness shall be
so secured; provided that notwithstanding the foregoing, this covenant shall not
be construed as a consent by Requisite Lenders to the creation or assumption of
any such Lien not otherwise permitted hereby. Except with respect to (a) the
Existing Indentures, (b) specific property encumbered to secure payment of
particular Indebtedness or to be sold pursuant to an executed agreement with
respect to an Asset Sale or assets not constituting an Asset Sale, or (c) any
agreement prohibiting only the creation of Liens securing Subordinated
Indebtedness, no Credit Party nor any of its Subsidiaries shall enter into any
agreement prohibiting the creation or assumption of any Lien upon any of its
properties or assets, whether now owned or hereafter acquired.
6.4. Restricted Payments; Restrictions on Subsidiary Distributions. (a)
No Credit Party shall nor shall it permit any of its Subsidiaries to, directly
or indirectly, declare, order, pay, make or set apart any sum for any Restricted
Junior Payment except the following:
(1) Company may make regularly scheduled payments required to be
made to holders of the Subordinated Indebtedness; and
(2) so long as no Event of Default (A) of the type specified in
Section 8.1(a) has occurred or (B) has occurred as the result of a
breach of any of Sections 6.6, 6.7, 6.8 and 6.9 Borrower may make
Restricted Junior Payments to Company at such times and in such amounts
as are necessary to enable Company to make the payments specified in
clause (i) above.
(2) Except as provided in Section 6.3 and as otherwise provided herein,
no Credit Party shall, nor shall it permit any of its Subsidiaries 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
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Subsidiary of Company to (i) pay dividends or make any other distributions on
any of such Subsidiary's capital stock owned by Company or any other Subsidiary
of Company, (ii) repay or prepay any Indebtedness owed by such Subsidiary to
Company or any other Subsidiary of Company, (iii) make loans or advances to
Company or any other Subsidiary of Company, or (iv) transfer any of its property
or assets to Company or any other Subsidiary of Company.
6.5. Investments. No Credit Party shall, nor shall it permit any of its
Subsidiaries to, directly or indirectly, make or own any Investment in any
Person, including any Joint Venture, except:
(1) Cash Equivalents;
(2) Investments by any Credit Party in any Subsidiary of Company
(3) the contribution by Company of 100% of the capital stock of each of
its Subsidiaries to Borrower, such that after each such contribution, each such
Subsidiary is a subsidiary of Borrower;
(4) Investments (i) in accounts receivable arising and trade credit
granted in the ordinary course of business and in any Securities received in
satisfaction or partial satisfaction thereof from financially troubled account
debtors and (ii) prepayments and other credits to suppliers, agents, consultants
and customers made in the ordinary course of business consistent with the past
practices of Company and its Subsidiaries;
(5) intercompany loans to the extent permitted under Section 6.1(b);
(6) Consolidated Capital Expenditures permitted by Sections 6.6(d) and
6.7(e);
(7) Permitted Acquisitions;
(8) Investments in the form of notes issued by Company or any of its
Subsidiaries in connection with the repurchase of Securities from any director,
officer, employee or consultant pursuant to Section 6.1(l);
(9) Investments in the form of Hedge Agreements;
(10) deposits permitted under Section 6.1(d);
(11) loans or advances to employees in an aggregate amount not to
exceed $2,500,000;
(12) other cash Investments in an aggregate amount not in excess of
$50,000,000 at any time outstanding; and
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(13) cumulative cash Investments in Unrestricted Subsidiaries
(including any Subsidiary designated as an Unrestricted Subsidiary pursuant to
Section 6.17) in an aggregate amount not to exceed, after giving effect to the
proposed Investment, the Excess Proceeds Amount; provided that, in no event
shall Investments made pursuant to this subsection (m) exceed $200,000,000 in
any Fiscal Year.
6.6. Stage 1 Financial Covenants. During Stage 1:
(1) MINIMUM REVENUES. Company shall not permit Revenues as of the last
day of any Fiscal Quarter, beginning with the Fiscal Quarter ending March 31,
2000, to be less than the correlative amount indicated as set forth on Schedule
6.6(a).
(2) RATIO OF SENIOR SECURED DEBT TO ANNUALIZED ADJUSTED EBITDA. As of
the last day of any Fiscal Quarter beginning with the Fiscal Quarter ending
March 31, 2000, Company shall not permit the ratio of (y) Senior Secured Debt to
(y) the aggregate Annualized Pre-Overhead EBITDA to exceed the correlative ratio
indicated as set forth on Schedule 6.6(b).
(3) SENIOR SECURED DEBT TO TOTAL CAPITALIZATION. Company shall not
permit the ratio of Senior Secured Debt to Total Capitalization to exceed
0.35:1.00 at any time during Stage 1.
(4) CONSOLIDATED TOTAL DEBT TO TOTAL CAPITALIZATION. Company shall not
permit the ratio of Consolidated Total Debt to Total Capitalization to exceed
0.60:1.00 at any time during Stage 1.
6.7. Stage 2 Financial Covenants. During Stage 2:
(1) SENIOR LEVERAGE RATIO. Company shall not permit the Senior Leverage
Ratio as of the last day of any Fiscal Quarter beginning with the Fiscal Quarter
ending March 31, 2003 to exceed the correlative ratio indicated as set forth on
Schedule 6.7(a).
(2) TOTAL LEVERAGE RATIO. Company shall not permit the Total Leverage
Ratio as of the last day of any Fiscal Quarter beginning with the Fiscal Quarter
ending March 31, 2003 to exceed the correlative ratio indicated as set forth on
Schedule 6.7(b).
(3) INTEREST COVERAGE RATIO. Company shall not permit the Interest
Coverage Ratio as of the last day of any Fiscal Quarter, beginning with the
Fiscal Quarter ending March 31, 2003, to be less than the correlative ratio
indicated as set forth on Schedule 6.7(c).
(4) PRO FORMA DEBT SERVICE COVERAGE RATIO. Company shall not permit the
Pro Forma Debt Service Coverage Ratio as of the last day of any Fiscal Quarter
beginning with the Fiscal Quarter ending December 31, 2003 to be less than the
correlative ratio indicated as set forth on Schedule 6.7(d).
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6.8. Maximum Consolidated Capital Expenditures. During Stage 1 and
Stage 2, Company shall not and shall not permit its Subsidiaries to make or
incur Consolidated Capital Expenditures, in any Fiscal Year indicated on
Schedule 6.8, in an aggregate amount for Company and its Subsidiaries in excess
of the corresponding amount set forth on Schedule 6.8.
6.9. Fundamental Changes; Disposition of Assets; Acquisitions. No
Credit Party shall, nor shall it permit any of its Subsidiaries to, enter into
any transaction of merger or consolidation, or liquidate, wind-up or dissolve
itself (or suffer any liquidation or dissolution), or convey, sell, lease or
sub-lease (as lessor or sublessor), transfer or otherwise dispose of, in one
transaction or a series of transactions, all or any part of its business,
property or assets, whether now owned or hereafter acquired, or acquire by
purchase or otherwise (other than purchases or other acquisitions of inventory,
materials and equipment in the ordinary course of business) the business,
property or fixed assets of, or stock or other evidence of beneficial ownership
of, any Person or any division or line of business of any Person, except:
(1) subject to Section 6.14, any Subsidiary of Borrower may be merged
with or into Company or any other Subsidiary, or be liquidated, wound up or
dissolved, or all or any part of its business, property or assets may be
conveyed, sold, leased, transferred or otherwise disposed of, in one transaction
or a series of transactions, to Borrower or any of its Subsidiaries; provided
that in the case of such a merger, Company or such Subsidiary shall be the
continuing or surviving Person;
(2) sales of assets which do not constitute Asset Sales;
(3) leases or subleases to or from other Persons of assets by Company
or any of its Subsidiaries in the ordinary course of business;
(4) licenses to or from other Persons of Intellectual Property by
Company or any Subsidiary thereof in the ordinary course of business;
(5) Permitted Acquisitions;
(6) Investments made in accordance with Section 6.5; and
(7) subject to the requirements of Section 2.11(a), Asset Sales.
6.10. Disposal of Subsidiary Interests. Except for any sale of 100% of
the equity Securities of any of its Subsidiaries in compliance with the
provisions of Section 6.9, no Credit Party shall directly or indirectly sell,
assign, pledge or otherwise encumber or dispose of any equity Securities of any
of its Subsidiaries, except to qualify directors if required by applicable law;
or permit any of its Subsidiaries directly or indirectly to sell, assign, pledge
or otherwise encumber or dispose of any equity Securities of any of its
Subsidiaries (including such Subsidiary), except to another Credit
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Party (subject to the restrictions on such disposition otherwise imposed
hereunder), or to qualify directors if required by applicable law.
6.11. Sales and Lease-Backs. No Credit Party shall, nor shall it permit
any of its Subsidiaries to, directly or indirectly, become or remain liable as a
lessee or as a guarantor or other surety with respect to any lease of any
property (whether real, personal or mixed), whether now owned or hereafter
acquired, which Company or any of its Subsidiaries (a) has sold or transferred
or is to sell or to transfer to any other Person (other than Company or any of
its Subsidiaries), or (b) intends to use for substantially the same purpose as
any other property which has been or is to be sold or transferred by Company or
any of its Subsidiaries to any Person (other than Company or any of its
Subsidiaries) in connection with such lease.
6.12. Sale or Discount of Receivables. No Credit Party shall, nor shall
it permit any of its Subsidiaries to, directly or indirectly, sell with
recourse, or discount or otherwise sell for less than the face value thereof,
any of its notes or accounts receivable (it being understood that the
restrictions contained in this Section 6.12 shall not apply to any write-off of
bad debt in the ordinary course of business consistent with prior practice).
6.13. Transactions with Shareholders and Affiliates. No Credit Party
shall, nor shall it permit any of its Subsidiaries to, directly or indirectly,
enter into or permit to exist any transaction (including the purchase, sale,
lease or exchange of any property or the rendering of any service) with any
holder of 5% or more of any class of equity Securities of Company or any of its
Subsidiaries or with any Affiliate of Company or of any such holder, on terms
that are less favorable to Company or that Subsidiary, as the case may be, than
those that might be obtained at the time from Persons who are not such a holder
or Affiliate; provided that the foregoing restriction shall not apply to (a) any
transaction between Company and any of its Subsidiaries or between any of the
Subsidiaries; (b) reasonable and customary fees and expenses paid to members of
the Boards of Directors of Company and its Subsidiaries; or (c) compensation
arrangements entered into in the ordinary course of business with respect to
officers and other employees of Company and its Subsidiaries.
6.14. Conduct of Business. From and after the Closing Date, no Credit
Party shall, nor shall it permit any of its Subsidiaries to, engage in any
business other than (a) the businesses engaged in by such Credit Party on the
Closing Date and similar or related businesses including, without limitation,
data communications, Internet access, Internet portal, web hosting, application
hosting, and communication equipment collocation businesses, in any event
without the consent of the Requisite Lenders, in no more than thirty six (36)
Geographic Markets (plus up to an additional six (6) markets designated as
Excess Proceeds Geographic Markets), or as otherwise permitted under clause (vi)
of the definition of Permitted Acquisition, and (b) such other lines of business
as may be consented to by Requisite Lenders. Company will not engage in any
business activities (other than the issuance of Securities to the extent not
otherwise prohibited in this Agreement) or own any assets or properties other
than the capital stock of its Subsidiaries and otherwise as incident to its
existence as a holding company.
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6.15. Amendments or Waivers of Existing Indentures/Subordinated
Indebtedness. No Credit Party shall, nor shall it permit any of its Subsidiaries
to, amend or otherwise change the terms of the Existing Indentures or any
Subordinated Indebtedness, or make any payment consistent with an amendment
thereof or change thereto, if the effect of such amendment or change is to
increase the interest rate on the Existing Indentures or such Subordinated
Indebtedness, change (to earlier dates) any dates upon which payments of
principal or interest are due thereon, change any event of default or condition
to an event of default with respect thereto (other than to eliminate any such
event of default or increase any grace period related thereto), change the
redemption, prepayment or defeasance provisions thereof, change the
subordination provisions of such Subordinated Indebtedness (or of any guaranty
thereof), or change any collateral therefor (other than to release such
collateral), or if the effect of such amendment or change, together with all
other amendments or changes made, is to increase materially the obligations of
the obligor thereunder or to confer any additional rights on the holders of
notes issued under the Existing Indentures or such Subordinated Indebtedness (or
a trustee or other representative on their behalf) which would be adverse to any
Credit Party or Lenders.
6.16. Fiscal Year. No Credit Party shall, nor shall it permit any of
its Subsidiaries to, change its Fiscal Year-end from December 31.
6.17. Designation of Unrestricted Subsidiaries; RS Designations.
(a) Borrower may designate a Subsidiary acquired or formed after
the Closing Date as an Unrestricted Subsidiary under this Agreement (a
"DESIGNATION") only if:
(i) no Event of Default shall have occurred and be continuing at
the time of or after giving effect to such Designation;
(ii) after giving effect to such Designation, Company and its
Subsidiaries would be in compliance with each of the covenants set
forth in Sections 6.6, 6.7 and 6.8, as applicable, calculated on a pro
forma basis as if such Designation had occurred immediately prior to
the first day of the period of four consecutive fiscal quarters most
recently ended;
(iii) no Designation shall be made for any Subsidiary whose
assets, rights or franchises are material to the conduct of the
business of Company and its Subsidiaries in a Geographic Market (other
than an Excess Proceeds Geographic Market); and
(iv) Borrower has delivered to the Administrative Agent (x)
written notice of such Designation and (y) a certificate, dated the
effective date of such Designation, of an Authorized Officer of
Borrower stating that no Event of Default has occurred and is
continuing and setting forth reasonably detailed calculations
demonstrating pro forma compliance with each of Sections 6.6, 6.7 and
6.8, as applicable, in accordance with clause (ii) above.
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(b) Borrower may designate any Unrestricted Subsidiary as a
Subsidiary under this Agreement (an "RS DESIGNATION") only if:
(i) such Subsidiary is predominantly engaged in similar business
activities to Company and its Subsidiaries;
(ii) no Event of Default shall have occurred and be continuing at
the time of or after giving effect to such RS Designation;
(iii) after giving effect to such RS Designation, Company and its
Subsidiaries would be in compliance with each of the covenants set
forth in Sections 6.6, 6.7 and 6.8, as applicable, calculated on a pro
forma basis as if such RS Designation had occurred immediately prior to
the first day of the relevant period specified in such Section, as
applicable;
(iv) Borrower has delivered to the Administrative Agent (x)
written notice of such RS Designation and (y) a certificate, dated the
effective date of such RS Designation, of an Authorized Officer of
Borrower stating that no Event of Default has occurred and is
continuing and setting forth reasonably detailed calculations
demonstrating pro forma compliance with each of Section 6.6, 6.7 and
6.8, as applicable, in accordance with clause (iii) above; and
(v) all Indebtedness of such Subsidiary outstanding and all Liens
on assets of such Subsidiary existing immediately following the RS
Designation would, if initially incurred at such time, have been
permitted to be incurred pursuant to Sections 6.1 and 6.2 without
reliance on Section 6.2(p), provided, however, that, if the Person
subject to an RS Designation had Liens described in Section 6.2(p) at
the time such Person was designated an Unrestricted Subsidiary, such
Liens shall be permitted following such RS Designation.
Upon any such RS Designation, Borrower shall be deemed to have
(i) received a return of its Investment in such Unrestricted Subsidiary equal to
the lesser of (x) the amount of such Investment immediately prior to such RS
Designation and (y) the fair market value (as reasonably determined by Borrower)
of the net assets of such Subsidiary at the time of such RS Designation and (ii)
a permanent Investment in an Unrestricted Subsidiary equal to the excess, if
positive, of the amount referred to in clause (i)(x) above over the amount
referred to in clause (i)(y) above.
(c) Neither Borrower nor any Subsidiary shall at any time (x)
provide a Guaranty of any Indebtedness of any Unrestricted Subsidiary, (y) be
directly or indirectly liable for any Indebtedness of any Unrestricted
Subsidiary or (z) be directly or indirectly liable for any other Indebtedness
which provides that the holder thereof may (upon notice, lapse of time or both)
declare a default thereon (or cause such Indebtedness or the payment thereof to
be accelerated, payable or subject to repurchase prior to its final scheduled
maturity) upon the occurrence of a default with respect to any other
Indebtedness that is Indebtedness of an Unrestricted Subsidiary.
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SECTION 7. GUARANTY
7.1. Guaranty of the Obligations. Subject to the provisions of Section
7.2, Guarantors jointly and severally hereby irrevocably and unconditionally
guaranty to Administrative Agent for the rateable benefit of the Beneficiaries
the due and punctual payment in full of all Obligations when the same shall
become due, whether at stated maturity, by required prepayment, declaration,
acceleration, demand or otherwise (including amounts that would become due but
for the operation of the automatic stay under Section 362(a) of the Bankruptcy
Code, 11 U.S.C. ss. 362(a) (collectively, the "GUARANTEED OBLIGATIONS")).
7.2. Contribution by Guarantors. Each Guarantor desires to allocate
among themselves (collectively, the "CONTRIBUTING GUARANTORS"), in a fair and
equitable manner, their obligations arising under this Guaranty. Accordingly, in
the event any payment or distribution is made on any date by a Guarantor under
this Guaranty (a "FUNDING GUARANTOR") that exceeds its Fair Share as of such
date, that Funding Guarantor shall be entitled to a contribution from each of
the other Contributing Guarantors in the amount of such other Contributing
Guarantor's Fair Share Shortfall as of such date, with the result that all such
contributions will cause each Contributing Guarantor's Aggregate Payments to
equal its Fair Share as of such date. "FAIR SHARE" means, with respect to a
Contributing Guarantor as of any date of determination, an amount equal to (a)
the ratio of (i) the Fair Share Contribution Amount with respect to such
Contributing Guarantor to (ii) the aggregate of the Fair Share Contribution
Amounts with respect to all Contributing Guarantors multiplied by (b) the
aggregate amount paid or distributed on or before such date by all Funding
Guarantors under this Guaranty in respect of the obligations guarantied. "FAIR
SHARE SHORTFALL" means, with respect to a Contributing Guarantor as of any date
of determination, the excess, if any, of the Fair Share of such Contributing
Guarantor over the Aggregate Payments of such Contributing Guarantor. "FAIR
SHARE CONTRIBUTION AMOUNT" means, with respect to a Contributing Guarantor as of
any date of determination, the maximum aggregate amount of the obligations of
such Contributing Guarantor under this Guaranty that would not render its
obligations hereunder or thereunder subject to avoidance as a fraudulent
transfer or conveyance under Section 548 of Title 11 of the United States Code
or any applicable provisions of comparable state law; provided that solely for
purposes of calculating the "FAIR SHARE CONTRIBUTION AMOUNT" with respect to any
Contributing Guarantor for purposes of this Section 7.2, any assets or
liabilities of such Contributing Guarantor arising by virtue of any rights to
subrogation, reimbursement or indemnification or any rights to or obligations of
contribution hereunder shall not be considered as assets or liabilities of such
Contributing Guarantor. "AGGREGATE PAYMENTS" means, with respect to a
Contributing Guarantor as of any date of determination, an amount equal to (1)
the aggregate amount of all payments and distributions made on or before such
date by such Contributing Guarantor in respect of this Guaranty (including,
without limitation, in respect of this Section 7.2), minus (2) the aggregate
amount of all payments received on or before such date by such Contributing
Guarantor from the other Contributing Guarantors as contributions under this
Section 7.2. The amounts payable as contributions hereunder shall be determined
as of the date on which the related payment or distribution is made by the
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applicable Funding Guarantor. The allocation among Contributing Guarantors of
their obligations as set forth in this Section 7.2 shall not be construed in any
way to limit the liability of any Contributing Guarantor hereunder. Each
Guarantor is a beneficiary to the contribution agreement set forth in this
Section 7.2.
7.3. Payment by Guarantors. Subject to Section 7.2, Guarantors hereby
jointly and severally agree, in furtherance of the foregoing and not in
limitation of any other right which any Beneficiary may have at law or in equity
against any Guarantor by virtue hereof, that upon the failure of Borrower to pay
any of the Guaranteed Obligations when and as the same shall become due, whether
at stated maturity, by required prepayment, declaration, acceleration, demand or
otherwise (including amounts that would become due but for the operation of the
automatic stay under Section 362(a) of the Bankruptcy Code, 11 U.S.C. ss.
362(a)), Guarantors will upon demand pay, or cause to be paid, in cash, to
Administrative Agent for the ratable benefit of Beneficiaries, an amount equal
to the sum of the unpaid principal amount of all Guaranteed Obligations then due
as aforesaid, accrued and unpaid interest on such Guaranteed Obligations
(including interest which, but for the filing of a petition in bankruptcy with
respect to Borrower, would have accrued on such Guaranteed Obligations, whether
or not a claim is allowed against Borrower for such interest in the related
bankruptcy proceeding) and all other Obligations then owed to Beneficiaries as
aforesaid.
7.4. Liability of Guarantors Absolute. Each Guarantor agrees that its
obligations hereunder are irrevocable, absolute, independent and unconditional
and shall not be affected by any circumstance which constitutes a legal or
equitable discharge of a guarantor or surety other than payment in full of the
Guaranteed Obligations. In furtherance of the foregoing and without limiting the
generality thereof, each Guarantor agrees as follows:
(1) this Guaranty is a guaranty of payment when due and not of
collectibility;
(2) Administrative Agent may enforce this Guaranty upon the occurrence
of an Event of Default notwithstanding the existence of any dispute between
Borrower and any Beneficiary with respect to the existence of such Event of
Default;
(3) the obligations of each Guarantor hereunder are independent of the
obligations of Borrower and the obligations of any other guarantor (including
any other Guarantor) of the obligations of Borrower, and a separate action or
actions may be brought and prosecuted against such Guarantor whether or not any
action is brought against Borrower or any of such other guarantors and whether
or not Borrower is joined in any such action or actions;
(4) payment by any Guarantor of a portion, but not all, of the
Guaranteed Obligations shall in no way limit, affect, modify or abridge any
Guarantor's liability for any portion of the Guaranteed Obligations which has
not been paid. Without limiting the generality of the foregoing, if
Administrative Agent is awarded a judgment in any suit brought to enforce any
Guarantor's covenant to pay a portion of the Guaranteed Obligations, such
judgment shall not be deemed to release such Guarantor from its covenant to pay
the portion of the Guaranteed Obligations that is not
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the subject of such suit, and such judgment shall not, except to the extent
satisfied by such Guarantor, limit, affect, modify or abridge any other
Guarantor's liability hereunder in respect of the Guaranteed Obligations;
(5) any Beneficiary, upon such terms as it deems appropriate, without
notice or demand and without affecting the validity or enforceability hereof or
giving rise to any reduction, limitation, impairment, discharge or termination
of any Guarantor's liability hereunder, from time to time may (i) renew, extend,
accelerate, increase the rate of interest on, or otherwise change the time,
place, manner or terms of payment of the Guaranteed Obligations; (ii) settle,
compromise, release or discharge, or accept or refuse any offer of performance
with respect to, or substitutions for, the Guaranteed Obligations or any
agreement relating thereto and/or subordinate the payment of the same to the
payment of any other obligations; (iii) request and accept other guaranties of
the Guaranteed Obligations and take and hold security for the payment hereof or
the Guaranteed Obligations; (iv) release, surrender, exchange, substitute,
compromise, settle, rescind, waive, alter, subordinate or modify, with or
without consideration, any security for payment of the Guaranteed Obligations,
any other guaranties of the Guaranteed Obligations, or any other obligation of
any Person (including any other Guarantor) with respect to the Guaranteed
Obligations; (v) enforce and apply any security now or hereafter held by or for
the benefit of such Beneficiary in respect hereof or the Guaranteed Obligations
and direct the order or manner of sale thereof, or exercise any other right or
remedy that such Beneficiary may have against any such security, in each case as
such Beneficiary in its discretion may determine consistent herewith and any
applicable security agreement or Hedge Agreement, including foreclosure on any
such security pursuant to one or more judicial or nonjudicial sales, whether or
not every aspect of any such sale is commercially reasonable, and even though
such action operates to impair or extinguish any right of reimbursement or
subrogation or other right or remedy of any Guarantor against Borrower or any
security for the Guaranteed Obligations; and (vi) exercise any other rights
available to it under the Credit Documents or the Hedge Agreements; and
(6) this Guaranty and the obligations of Guarantors hereunder shall be
valid and enforceable and shall not be subject to any reduction, limitation,
impairment, discharge or termination for any reason (other than payment in full
of the Guaranteed Obligations), including the occurrence of any of the
following, whether or not any Guarantor shall have had notice or knowledge of
any of them: (i) any failure or omission to assert or enforce, or agreement or
election not to assert or enforce, or the stay or enjoining, by order of court,
by operation of law or otherwise, of the exercise or enforcement of, any claim
or demand or any right, power or remedy (whether arising under the Credit
Documents or the Hedge Agreements, at law, in equity or otherwise) with respect
to the Guaranteed Obligations or any agreement relating thereto, or with respect
to any other guaranty of or security for the payment of the Guaranteed
Obligations; (ii) any rescission, waiver, amendment or modification of, or any
consent to departure from, any of the terms or provisions (including provisions
relating to events of default) hereof, any of the other Credit Documents or the
Hedge Agreements or any agreement or instrument executed pursuant hereto or
thereto, or of any other guaranty or security for the Guaranteed Obligations, in
each case whether or not in accordance with the terms hereof or such Credit
Document or Hedge Agreement or any agreement relating to
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such other guaranty or security; (iii) the Guaranteed Obligations, or any
agreement relating thereto, at any time being found to be illegal, invalid or
unenforceable in any respect; (iv) the application of payments received from any
source (other than payments received pursuant to the other Credit Documents or
any Hedge Agreement or from the proceeds of any security for the Guaranteed
Obligations, except to the extent such security also serves as collateral for
indebtedness other than the Guaranteed Obligations) to the payment of
indebtedness other than the Guaranteed Obligations, even though any Beneficiary
might have elected to apply such payment to any part or all of the Guaranteed
Obligations; (v) any Beneficiary's consent to the change, reorganization or
termination of the corporate structure or existence of Company or any of its
Subsidiaries and to any corresponding restructuring of the Guaranteed
Obligations; (vi) any failure to perfect or continue perfection of a security
interest in any collateral which secures any of the Guaranteed Obligations;
(vii) any defenses, set-offs or counterclaims which Borrower may allege or
assert against any Beneficiary in respect of the Guaranteed Obligations,
including failure of consideration, breach of warranty, payment, statute of
frauds, statute of limitations, accord and satisfaction and usury; and (viii)
any other act or thing or omission, or delay to do any other act or thing, which
may or might in any manner or to any extent vary the risk of any Guarantor as an
obligor in respect of the Guaranteed Obligations.
7.5. Waivers by Guarantors. Each Guarantor hereby waives, for the
benefit of Beneficiaries: (a) any right to require any Beneficiary, as a
condition of payment or performance by such Guarantor, to (i) proceed against
Borrower, any other guarantor (including any other Guarantor) of the Guaranteed
Obligations or any other Person, (ii) proceed against or exhaust any security
held from Borrower, any such other guarantor or any other Person, (iii) proceed
against or have resort to any balance of any deposit account or credit on the
books of any Beneficiary in favor of Borrower or any other Person, or (iv)
pursue any other remedy in the power of any Beneficiary whatsoever; (b) any
defense arising by reason of the incapacity, lack of authority or any disability
or other defense of Borrower including any defense based on or arising out of
the lack of validity or the unenforceability of the Guaranteed Obligations or
any agreement or instrument relating thereto or by reason of the cessation of
the liability of Borrower from any cause other than payment in full of the
Guaranteed Obligations; (c) any defense based upon any statute or rule of law
which provides that the obligation of a surety must be neither larger in amount
nor in other respects more burdensome than that of the principal; (d) any
defense based upon any Beneficiary's errors or omissions in the administration
of the Guaranteed Obligations, except behavior which amounts to gross
negligence, willful misconduct or bad faith; (e)(i) any principles or provisions
of law, statutory or otherwise, which are or might be in conflict with the terms
hereof and any legal or equitable discharge of such Guarantor's obligations
hereunder, (ii) the benefit of any statute of limitations affecting such
Guarantor's liability hereunder or the enforcement hereof, (iii) any rights to
set-offs, recoupments and counterclaims, and (iv) promptness, diligence and any
requirement that any Beneficiary protect, secure, perfect or insure any security
interest or lien or any property subject thereto; (f) notices, demands,
presentments, protests, notices of protest, notices of dishonor and notices of
any action or inaction, including acceptance hereof, notices of default
hereunder, the Hedge Agreements or any agreement or instrument related hereto or
thereto, notices of any renewal, extension or modification of the Guaranteed
Obligations or any agreement related thereto, notices
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of any extension of credit to Borrower and notices of any of the matters
referred to in Section 7.4 and any right to consent to any thereof; and (g) any
defenses or benefits that may be derived from or afforded by law which limit the
liability of or exonerate guarantors or sureties, or which may conflict with the
terms hereof.
7.6. Guarantors' Rights of Subrogation, Contribution, Etc. Each
Guarantor hereby waives any claim, right or remedy, direct or indirect, that
such Guarantor now has or may hereafter have against Borrower or any of its
assets in connection with this Guaranty or the performance by such Guarantor of
its obligations hereunder for so long (but only for so long) as any Obligation
of any Credit Party remains outstanding, in each case whether such claim, right
or remedy arises in equity, under contract, by statute, under common law or
otherwise and including, without limitation, (a) any right of subrogation,
reimbursement or indemnification that such Guarantor now has or may hereafter
have against Borrower with respect to the Guaranteed Obligations, (b) any right
to enforce, or to participate in, any claim, right or remedy that any
Beneficiary now has or may hereafter have against Borrower, and (c) any benefit
of, and any right to participate in, any collateral or security now or hereafter
held by any Beneficiary. In addition, until the Guaranteed Obligations shall
have been indefeasibly paid in full and the Commitments shall have terminated
each Guarantor shall withhold exercise of any right of contribution such
Guarantor may have against any other guarantor (including any other Guarantor)
of the Guaranteed Obligations, including, without limitation, any such right of
contribution as contemplated by Section 7.2. Each Guarantor further agrees that,
to the extent the waiver or agreement to withhold the exercise of its rights of
subrogation, reimbursement, indemnification and contribution as set forth herein
is found by a court of competent jurisdiction to be void or voidable for any
reason, any rights of subrogation, reimbursement or indemnification such
Guarantor may have against Borrower or against any collateral or security, and
any rights of contribution such Guarantor may have against any such other
guarantor, shall be junior and subordinate to any rights any Beneficiary may
have against Borrower, to all right, title and interest any Beneficiary may have
in any such collateral or security, and to any right any Beneficiary may have
against such other guarantor. If any amount shall be paid to any Guarantor on
account of any such subrogation, reimbursement, indemnification or contribution
rights at any time when all Guaranteed Obligations shall not have been paid in
full, such amount shall be held in trust for guarantied party on behalf of
Beneficiaries and shall forthwith be paid over to guarantied party for the
benefit of Beneficiaries to be credited and applied against the Guaranteed
Obligations, whether matured or unmatured, in accordance with the terms hereof.
7.7. Subordination of Other Obligations. Any Indebtedness of Borrower
or any Guarantor now or hereafter held by any Guarantor (the "OBLIGEE
GUARANTOR") is hereby subordinated in right of payment to the Guaranteed
Obligations, and any such indebtedness collected or received by the Obligee
Guarantor after an Event of Default has occurred and is continuing shall be held
in trust for Administrative Agent on behalf of Beneficiaries and shall forthwith
be paid over to Administrative Agent for the benefit of Beneficiaries to be
credited and applied against the Guaranteed Obligations but without affecting,
impairing or limiting in any manner the liability of the Obligee Guarantor under
any other provision hereof.
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7.8. Continuing Guaranty. This Guaranty is a continuing guaranty and
shall remain in effect until all of the Guaranteed Obligations shall have been
paid in full and the Commitments shall have terminated. Each Guarantor hereby
irrevocably waives any right to revoke this Guaranty as to future transactions
giving rise to any Guaranteed Obligations.
7.9. Authority of Guarantors or Borrower. It is not necessary for any
Beneficiary to inquire into the capacity or powers of any Guarantor or Borrower
or the officers, directors or any agents acting or purporting to act on behalf
of any of them.
7.10. Financial Condition of Borrower. Any Loan may be granted to
Borrower or continued from time to time, and any Hedge Agreement may be entered
into from time to time, in each case without notice to or authorization from any
Guarantor regardless of the financial or other condition of Borrower at the time
of any such grant or continuation or at the time such Hedge Agreement is entered
into, as the case may be. No Beneficiary shall have any obligation to disclose
or discuss with any Guarantor its assessment, or any Guarantor's assessment, of
the financial condition of Borrower. Each Guarantor has adequate means to obtain
information from Borrower on a continuing basis concerning the financial
condition of Borrower and its ability to perform its obligations under the
Credit Documents and the Hedge Agreements, and each Guarantor assumes the
responsibility for being and keeping informed of the financial condition of
Borrower and of all circumstances bearing upon the risk of nonpayment of the
Guaranteed Obligations. Each Guarantor hereby waives and relinquishes any duty
on the part of any Beneficiary to disclose any matter, fact or thing relating to
the business, operations or conditions of Borrower now known or hereafter known
by any Beneficiary.
7.11. Bankruptcy, Etc. (a) So long as any Guaranteed Obligations remain
outstanding, no Guarantor shall, without the prior written consent of
Administrative Agent acting pursuant to the instructions of Requisite Lenders,
commence or join with any other Person in commencing any bankruptcy,
reorganization or insolvency proceedings of or against Borrower. The obligations
of Guarantors hereunder shall not be reduced, limited, impaired, discharged,
deferred, suspended or terminated by any proceeding, voluntary or involuntary,
involving the bankruptcy, insolvency, receivership, reorganization, liquidation
or arrangement of Borrower or by any defense which Borrower may have by reason
of the order, decree or decision of any court or administrative body resulting
from any such proceeding.
(1) Each Guarantor acknowledges and agrees that any interest on any
portion of the Guaranteed Obligations which accrues after the commencement of
any proceeding referred to in clause (a) above (or, if interest on any portion
of the Guaranteed Obligations ceases to accrue by operation of law by reason of
the commencement of said proceeding, such interest as would have accrued on such
portion of the Guaranteed Obligations if said proceedings had not been
commenced) shall be included in the Guaranteed Obligations because it is the
intention of Guarantors and Beneficiaries that the Guaranteed Obligations which
are guarantied by Guarantors pursuant hereto should be determined without regard
to any rule of law or order which may relieve Borrower of any portion of such
Guaranteed Obligations. Guarantors will permit any trustee in bankruptcy,
receiver,
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debtor in possession, assignee for the benefit of creditors or similar
person to pay Administrative Agent, or allow the claim of Administrative Agent
in respect of, any such interest accruing after the date on which such
proceeding is commenced.
(2) In the event that all or any portion of the Guaranteed Obligations
are paid by Borrower, the obligations of Guarantors hereunder shall continue and
remain in full force and effect or be reinstated, as the case may be, in the
event that all or any part of such payment(s) are rescinded or recovered
directly or indirectly from any Beneficiary as a preference, fraudulent transfer
or otherwise, and any such payments which are so rescinded or recovered shall
constitute Guaranteed Obligations for all purposes hereunder.
7.12. Notice of Events. As soon as any Guarantor obtains knowledge
thereof, such Guarantor shall give Administrative Agent written notice of any
condition or event which has resulted in a material adverse change in the
financial condition of any Guarantor or Borrower or a breach of or noncompliance
with any term, condition or covenant contained herein, any other Credit
Document, any Hedge Agreement or any other document delivered pursuant hereto or
thereto.
7.13. Discharge of Guaranty Upon Sale of Guarantor. If all of the
equity Securities of any Guarantor or any of its successors in interest
hereunder shall be sold or otherwise disposed of (including by merger or
consolidation) in accordance with the terms and conditions hereof, the Guaranty
of such Guarantor or such successor in interest, as the case may be, hereunder
shall automatically be discharged and released without any further action by any
Beneficiary or any other Person effective as of the time of such Asset Sale;
provided that as a condition precedent to such discharge and release,
Administrative Agent shall have received evidence satisfactory to it that
arrangements satisfactory to it have been made for delivery to Administrative
Agent of the applicable Net Asset Sale Proceeds of such disposition pursuant to
Section 2.13(a).
SECTION 8. EVENTS OF DEFAULT
8.1. Events of Default. If any one or more of the following conditions
or events shall occur:
(1) FAILURE TO MAKE PAYMENTS WHEN DUE. Failure by Borrower to pay (i)
any installment of principal of any Loan when due, whether at stated maturity,
by acceleration, by notice of voluntary prepayment, by mandatory prepayment or
otherwise; or (ii) any interest on any Loan or any fee or any other amount due
hereunder within five (5) days after the date due; or (1)
(2) DEFAULT IN OTHER AGREEMENTS. (i) Failure of any Credit Party to pay
when due any principal of or interest on or any other amount payable in respect
of one or more items of Indebtedness (other than Indebtedness referred to in
Section 8.1(a)) in an aggregate principal amount of $5,000,000 or more, in each
case beyond the grace period, if any, provided therefor; or (ii) breach or
default by any Credit Party with respect to any other material term of (1) one
or more items of Indebtedness in the individual or aggregate principal amounts
referred to in clause (i) above or (2)
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any loan agreement, mortgage, indenture or other agreement relating to such
item(s) of Indebtedness, in each case beyond the grace period, if any, provided
therefor, if the effect of such breach or default is to cause, or to permit the
holder or holders of that Indebtedness (or a trustee on behalf of such holder or
holders) to cause, that Indebtedness to become or be declared due and payable
(or redeemable) prior to its stated maturity or the stated maturity of any
underlying obligation, as the case may be; or
(3) BREACH OF CERTAIN COVENANTS. Failure of any Credit Party to perform
or comply with any term or condition contained in Sections 2.3, 5.1(g), 5.2 or
Section 6 (other than, at any time prior to the Initial Funding Date, Sections
5.13(b), 6.6 and Section 6.7) hereof; or
(4) BREACH OF REPRESENTATIONS, ETC. Any representation, warranty,
certification or other statement made or deemed made by any Credit Party in any
Credit Document or in any statement or certificate at any time given by Company
or any of its Subsidiaries in writing pursuant hereto or thereto or in
connection herewith or therewith shall be false in any material respect as the
date made or deemed made; or
(5) OTHER DEFAULTS UNDER CREDIT DOCUMENTS. Any Credit Party shall
default in the performance of or compliance with any term contained herein or
any of the other Credit Documents, other than any such term referred to in any
other Section of this Section 8.1 (including, on and after the Initial Funding
Date, Sections 5.13(b), 6.6 and 6.7), and such default shall not have been
remedied or waived within thirty (30) days after the earlier of (i) an officer
of such Credit Party becoming aware of such default or (ii) receipt by Borrower
of notice from Administrative Agent or any Lender of such default; or
(6) INVOLUNTARY BANKRUPTCY; APPOINTMENT OF RECEIVER, ETC. (i) A court
of competent jurisdiction shall enter a decree or order for relief in respect of
any Credit Party in an involuntary case under the Bankruptcy Code or under any
other applicable bankruptcy, insolvency or similar law now or hereafter in
effect, which decree or order is not stayed; or any other similar relief shall
be granted under any applicable federal or state law; or (ii) an involuntary
case shall be commenced against any Credit Party under the Bankruptcy Code or
under any other applicable bankruptcy, insolvency or similar law now or
hereafter in effect; or a decree or order of a court having jurisdiction in the
premises for the appointment of a receiver, liquidator, sequestrator, trustee,
custodian or other officer having similar powers over any Credit Party, or over
all or a substantial part of its property, shall have been entered; or there
shall have occurred the involuntary appointment of an interim receiver, trustee
or other custodian of any Credit Party for all or a substantial part of its
property; or a warrant of attachment, execution or similar process shall have
been issued against any substantial part of the property of any Credit Party,
and any such event described in this clause (ii) shall continue for sixty (60)
days without having been dismissed, bonded or discharged; or
(7) VOLUNTARY BANKRUPTCY. (i) Any Credit Party shall have an order for
relief entered with respect to it or commence a voluntary case under the
Bankruptcy Code or under any other applicable bankruptcy, insolvency or similar
law now or hereafter in effect, or shall consent to the
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entry of an order for relief in an involuntary case, or to the conversion of an
involuntary case to a voluntary case, under any such law, or shall consent to
the appointment of or taking possession by a receiver, trustee or other
custodian for all or a substantial part of its property; or any Credit Party
shall make any assignment for the benefit of creditors; or (ii) any Credit Party
shall be unable, or shall fail generally, or shall admit in writing its
inability, to pay its debts as such debts become due; or the Board of Directors
of any Credit Party (or any committee thereof) shall adopt any resolution or
otherwise authorize any action to approve any of the actions referred to herein
or in Section 8.1(f); or
(8) JUDGMENTS OF ATTACHMENTS. Any money judgment, writ or warrant of
attachment or similar process involving in the aggregate at any time an amount
in excess of $5,000,000 (not adequately covered by insurance as to which a
solvent and unaffiliated insurance company has acknowledged coverage) shall be
entered or filed against any Credit Party or any of their respective assets and
shall remain undischarged, unvacated, unbonded or unstayed for a period of sixty
(60) days (or in any event later than five days prior to the date of any
proposed sale thereunder); or
(9) DISSOLUTION. Any order, judgment or decree shall be entered against
any Credit Party decreeing the dissolution or split up of Company or that
Subsidiary and such order shall remain undischarged or unstayed for a period in
excess of thirty (30) days; or
(10) EMPLOYEE BENEFIT PLANS. There shall occur one or more ERISA Events
which individually or in the aggregate results in or might reasonably be
expected to result in liability of Company, any of its Subsidiaries or any of
their respective ERISA Affiliates in excess of $5,000,000 during the term
hereof; or there shall exist an amount of unfunded benefit liabilities (as
defined in Section 4001(a)(18) of ERISA), individually or in the aggregate for
all Pension Plans (excluding for purposes of such computation any Pension Plans
with respect to which assets exceed benefit liabilities), which exceeds
$5,000,000; or
(11) CHANGE OF CONTROL. A Change of Control shall occur; or
(12) GUARANTIES, COLLATERAL DOCUMENTS AND OTHER CREDIT DOCUMENTS. At
any time after the execution and delivery thereof, (i) the Guaranty for any
reason, other than the satisfaction in full of all Obligations, shall cease to
be in full force and effect (other than in accordance with its terms) or shall
be declared to be null and void or any Guarantor shall repudiate its obligations
thereunder, (ii) this Agreement or any Collateral Document ceases to be in full
force and effect (other than by reason of a release of Collateral in accordance
with the terms hereof or thereof or the satisfaction in full of the Obligations
in accordance with the terms hereof) or shall be declared null and void, or
Administrative Agent shall not have or shall cease to have a valid and perfected
Lien in any material Collateral purported to be covered by the Collateral
Documents with the priority required by the relevant Collateral Documents, in
each case for any reason other than the failure of Administrative Agent or any
Lender to take any action within its control, or (iii) any Credit Party shall
contest the validity or enforceability of any Credit Document in writing or deny
in writing that
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it has any further liability, including with respect to future advances by
Lenders, under any Credit Document to which it is a party;
THEN, (1) upon the occurrence of any Event of Default described in Sections
8.1(f) or 8.1(g), automatically, and (2) upon the occurrence of any other Event
of Default, at the request of (or with the consent of) Requisite Lenders, upon
notice to Borrower by Administrative Agent, (A) the Commitments, if any, of each
Lender having such Commitments shall terminate, and (B) each of the following
shall immediately become due and payable, in each case without presentment,
demand, protest or other requirements of any kind, all of which are hereby
expressly waived by each Credit Party: (I) the unpaid principal amount of and
accrued interest on the Loans and (II) all other Obligations.
SECTION 9. AGENTS
9.1. Appointment of Agents. GSCP is hereby appointed Sole Lead Arranger
and Syndication Agent hereunder, and each Lender hereby authorizes Sole Lead
Arranger and Syndication Agent to act as its agent in accordance with the terms
hereof and the other Credit Documents. TD is hereby appointed Administrative
Agent hereunder and under the other Credit Documents and each Lender hereby
authorizes Administrative Agent to act as its agent in accordance with the terms
hereof and the other Credit Documents (except with respect to the rights granted
to it in the second sentence of Section 9.7). Each of Fleet Boston and MSSF is
hereby appointed Co-Documentation Agent hereunder, and each Lender hereby
authorizes each Co-Documentation Agent to act as its agent in accordance with
the terms hereof and the other Credit Documents. Each Agent hereby agrees to act
upon the express conditions contained herein and the other Credit Documents, as
applicable. The provisions of this Section 9 are solely for the benefit of
Agents and Lenders and no Credit Party shall have any rights as a third party
beneficiary of any of the provisions thereof. In performing its functions and
duties hereunder, each Agent shall act solely as an agent of Lenders and does
not assume and shall not be deemed to have assumed any obligation towards or
relationship of agency or trust with or for Company or any of its Subsidiaries.
Each Agent, without consent of or notice to any party hereto, may assign any and
all of its rights or obligations hereunder to any of its Affiliates. As of the
Closing Date, all the respective obligations of (i) GSCP, in its capacity as
Syndication Agent and (ii) each of Fleet Boston and MSSF, in its capacity as
Co-Documentation Agent, shall terminate.
9.2. Powers and Duties. Each Lender irrevocably authorizes each Agent
to take such action on such Lender's behalf and to exercise such powers, rights
and remedies hereunder and under the other Credit Documents as are specifically
delegated or granted to such Agent by the terms hereof and thereof, together
with such powers, rights and remedies as are reasonably incidental thereto. Each
Agent shall have only those duties and responsibilities that are expressly
specified herein and the other Credit Documents. Each Agent may exercise such
powers, rights and remedies and perform such duties by or through its agents or
employees. No Agent shall have, by reason hereof or any of the other Credit
Documents, a fiduciary relationship in respect of any Lender; and nothing herein
or any of the other Credit Documents, expressed or implied, is intended to or
shall
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be so construed as to impose upon any Agent any obligations in respect hereof or
any of the other Credit Documents except as expressly set forth herein or
therein.
9.3. General Immunity.
(1) NO RESPONSIBILITY FOR CERTAIN MATTERS. No Agent shall be
responsible to any Lender for the execution, effectiveness, genuineness,
validity, enforceability, collectibility or sufficiency hereof or any other
Credit Document or for any representations, warranties, recitals or statements
made herein or therein or made in any written or oral statements or in any
financial or other statements, instruments, reports or certificates or any other
documents furnished or made by any of Agent to Lenders or by or on behalf of
Borrower to any Agent or any Lender in connection with the Credit Documents and
the transactions contemplated thereby or for the financial condition or business
affairs of any Credit Party or any other Person liable for the payment of any
Obligations, nor shall any Agent be required to ascertain or inquire as to the
performance or observance of any of the terms, conditions, provisions, covenants
or agreements contained in any of the Credit Documents or as to the use of the
proceeds of the Loans or as to the existence or possible existence of any Event
of Default or Default. Anything contained herein to the contrary
notwithstanding, Administrative Agent shall not have any liability arising from
confirmations of the amount of outstanding Loans.
(2) EXCULPATORY PROVISIONS. No Agent nor any of its officers, partners,
directors, employees or agents shall be liable to Lenders for any action taken
or omitted by any Agent under or in connection with any of the Credit Documents
except to the extent caused by such Agent's gross negligence or willful
misconduct. Each Agent shall be entitled to refrain from any act or the taking
of any action (including the failure to take an action) in connection herewith
or any of the other Credit Documents or from the exercise of any power,
discretion or authority vested in it hereunder or thereunder unless and until
such Agent shall have received instructions in respect thereof from Requisite
Lenders (or such other Lenders as may be required to give such instructions
under Section 10.5) and, upon receipt of such instructions from Requisite
Lenders (or such other Lenders, as the case may be), such Agent shall be
entitled to act or (where so instructed) refrain from acting, or to exercise
such power, discretion or authority, in accordance with such instructions.
Without prejudice to the generality of the foregoing, (i) each Agent shall be
entitled to rely, and shall be fully protected in relying, upon any
communication, instrument or document believed by it to be genuine and correct
and to have been signed or sent by the proper Person or Persons, and shall be
entitled to rely and shall be protected in relying on opinions and judgments of
attorneys (who may be attorneys for Company and its Subsidiaries), accountants,
experts and other professional advisors selected by it; and (ii) no Lender shall
have any right of action whatsoever against any Agent as a result of such Agent
acting or (where so instructed) refraining from acting hereunder or any of the
other Credit Documents in accordance with the instructions of Requisite Lenders
(or such other Lenders as may be required to give such instructions under
Section 10.5).
9.4. Agents Entitled to Act as Lender. The agency hereby created shall
in no way impair or affect any of the rights and powers of, or impose any duties
or obligations upon, any Agent in its
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individual capacity as a Lender hereunder. With respect to its participation in
the Loans, each Agent, in its individual capacity, shall have the same rights
and powers hereunder as any other Lender and may exercise the same as if it were
not performing the duties and functions delegated to it hereunder, and the term
"LENDER" shall, unless the context clearly otherwise indicates, include each
Agent in its individual capacity. Any Agent, in its individual capacity, and its
Affiliates may accept deposits from, lend money to and generally engage in any
kind of banking, trust, financial advisory or other business with Borrower or
any of its Affiliates as if it were not performing the duties specified herein,
and may accept fees and other consideration from Borrower for services in
connection herewith and otherwise without having to account for the same to
Lenders.
9.5. Lenders' Representations, Warranties and Acknowledgment. Each
Lender represents and warrants that it has made its own independent
investigation of the financial condition and affairs of Company and its
Subsidiaries in connection with Loans hereunder and that it has made and shall
continue to make its own appraisal of the creditworthiness of Company and its
Subsidiaries. No Agent shall have any duty or responsibility, either initially
or on a continuing basis, to make any such investigation or any such appraisal
on behalf of Lenders or to provide any Lender with any credit or other
information with respect thereto, whether coming into its possession before the
making of the Loans or at any time or times thereafter, and no Agent shall have
any responsibility with respect to the accuracy of or the completeness of any
information provided to Lenders.
9.6. Right to Indemnity. Each Lender, in proportion to its Pro Rata
Share, severally agrees to indemnify each Agent, to the extent that such Agent
shall not have been reimbursed by any Credit Party, for and against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses (including counsel fees and disbursements) or disbursements of
any kind or nature whatsoever which may be imposed on, incurred by or asserted
against such Agent in exercising its powers, rights and remedies or performing
its duties hereunder or under the other Credit Documents or otherwise in its
capacity as such Agent in any way relating to or arising out hereof or the other
Credit Documents; provided that no Lender shall be liable for any portion of
such liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements resulting from such Agent's gross
negligence or willful misconduct. If any indemnity furnished to any Agent for
any purpose shall, in the opinion of such Agent, be insufficient or become
impaired, such Agent may call for additional indemnity and cease, or not
commence, to do the acts indemnified against until such additional indemnity is
furnished; provided that in no event shall this sentence require any Lender to
indemnify any Agent against any liability, obligation, loss, damage, penalty,
action, judgment, suit, cost, expense or disbursement in excess of such Lender's
Pro Rata Share thereof; and provided further that this sentence shall not be
deemed to require any Lender to indemnify any Agent against any liability,
obligation, loss, damage, penalty, action, judgment, suit, cost, expense or
disbursement described in the proviso in the immediately preceding sentence.
9.7. Successor Administrative Agent. Administrative Agent may resign at
any time by giving thirty (30) days' prior written notice thereof to Lenders and
Borrower. Upon any such notice of resignation, Requisite Lenders shall have the
right, with the consent of Borrower (which shall not be unreasonably withheld or
delayed or required at any time an Event of Default shall have occurred
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and then be continuing), to appoint a successor Administrative Agent. Upon the
acceptance of any appointment as Administrative Agent hereunder by a successor
Administrative Agent, that successor Administrative Agent shall thereupon
succeed to and become vested with all the rights, powers, privileges and duties
of the retiring Administrative Agent and the retiring Administrative Agent shall
be discharged from its duties and obligations hereunder. After any retiring
Administrative Agent's resignation hereunder as Administrative Agent, the
provisions of this Section 9 shall inure to its benefit as to any actions taken
or omitted to be taken by it while it was Agent hereunder.
9.8. Collateral Documents and Guaranties. (A) ADMINISTRATIVE AGENT AS
AGENT UNDER COLLATERAL DOCUMENTS AND GUARANTIES. Each Lender hereby further
authorizes Administrative Agent, on behalf of and for the benefit of Lenders, to
be the agent for and representative of Lenders with respect to the Guaranty, the
Collateral and the Collateral Documents. Subject to Section 10.5, without
further written consent or authorization from Lenders, Administrative Agent may
execute any documents or instruments necessary to (i) release any Lien
encumbering any item of Collateral that is the subject of a sale or other
disposition of assets permitted hereby or to which Requisite Lenders (or such
other Lenders as may be required to give such consent under Section 10.5) have
otherwise consented or (ii) release any Guarantor from the Guaranty pursuant to
Section 7.13 or with respect to which Requisite Lenders (or such other Lenders
as may be required to give such consent under Section 10.5) have otherwise
consented.
(1) ADMINISTRATIVE AGENTS' RIGHT TO REALIZE ON COLLATERAL AND ENFORCE
GUARANTY. Anything contained in any of the Credit Documents to the contrary
notwithstanding, each Credit Party, Administrative Agent and each Lender hereby
agree that (i) no Lender shall have any right individually to realize upon any
of the Collateral or to enforce the Guaranty, it being understood and agreed
that all powers, rights and remedies hereunder may be exercised solely by
Administrative Agent for the benefit of Lenders in accordance with the terms
hereof, and (ii) in the event of a foreclosure by Administrative Agent on any of
the Collateral pursuant to a public or private sale, Administrative Agent or any
Lender may be the purchaser of any or all of such Collateral at any such sale
and Administrative Agent, as agent for and representative of Lenders (but not
any Lender or Lenders in its or their respective individual capacities unless
Requisite Lenders shall otherwise agree in writing) shall be entitled, for the
purpose of bidding and making settlement or payment of the purchase price for
all or any portion of the Collateral sold at any such public sale, to use and
apply any of the Obligations as a credit on account of the purchase price for
any collateral payable by Administrative Agent at such sale.
(2) SUPPLEMENTAL COLLATERAL AGENT. It is the purpose hereof and the
other Credit Documents that there shall be no violation of any law of any
jurisdiction denying or restricting the right of banking corporations or
associations to transact business as agent or trustee in such jurisdiction. It
is recognized that in case of litigation hereunder or any of the other Credit
Documents, and in particular in case of the enforcement of any of the Credit
Documents, or in case Administrative Agent deems that by reason of any present
or future law of any jurisdiction it may not exercise any of the rights, powers
or remedies granted herein or in any of the other Credit Documents or take any
other action which may be desirable or necessary in connection therewith,
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it may be necessary that Administrative Agent appoint an additional individual
or institution as a separate trustee, co-trustee, collateral agent or collateral
co-agent (a "SUPPLEMENTAL COLLATERAL AGENT"). In the event that Administrative
Agent appoints a Supplemental Collateral Agent with respect to any Collateral,
(i) each and every right, power, privilege or duty expressed or intended hereby
or any of the other Credit Documents to be exercised by or vested in or conveyed
to Administrative Agent with respect to such Collateral shall be exercisable by
and vest in such Supplemental Collateral Agent to the extent, and only to the
extent, necessary to enable such Supplemental Collateral Agent to exercise such
rights, powers and privileges with respect to such Collateral and to perform
such duties with respect to such Collateral, and every covenant and obligation
contained in the Credit Documents and necessary to the exercise or performance
thereof by such Supplemental Collateral Agent shall run to and be enforceable by
either Agent or such Supplemental Collateral Agent, and (ii) the provisions of
this Section 9 and of Sections 10.2 and 10.3 that refer to Administrative Agent
shall inure to the benefit of such Supplemental Collateral Agent and all
references therein to Administrative Agent shall be deemed to be references to
Administrative Agent and/or such Supplemental Collateral Agent, as the context
may require. Should any instrument in writing from Borrower or any other Credit
Party be required by any Supplemental Collateral Agent so appointed by
Administrative Agent for more fully and certainly vesting in and confirming to
him or it such rights, powers, privileges and duties, Borrower shall, or shall
cause such Credit Party to, execute, acknowledge and deliver any and all such
instruments promptly upon request by Administrative Agent. In case any
Supplemental Collateral Agent, or a successor thereto, shall die, become
incapable of acting, resign or be removed, all the rights, powers, privileges
and duties of such Supplemental Collateral Agent, to the extent permitted by
law, shall vest in and be exercised by Administrative Agent until the
appointment of a new Supplemental Collateral Agent.
SECTION 10. MISCELLANEOUS
10.1. Notices. Unless otherwise specifically provided herein, any
notice or other communication herein required or permitted to be given to a
Credit Party or any Agent, shall be sent to such Person's address as set forth
on Appendix B or in the other relevant Credit Document, and in the case of any
Lender, the address as indicated on Appendix B or otherwise indicated to
Administrative Agent in writing. Each notice hereunder shall be in writing and
may be personally served, telexed or sent by telefacsimile or United States mail
or courier service and shall be deemed to have been given when delivered in
person or by courier service and signed for against receipt thereof, upon
receipt of telefacsimile or telex, or three Business Days after depositing it in
the United States mail with postage prepaid and properly addressed; provided
that no notice to any Agent or Lender shall be effective until received by such
Agent or Lender.
10.2. Expenses. Whether or not the transactions contemplated hereby
shall be consummated, Borrower agrees to pay promptly (a) all the reasonable
out-of-pocket costs and expenses of Sole Lead Arranger associated with the
syndication of the credit facilities hereunder and the preparation of the Credit
Documents and any consents, amendments, waivers or other modifications thereto;
(b) all reasonable costs of furnishing all opinions by counsel for any Credit
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Party (including any opinions requested by Lenders as to any legal matters
arising hereunder) and of Borrower's and each Credit Party's performance of and
compliance with all agreements and conditions on its part to be performed or
complied with hereunder and the other Credit Documents including with respect to
confirming compliance with environmental, insurance and solvency requirements;
(c) the reasonable fees, expenses and disbursements of counsel to Sole Lead
Arranger in connection with the negotiation, preparation, execution and
administration of the Credit Documents and any consents, amendments, waivers or
other modifications thereto and any other documents or matters requested by any
Credit Party; (d) all the reasonable out-of-pocket expenses of creating and
perfecting Liens in favor of Administrative Agent for the benefit of Lenders
pursuant hereto, including filing and recording fees, expenses and taxes, stamp
or documentary taxes, search fees, title insurance premiums and reasonable fees,
expenses and disbursements of counsel to each Agent and of counsel providing any
opinions that any Agent or Requisite Lenders may request in respect of the
Collateral or the Liens created pursuant to the Collateral Documents; (e) all
the reasonable out-of-pocket costs and fees, expenses and disbursements of any
auditors, accountants, consultants or appraisers; (f) all the reasonable out of
pocket costs and expenses (including the reasonable fees, expenses and
disbursements of any appraisers, consultants, advisors and agents employed or
retained by Administrative Agent and its counsel) in connection with the custody
or preservation of any of the Collateral; (g) all other reasonable out-of-pocket
costs and expenses incurred by each Agent in connection with the syndication of
the Loans and Commitments and the negotiation, preparation and execution of the
Credit Documents and any consents, amendments, waivers or other modifications
thereto and the transactions contemplated thereby; and (h) after the occurrence
of a Default or an Event of Default, all costs and expenses, including
reasonable attorneys' fees and costs of settlement, incurred by any Agent and
Lenders in enforcing any Obligations of or in collecting any payments due from
any Credit Party hereunder or under the other Credit Documents by reason of such
Default or Event of Default (including in connection with the sale of,
collection from, or other realization upon any of the Collateral or the
enforcement of the Guaranty) or in connection with any refinancing or
restructuring of the credit arrangements provided hereunder in the nature of a
"work-out" or pursuant to any insolvency or bankruptcy cases or proceedings.
10.3. Indemnity. In addition to the payment of expenses pursuant to
Section 10.2, whether or not the transactions contemplated hereby shall be
consummated, each Credit Party agrees to defend (subject to Indemnitees'
selection of counsel), indemnify, pay and hold harmless, each Agent and Lender
and the officers, partners, directors, trustees, employees, agents and
Affiliates of each Agent and each Lender (each, an "INDEMNITEE"), from and
against any and all Indemnified Liabilities; provided that no Credit Party shall
have any obligation to any Indemnitee hereunder with respect to any Indemnified
Liabilities to the extent such Indemnified Liabilities arise from the gross
negligence or willful misconduct of that Indemnitee. To the extent that the
undertakings to defend, indemnify, pay and hold harmless set forth in this
Section 10.3 may be unenforceable in whole or in part because they are violative
of any law or public policy, the applicable Credit Party shall contribute the
maximum portion that it is permitted to pay and satisfy under applicable law to
the payment and satisfaction of all Indemnified Liabilities incurred by
Indemnitees or any of them.
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10.4. Set-Off. In addition to any rights now or hereafter granted under
applicable law and not by way of limitation of any such rights, upon the
occurrence and during the continuance of any Event of Default each Lender is
hereby authorized by each Credit Party at any time or from time to time subject
to the consent of Administrative Agent (such consent not to be unreasonably
withheld or delayed), without notice to any Credit Party or to any other Person
(other than Administrative Agent), any such notice being hereby expressly
waived, to set off and to appropriate and to apply any and all deposits (general
or special, including Indebtedness evidenced by certificates of deposit, whether
matured or unmatured, but not including trust accounts) and any other
Indebtedness at any time held or owing by such Lender to or for the credit or
the account of any Credit Party against and on account of the obligations and
liabilities of any Credit Party to such Lender hereunder and the other Credit
Documents, including all claims of any nature or description arising out of or
connected herewith, or any other Credit Document, irrespective of whether or not
(a) such Lender shall have made any demand hereunder or (b) the principal of or
the interest on the Loans or any other amounts due hereunder shall have become
due and payable pursuant to Section 2 and although said obligations and
liabilities, or any of them, may be contingent or unmatured. Each Credit Party
hereby further grants to Administrative Agent and each Lender a security
interest in all Deposit Accounts maintained with Administrative Agent or such
Lender as security for the Obligations.
10.5. Amendments and Waivers; Requisite Lenders' Consent. (a) Subject
to Sections 10.5(b) and 10.5(c), no amendment, modification, termination or
waiver of any provision of the Credit Documents, or consent to any departure by
any Credit Party therefrom, shall in any event be effective without the written
concurrence of the Requisite Lenders.
(1) AFFECTED LENDERS' CONSENT. Without the written consent of each
Lender that would be affected thereby (other than a Defaulting Lender), no
amendment, modification, termination, or consent shall be effective if the
effect thereof would:
(1) extend the scheduled final maturity of any Loan or Note;
(2) waive, reduce or postpone any scheduled repayment (but not
prepayment) or the Delayed Draw Term Loan Commitment Termination Date;
(3) reduce the rate of interest on any Loan (other than any
waiver of any increase in the interest rate applicable to any Loan
pursuant to Section 2.7) or any fee payable hereunder;
(4) extend the time for payment of any such interest or fees;
(5) reduce the principal amount of any Loan;
(6) amend, modify, terminate or waive any provision of this
Section 10.5(b), Section 10.5(c) or Section 10.6(a);
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(7) amend the definition of "REQUISITE LENDERS" or "PRO RATA
SHARE"; provided that with the consent of Requisite Lenders (except
that such consent shall not be required in the case of Indebtedness
incurred or commitments made under Section 2.1(a)(iii) of this
Agreement), additional extensions of credit pursuant hereto may be
included in the determination of "REQUISITE LENDERS" or "PRO RATA
SHARE" on substantially the same basis as the Revolving Loan
Commitments, the Revolving Loans, the Delayed Draw Term Loan
Commitments, the Delayed Draw Term Loans, the New Term Loan Commitments
and the New Term Loans are included on the Closing Date;
(8) release or otherwise subordinate all or substantially all of
the Collateral or all or substantially all of the Guarantors from the
Guaranty except as expressly provided in the Credit Documents; or
(9) consent to the assignment or transfer by any Credit Party of
any of its rights and obligations under any Credit Document.
(2) OTHER CONSENTS. No amendment, modification, termination or waiver
of any provision of the Credit Documents, or consent to any departure by any
Credit Party therefrom, shall:
(1) increase any Commitment of any Lender over the amount thereof
then in effect without the consent of such Lender; provided that no
amendment, modification or waiver of any condition precedent, covenant,
Default or Event of Default shall constitute an increase in any
Commitment of any Lender;
(2) amend the definition of "REQUISITE CLASS LENDERS" without the
consent of Requisite Class Lenders of each Class; provided that with
the consent of the Requisite Lenders additional extensions of credit
pursuant hereto may be included in the determination of such "REQUISITE
CLASS LENDERS" on substantially the same basis as the Revolving Credit
Commitments, the Revolving Loans, the Delayed Draw Term Loan
Commitments and the Delayed Draw Term Loans the New Term Loan
Commitments and the New Term Loans are included on the Closing Date;
(3) alter the required application of any repayments or
prepayments as between Classes pursuant to Section 2.12 without the
consent of Requisite Class Lenders of each Class which is being
allocated a lesser repayment or prepayment as a result thereof;
provided that Requisite Lenders may waive, in whole or in part, any
prepayment so long as the application, as between Classes, of any
portion of such prepayment which is still required to be made is not
altered; or
(4) amend, modify, terminate or waive any provision of Section 9
or Section 10 as the same applies to any Agent, or any other provision
hereof (including, without limitation Section 2.1) as the same applies
to the rights or obligations of any Agent, in each case without the
consent of such Agent.
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(3) EXECUTION OF AMENDMENTS, ETC. Administrative Agent may, but shall
have no obligation to, with the concurrence of any Lender, execute amendments,
modifications, waivers or consents on behalf of such Lender. Any waiver or
consent shall be effective only in the specific instance and for the specific
purpose for which it was given. No notice to or demand on any Credit Party in
any case shall entitle any Credit Party to any other or further notice or demand
in similar or other circumstances. Any amendment, modification, termination,
waiver or consent effected in accordance with this Section 10.5 shall be binding
upon each Lender at the time outstanding, each future Lender and, if signed by a
Credit Party, on such Credit Party.
10.6. Successors and Assigns; Participations. (a) This Agreement shall
be binding upon the parties hereto and their respective successors and assigns
and shall inure to the benefit of the parties hereto and the successors and
assigns of Lenders. No Credit Party's rights or obligations hereunder nor any
interest therein may be assigned or delegated by any Credit Party without the
prior written consent of all Lenders.
(1) Borrower, Administrative Agent and Lenders shall deem and treat the
Persons listed as Lenders in the Register as the holders and owners of the
corresponding Commitments and Loans listed therein for all purposes hereof, and
no assignment or transfer of any such Commitment or Loan shall be effective, in
each case, unless and until an Assignment Agreement effecting the assignment or
transfer thereof shall have been delivered to and accepted by Administrative
Agent and recorded in the Register. Prior to such recordation, all amounts owed
with respect to the applicable Commitment or Loan shall be owed to the Lender
listed in the Register as the owner thereof, and any request, authority or
consent of any Person who, at the time of making such request or giving such
authority or consent, is listed in the Register as a Lender shall be conclusive
and binding on any subsequent holder, assignee or transferee of the
corresponding Commitments or Loans.
(2) Each Lender shall have the right at any time to sell, assign or
transfer all or a portion of its rights and obligations under this Agreement,
including, without limitation, all or a portion of its Commitment or Loans owing
to it, Note or Notes held by it, or other Obligation (provided that each such
assignment shall be of a uniform, and not varying, percentage of all rights and
obligations under and in respect of any Loan and its related Commitments):
(1) to any Person meeting the criteria of clause (i) of the
definition of the term of "ELIGIBLE ASSIGNEE" upon the giving of notice
to Borrower and Administrative Agent; and
(2) to any Person meeting the criteria of clause (ii) of the
definition of the term of "Eligible Assignee" and, in the case of
assignments of Commitments and Loans to any such Person (except in the
case of assignments made by or to GSCP) consented to by each of
Borrower and Administrative Agent (such consent not to be unreasonably
withheld or delayed or, in the case of Borrower, required at any time
an Event of Default shall have occurred and then be continuing);
provided that each such assignment pursuant to this Section 10.6(c)(ii)
shall be in an aggregate amount of not less than (A) $5,000,000 (or
such
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lesser amount as may be agreed to by Borrower and Administrative Agent
or as shall constitute the aggregate amount of the Revolving Loan
Commitments, Revolving Loans and/or the aggregate amount of the Delayed
Draw Term Loan Commitments, Delayed Draw Term Loans and other
Obligations of the assigning Lender) with respect to the assignment of
the Revolving Loan Commitments and Revolving Loans and/or the Delayed
Draw Term Loan Commitments and Delayed Draw Term Loans and (B)
$1,000,000 (or such lesser amount as may be agreed to by Borrower and
the Administrative Agent or as shall constitute the aggregate amount of
New Term Loans of the assigning Lender with respect to the assignment
of New Term Loans) with respect to the assignment of New Term Loans
and/or New Term Loan Commitments; provided further that after giving
effect to such assignment, the assigning Lender shall have Commitments
and Loans aggregating at least $2,000,000 (unless such assigning Lender
is assigning all of its Commitments and Loans), in each case unless
otherwise agreed to the Borrower and the Administrative Agent.
(3) The assigning Lender and the assignee thereof shall execute and
deliver to Administrative Agent an Assignment Agreement, together with (i)
unless otherwise agreed to by Administrative Agent a processing and recordation
fee of $750 in the case of assignments pursuant to Section 10.6(c)(i) and $3,500
in the case of all other assignments), and (ii) such forms, certificates or
other evidence, if any, with respect to United States federal income tax
withholding matters as the assignee under such Assignment Agreement may be
required to deliver to Administrative Agent pursuant to Section 2.18(c).
(4) Upon its receipt of a duly executed and completed Assignment
Agreement, together with the processing and recordation fee referred to in
Section 10.6(d) (and any forms, certificates or other evidence required by this
Agreement in connection therewith), Administrative Agent shall record the
information contained in such Assignment Agreement in the Register, shall give
prompt notice thereof to Borrower and shall maintain a copy of such Assignment
Agreement.
(5) Each Lender, upon execution and delivery hereof or upon executing
and delivering an Assignment Agreement, as the case may be, represents and
warrants as of the Closing Date or as of the applicable Effective Date (as
defined in the applicable Assignment Agreement) that it is an Eligible Assignee;
it has experience and expertise in the making of or investing in commitments or
loans such as the Revolving Loan Commitments or Loans, as the case may be; and
it will make or invest in, as the case may be, its Revolving Loan Commitments or
Loans for its own account in the ordinary course of its business and without a
view to distribution of such Revolving Loan Commitments or Loans within the
meaning of the Securities Act or the Exchange Act or other federal securities
laws (it being understood that, subject to the provisions of this Section 10.6,
the disposition of such Revolving Loan Commitments or Loans or any interests
therein shall at all times remain within its exclusive control).
(6) Subject to the terms and conditions of this Section 10.6, as of the
"Effective Date" specified in the applicable Assignment Agreement: the assignee
thereunder shall have the rights and obligations of a "Lender" hereunder to the
extent such rights and obligations hereunder have been
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assigned to it pursuant to such Assignment Agreement and shall thereafter be a
party hereto and a "Lender" for all purposes hereof; the assigning Lender
thereunder shall, to the extent that rights and obligations hereunder have been
assigned thereby pursuant to such Assignment Agreement, relinquish its rights
(other than any rights which survive the termination hereof under Section 10.8)
and be released from its obligations hereunder (and, in the case of an
Assignment Agreement covering all or the remaining portion of an assigning
Lender's rights and obligations hereunder, such Lender shall cease to be a party
hereto; provided that anything contained in any of the Credit Documents to the
contrary notwithstanding, such assigning Lender shall continue to be entitled to
the benefit of all indemnities hereunder as specified herein with respect to
matters arising out of the prior involvement of such assigning Lender as a
Lender hereunder); the Revolving Loan Commitments shall be modified to reflect
the Revolving Loan Commitment of such assignee and any remaining Revolving Loan
Commitment of such assigning Lender, if any; and if any such assignment occurs
after the issuance of any Note hereunder, the assigning Lender shall, upon the
effectiveness of such assignment or as promptly thereafter as practicable,
surrender its applicable Notes to Administrative Agent for cancellation, and
thereupon Borrower shall issue and deliver new Notes, if so requested by the
assignee and/or assigning Lender, to such assignee and/or to such assigning
Lender, with appropriate insertions, to reflect the new Revolving Loan
Commitments, new Delayed Draw Term Loan Commitments and/or outstanding Loans of
the assignee and/or the assigning Lender.
(7) Each Lender shall have the right at any time to sell one or more
participations to any Person (other than Company, any of its Subsidiaries or any
of its Affiliates) in all or any part of its Revolving Loan Commitments, Loans
or in any other Obligation. The holder of any such participation, other than an
Affiliate of the Lender granting such participation, shall not be entitled to
require such Lender to take or omit to take any action hereunder except with
respect to any amendment, modification or waiver that would (i) extend the final
scheduled maturity of any Loan or Note in which such participant is
participating, or reduce the rate or extend the time of payment of interest or
fees thereon (except in connection with a waiver of applicability of any
post-default increase in interest rates) or reduce the principal amount thereof,
or increase the amount of the participant's participation over the amount
thereof then in effect (it being understood that a waiver of any Default or
Event of Default or of a mandatory reduction in the Commitment shall not
constitute a change in the terms of such participation, and that an increase in
any Commitment or Loan shall be permitted without the consent of any participant
if the participant's participation is not increased as a result thereof), (ii)
consent to the assignment or transfer by any Credit Party of any of its rights
and obligations under this Agreement or (iii) release all or substantially all
of the Collateral under the Collateral Documents (except as expressly provided
in the Credit Documents) supporting the Loans hereunder in which such
participant is participating. All amounts payable by any Credit Party hereunder,
including amounts payable to such Lender pursuant to Sections 2.16(c), 2.17 or
2.18, shall be determined as if such Lender had not sold such participation.
Each Credit Party and each Lender hereby acknowledge and agree that, solely for
purposes of Sections 2.15 and 10.4, any participation will give rise to a direct
obligation of each Credit Party to the participant and the participant shall be
considered to be a "Lender".
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(8) In addition to any other assignment permitted pursuant to this
Section 10.6, (i) any Lender may assign and pledge all or any portion of its
Loans, the other Obligations owed to such Lender, and its Notes, if any, to
secure obligations of such Lender, including any pledge or assignment to secure
obligations to any Federal Reserve Bank, and this Section 10.6 shall not apply
to any such pledge or assignment of a security interest; provided, (x) no
Lender, as between Borrower and such Lender, shall be relieved of any of its
obligations hereunder as a result of any such assignment and pledge and (y) in
no event shall the applicable pledgee or assignee be considered to be a "Lender"
or be entitled to require the assigning Lender to take or omit to take any
action hereunder and (z) any transfer of the rights and obligations of a
"Lender" hereunder to any Person upon the foreclosure of any pledge or security
interest referred to in this clause (i) may only be made pursuant to the
provisions of Sections 10.6(c) through (e) governing assignments of interests in
the Loans.
10.7. Independence of Covenants. All covenants hereunder shall be given
independent effect so that if a particular action or condition is not permitted
by any of such covenants, the fact that it would be permitted by an exception
to, or would otherwise be within the limitations of, another covenant shall not
avoid the occurrence of a Default or an Event of Default if such action is taken
or condition exists.
10.8. Survival of Representations, Warranties and Agreements. All
representations, warranties and agreements made herein shall survive the
execution and delivery hereof and the making of any Loan. Notwithstanding
anything herein or implied by law to the contrary, the agreements of each Credit
Party set forth in Sections 2.16(c), 2.17, 2.18, 7.2, 10.2, 10.3 and 10.4 and
the agreements of Lenders set forth in Sections 2.15 and 9.6 shall survive the
payment of the Loans.
10.9. No Waiver; Remedies Cumulative. No failure or delay on the part
of Administrative Agent or any Lender in the exercise of any power, right or
privilege hereunder or under any other Credit Document shall impair such power,
right or privilege or be construed to be a waiver of any default or acquiescence
therein, nor shall any single or partial exercise of any such power, right or
privilege preclude other or further exercise thereof or of any other power,
right or privilege. The rights, powers and remedies given to each Agent and each
Lender hereby are cumulative and shall be in addition to and independent of all
rights, powers and remedies existing by virtue of any statute or rule of law or
in any of the other Credit Documents or any Hedge Agreement. Any forbearance or
failure to exercise, and any delay in exercising, any right, power or remedy
hereunder shall not impair any such right, power or remedy or be construed to be
a waiver thereof, nor shall it preclude the further exercise of any such right,
power or remedy.
10.10. Marshalling; Payments Set Aside. Neither Administrative Agent
nor any Lender shall be under any obligation to marshal any assets in favor of
any Credit Party or any other Person or against or in payment of any or all of
the Obligations. To the extent that any Credit Party makes a payment or payments
to Administrative Agent or Lenders (or to Administrative Agent on behalf of
Lenders), or Administrative Agent or Lenders enforce any security interests or
exercise their rights of setoff, and such payment or payments or the proceeds of
such enforcement or setoff or any part
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thereof are subsequently invalidated, declared to be fraudulent or preferential,
set aside and/or required to be repaid to a trustee, receiver or any other party
under any bankruptcy law, any other state or federal law, common law or any
equitable cause, then, to the extent of such recovery, the obligation or part
thereof originally intended to be satisfied, and all Liens, rights and remedies
therefor or related thereto, shall be revived and continued in full force and
effect as if such payment or payments had not been made or such enforcement or
setoff had not occurred.
10.11. Severability. In case any provision in or obligation hereunder
or any Note shall be invalid, illegal or unenforceable in any jurisdiction, the
validity, legality and enforceability of the remaining provisions or
obligations, or of such provision or obligation in any other jurisdiction, shall
not in any way be affected or impaired thereby.
10.12. Entire Agreement. This Agreement (together with the Exhibits
hereto, the schedules hereto and the other agreements, documents and instruments
delivered in connection herewith) and the Credit Documents constitute the entire
agreement among the parties with respect to the subject matter hereof and
thereof and supersede all other prior agreements and understandings, both
written and verbal, among the parties or any of them with respect to the subject
matter hereof.
10.13. Obligations Several; Independent Nature of Lenders' Rights. The
obligations of Lenders hereunder are several and no Lender shall be responsible
for the obligations or Commitments of any other Lender hereunder. Nothing
contained herein or in any other Credit Document, and no action taken by Lenders
pursuant hereto or thereto, shall be deemed to constitute Lenders as a
partnership, an association, a joint venture or any other kind of entity. The
amounts payable at any time hereunder to each Lender shall be a separate and
independent debt, and each Lender shall be entitled to protect and enforce its
rights hereunder and it shall not be necessary for any other Lender to be joined
as an additional party in any proceeding for such purpose.
10.14. Headings. Section headings herein are included herein for
convenience of reference only and shall not constitute a part hereof for any
other purpose or be given any substantive effect.
10.15. APPLICABLE LAW. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF
THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED
IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK (INCLUDING SECTION 5-1401
OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK), WITHOUT REGARD TO
CONFLICT OF LAWS PRINCIPLES THEREOF.
10.16. CONSENT TO JURISDICTION. ALL JUDICIAL PROCEEDINGS BROUGHT
AGAINST ANY CREDIT PARTY ARISING OUT OF OR RELATING HERETO OR ANY OTHER CREDIT
DOCUMENT, OR ANY OF THE OBLIGATIONS, MAY BE BROUGHT IN ANY STATE OR FEDERAL
COURT OF COMPETENT JURISDICTION IN THE STATE, COUNTY AND CITY OF NEW YORK. BY
EXECUTING AND DELIVERING THIS AGREEMENT, EACH CREDIT PARTY, FOR ITSELF AND IN
CONNECTION WITH ITS
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PROPERTIES, IRREVOCABLY ACCEPTS GENERALLY AND UNCONDITIONALLY THE NONEXCLUSIVE
JURISDICTION AND VENUE OF SUCH COURTS; WAIVES ANY DEFENSE OF FORUM NON
CONVENIENS; AGREES THAT SERVICE OF ALL PROCESS IN ANY SUCH PROCEEDING IN ANY
SUCH COURT MAY BE MADE BY REGISTERED OR CERTIFIED MAIL, RETURN RECEIPT
REQUESTED, TO THE APPLICABLE CREDIT PARTY AT ITS ADDRESS PROVIDED IN ACCORDANCE
WITH SECTION 10.1; AGREES THAT SERVICE AS PROVIDED IN CLAUSE (c) ABOVE IS
SUFFICIENT TO CONFER PERSONAL JURISDICTION OVER THE APPLICABLE CREDIT PARTY IN
ANY SUCH PROCEEDING IN ANY SUCH COURT, AND OTHERWISE CONSTITUTES EFFECTIVE AND
BINDING SERVICE IN EVERY RESPECT; AND AGREES SUCH LENDERS RETAIN THE RIGHT TO
SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO BRING PROCEEDINGS
AGAINST ANY CREDIT PARTY IN THE COURTS OF ANY OTHER JURISDICTION.
10.17. WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO HEREBY AGREES
TO WAIVE ITS RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION
BASED UPON OR ARISING HEREUNDER OR UNDER ANY OF THE OTHER CREDIT DOCUMENTS OR
ANY DEALINGS BETWEEN THEM RELATING TO THE SUBJECT MATTER OF THIS LOAN
TRANSACTION OR THE LENDER/BORROWER RELATIONSHIP THAT IS BEING ESTABLISHED. THE
SCOPE OF THIS WAIVER IS INTENDED TO BE ALL-ENCOMPASSING OF ANY AND ALL DISPUTES
THAT MAY BE FILED IN ANY COURT AND THAT RELATE TO THE SUBJECT MATTER OF THIS
TRANSACTION, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS AND
ALL OTHER COMMON LAW AND STATUTORY CLAIMS. EACH PARTY HERETO ACKNOWLEDGES THAT
THIS WAIVER IS A MATERIAL INDUCEMENT TO ENTER INTO A BUSINESS RELATIONSHIP, THAT
EACH HAS ALREADY RELIED ON THIS WAIVER IN ENTERING INTO THIS AGREEMENT, AND THAT
EACH WILL CONTINUE TO RELY ON THIS WAIVER IN ITS RELATED FUTURE DEALINGS. EACH
PARTY HERETO FURTHER WARRANTS AND REPRESENTS THAT IT HAS REVIEWED THIS WAIVER
WITH ITS LEGAL COUNSEL AND THAT IT KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY
TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. THIS WAIVER IS
IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING
(OTHER THAN BY A MUTUAL WRITTEN WAIVER SPECIFICALLY REFERRING TO THIS SECTION
10.17 AND EXECUTED BY EACH OF THE PARTIES HERETO), AND THIS WAIVER SHALL APPLY
TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS HERETO OR
ANY OF THE OTHER CREDIT DOCUMENTS OR TO ANY OTHER DOCUMENTS OR AGREEMENTS
RELATING TO THE LOANS MADE HEREUNDER. IN THE EVENT OF LITIGATION, THIS AGREEMENT
MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.
10.18. Confidentiality. Each Lender shall hold all non-public
information obtained pursuant to the requirements hereof in accordance with such
Lender's customary procedures for handling confidential information of this
nature and in accordance with prudent lending or investing practices,
109
EXECUTION
<PAGE> 116
it being understood and agreed by Company that in any event a Lender may make
disclosures to Affiliates of such Lender (and to other persons authorized by a
Lender or Agent to organize, present or disseminate such information in
connection with disclosures otherwise made in accordance with this Section
10.18) or disclosures reasonably required by any bona fide or potential
assignee, transferee or participant in connection with the contemplated
assignment, transfer or participation by such Lender of any Loans or any
participations therein or by any direct or indirect contractual counterparties
(or the professional advisors thereto) in Hedge Agreements (provided that such
counterparties and advisors are advised of and agree to be bound by the
provisions of this Section 10.18) or disclosures required or requested by any
governmental agency or representative thereof or by the NAIC or pursuant to
legal process; provided that unless prohibited by applicable law or court order,
each Lender shall make reasonable efforts to notify Company of any request by
any governmental agency or representative thereof (other than any such request
in connection with any examination of the financial condition or other routine
examination of such Lender by such governmental agency) for disclosure of any
such non-public information prior to disclosure of such information; and
provided further that in no event shall any Lender be obligated or required to
return any materials furnished by Company or any of its Subsidiaries.
10.19. Usury Savings Clause. Notwithstanding any other provision
herein, the aggregate interest rate charged with respect to any of the
Obligations, including all charges or fees in connection therewith deemed in the
nature of interest under applicable law shall not exceed the Highest Lawful
Rate. If the rate of interest (determined without regard to the preceding
sentence) under this Agreement at any time exceeds the Highest Lawful Rate, the
outstanding amount of the Loans made hereunder shall bear interest at the
Highest Lawful Rate until the total amount of interest due hereunder equals the
amount of interest which would have been due hereunder if the stated rates of
interest set forth in this Agreement had at all times been in effect. In
addition, if when the Loans made hereunder are repaid in full the total interest
due hereunder (taking into account the increase provided for above) is less than
the total amount of interest which would have been due hereunder if the stated
rates of interest set forth in this Agreement had at all times been in effect,
then to the extent permitted by law, Borrower shall pay to Administrative Agent
an amount equal to the difference between the amount of interest paid and the
amount of interest which would have been paid if the Highest Lawful Rate had at
all times been in effect. Notwithstanding the foregoing, it is the intention of
Lenders and Borrower to conform strictly to any applicable usury laws.
Accordingly, if any Lender contracts for, charges, or receives any consideration
which constitutes interest in excess of the Highest Lawful Rate, then any such
excess shall be cancelled automatically and, if previously paid, shall at such
Lender's option be applied to the outstanding amount of the Loans made hereunder
or be refunded to Borrower.
110
EXECUTION
<PAGE> 117
10.20. Counterparts; Effectiveness. This Agreement may be executed in
any number of counterparts, each of which when so executed and delivered shall
be deemed an original, but all such counterparts together shall constitute but
one and the same instrument. This Agreement shall become effective upon the
execution of a counterpart hereof by all Lenders, Agents, Company, Borrower and
each Guarantor and receipt by Borrower and Administrative Agent of written or
telephonic notification of such execution and authorization of delivery thereof.
[Remainder of page intentionally left blank.]
111
EXECUTION
<PAGE> 118
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by their respective officers thereunto duly
authorized as of the date first written above.
COMPANY: ALLEGIANCE TELECOM, INC.
By:
---------------------------------
Name:
Title:
BORROWER: ALLEGIANCE TELECOM COMPANY WORLDWIDE
By:
---------------------------------
Name:
Title:
GUARANTORS: ALLEGIANCE TELECOM SERVICE
CORPORATION,
as a Guarantor
By:
---------------------------------
Name:
Title:
ALLEGIANCE TELECOM INTERNATIONAL,
INC.,
as a Guarantor
By:
---------------------------------
Name:
Title:
INTERNET ALLEGIANCE INC,
as a Guarantor
By:
---------------------------------
Name:
Title:
S-1
EXECUTION
<PAGE> 119
ALLEGIANCE TELECOM OF TEXAS, INC.,
as a Guarantor
By:
---------------------------------
Name:
Title:
ALLEGIANCE TELECOM OF ILLINOIS, INC.,
as a Guarantor
By:
---------------------------------
Name:
Title:
ALLEGIANCE TELECOM OF MICHIGAN, INC.,
as a Guarantor
By:
---------------------------------
Name:
Title:
ALLEGIANCE TELECOM OF MARYLAND, INC.,
as a Guarantor
By:
---------------------------------
Name:
Title:
ALLEGIANCE TELECOM OF THE DISTRICT
OF COLUMBIA, INC., as a Guarantor
By:
---------------------------------
Name:
Title:
S-2
EXECUTION
<PAGE> 120
ALLEGIANCE TELECOM OF COLORADO,
INC., as a Guarantor
By:
---------------------------------
Name:
Title:
ALLEGIANCE TELECOM OF FLORIDA, INC.,
as a Guarantor
By:
---------------------------------
Name:
Title:
ALLEGIANCE TELECOM OF CALIFORNIA,
INC., as a Guarantor
By:
---------------------------------
Name:
Title:
ALLEGIANCE TELECOM OF NEW YORK,
INC., as a Guarantor
By:
---------------------------------
Name:
Title:
ALLEGIANCE TELECOM OF VIRGINIA,
INC., as a Guarantor
By:
---------------------------------
Name:
Title:
S-3
EXECUTION
<PAGE> 121
ALLEGIANCE TELECOM OF MASSACHUSETTS,
INC., as a Guarantor
By:
---------------------------------
Name:
Title:
ALLEGIANCE TELECOM OF ARIZONA, INC.,
as a Guarantor
By:
---------------------------------
Name:
Title:
ALLEGIANCE TELECOM OF MISSOURI,
INC., as a Guarantor
By:
---------------------------------
Name:
Title:
ALLEGIANCE TELECOM OF OHIO, INC., as
a Guarantor
By:
---------------------------------
Name:
Title:
ALLEGIANCE TELECOM OF WASHINGTON,
INC., as a Guarantor
By:
---------------------------------
Name:
Title:
S-4
EXECUTION
<PAGE> 122
KIVEX, INC., as a Guarantor
By:
---------------------------------
Name:
Title:
CONNECTNET, INC., as a Guarantor
By:
---------------------------------
Name:
Title:
S-5
EXECUTION
<PAGE> 123
AGENTS GOLDMAN SACHS CREDIT PARTNERS L.P.,
AND LENDERS: as Syndication Agent, Sole Lead
Arranger and a Lender
By:
---------------------------------
Authorized Signatory
S-6
EXECUTION
<PAGE> 124
TORONTO DOMINION (TEXAS), INC., as
Administrative Agent and a Lender
By:
---------------------------------
Name:
Title:
S-7
EXECUTION
<PAGE> 125
BANK BOSTON, N.A., as
Co-Documentation Agent and a Lender
By:
---------------------------------
Name:
Title:
S-8
EXECUTION
<PAGE> 126
MORGAN STANLEY SENIOR FUNDING, INC.,
as Co-Documentation Agent and a
Lender
By:
---------------------------------
Name:
Title:
S-9
EXECUTION
<PAGE> 127
THE BANK OF NEW YORK, as Managing
Agent and a Lender
By:
---------------------------------
Name:
Title:
S-10
EXECUTION
<PAGE> 128
PNC BANK, NATIONAL ASSOCIATION, as
Managing Agent and a Lender
By:
---------------------------------
Name:
Title:
S-11
EXECUTION
<PAGE> 129
CREDIT LYONNAIS NEW YORK BRANCH, as
Managing Agent and a Lender
By:
---------------------------------
Name:
Title:
S-12
EXECUTION
<PAGE> 130
FIRST UNION NATIONAL BANK, as
Managing Agent and a Lender
By:
---------------------------------
Name:
Title:
S-13
EXECUTION
<PAGE> 131
GENERAL ELECTRIC CAPITAL
CORPORATION, as Managing Agent and a
Lender
By:
---------------------------------
Name:
Title:
S-14
EXECUTION
<PAGE> 132
THE BANK OF NOVA SCOTIA, as Managing
Agent and a Lender
By:
---------------------------------
Name:
Title:
S-15
EXECUTION
<PAGE> 133
DRESDNER BANK AG, NEW YORK AND GRAND
CAYMAN BRANCHES, as Managing Agent
and a Lender
By:
---------------------------------
Name:
Title:
By:
---------------------------------
Name:
Title:
S-16
EXECUTION
<PAGE> 134
CITICORP USA, INC., as Managing
Agent and a Lender
By:
---------------------------------
Name:
Title:
S-17
EXECUTION
<PAGE> 135
ABN AMRO BANK N.V., as Managing
Agent and a Lender
By:
---------------------------------
Name:
Title:
S-18
EXECUTION
<PAGE> 136
BANK OF AMERICA N.A., as Managing
Agent and a Lender
By:
---------------------------------
Name:
Title:
S-19
EXECUTION
<PAGE> 137
FRANKLIN FLOATING RATE TRUST, as
Managing Agent and a Lender
By:
---------------------------------
Name:
Title:
S-20
EXECUTION
<PAGE> 138
MEESPIERSON CAPITAL CORP., as
Managing Agent and a Lender
By:
---------------------------------
Name:
Title:
By:
---------------------------------
Name:
Title:
S-21
EXECUTION
<PAGE> 139
DLJ, CAPITAL FUNDING INC., as
Managing Agent and a Lender
By:
---------------------------------
Name:
Title:
S-22
EXECUTION
<PAGE> 140
BEAR STEARNS CORPORATE LENDING INC.,
as Managing Agent and a Lender
By:
---------------------------------
Name:
Title:
S-23
EXECUTION
<PAGE> 141
UBS AG, STAMFORD BRANCH, as Managing
Agent and a Lender
By:
---------------------------------
Name:
Title:
By:
---------------------------------
Name:
Title:
S-24
EXECUTION
<PAGE> 142
LENDERS: UNION BANK OF CALIFORNIA, N.A.,
as a Lender
By:
---------------------------------
Name:
Title:
S-25
EXECUTION
<PAGE> 143
HELLER FINANCIAL, INC.,
as a Lender
By:
---------------------------------
Name:
Title:
S-26
EXECUTION
<PAGE> 144
BANK OF MONTREAL,
as a Lender
By:
---------------------------------
Name:
Title:
S-27
EXECUTION
<PAGE> 145
PARIBAS,
as a Lender
By:
---------------------------------
Name:
Title:
By:
---------------------------------
Name:
Title:
S-28
EXECUTION
<PAGE> 146
BANK AUSTRIA CREDITANSTALT
CORPORATE FINANCE INC.,
as a Lender
By:
---------------------------------
Name:
Title:
S-29
EXECUTION
<PAGE> 147
IBM CREDIT CORPORATION,
as a Lender
By:
---------------------------------
Name:
Title:
S-30
EXECUTION
<PAGE> 148
ING (US) CAPITAL LLC,
as a Lender
By:
---------------------------------
Name:
Title:
S-31
EXECUTION
<PAGE> 149
APPENDIX A
TO CREDIT AND GUARANTY AGREEMENT
<TABLE>
<CAPTION>
Pro
Lender Revolving Loan Pro Delayed Draw Term Rata
Commitment Rata Share Loan Commitment Share
<S> <C> <C> <C> <C>
Toronto Dominion (Texas) Inc. $16,800,000 3.36% $ 7,200,000 1.44%
Goldman Sachs Credit Partners L.P. $16,800,000 3.36% $ 7,200,000 1.44%
Morgan Stanley Senior Funding, Inc. $16,800,000 3.36% $ 7,200,000 1.44%
BankBoston, N.A $16,800,000 3.36% $ 7,200,000 1.44%
ABN AMRO Bank N.V $14,000,000 2.80% $ 6,000,000 1.20%
Bank of America N.A $14,000,000 2.80% $ 6,000,000 1.20%
Bear Stearns Corporate Lending Inc. $14,000,000 2.80% $ 6,000,000 1.20%
The Bank of New York $14,000,000 2.80% $ 6,000,000 1.20%
The Bank of Nova Scotia $14,000,000 2.80% $ 6,000,000 1.20%
Citicorp USA, Inc. $14,000,000 2.80% $ 6,000,000 1.20%
Credit Lyonnais New York Branch $14,000,000 2.80% $ 6,000,000 1.20%
DLJ, Captial Funding Inc. $14,000,000 2.80% $ 6,000,000 1.20%
Dresdner Bank AG, New York and Grand Cayman Branches $14,000,000 2.80% $ 6,000,000 1.20%
First Union National Bank $14,000,000 2.80% $ 6,000,000 1.20%
Franklin Floating Rate Trust $14,000,000 2.80% $ 6,000,000 1.20%
General Electric Capital Corporation $14,000,000 2.80% $ 6,000,000 1.20%
ING (US) Capital LLC $14,000,000 2.80% $ 6,000,000 1.20%
MeesPierson Capital Corp. $14,000,000 2.80% $ 6,000,000 1.20%
PNC Bank, National Association $14,000,000 2.80% $ 6,000,000 1.20%
UBS AG, Stamford Branch $14,000,000 2.80% $ 6,000,000 1.20%
</TABLE>
APPENDIX A-1
EXECUTION
<PAGE> 150
<TABLE>
<CAPTION>
Pro
Lender Revolving Loan Pro Delayed Draw Term Rata
Commitment Rata Share Loan Commitment Share
<S> <C> <C> <C> <C>
Bank Austria Creditanstalt Corporate
Finance Inc. $ 9,800,000 1.96% $ 4,200,000 0.84%
Bank of Montreal $ 9,800,000 1.96% $ 4,200,000 0.84%
Heller Financial, Inc. $ 9,800,000 1.96% $ 4,200,000 0.84%
IBM Credit Corporation $ 9,800,000 1.96% $ 4,200,000 0.84%
Paribas $ 9,800,000 1.96% $ 4,200,000 0.84%
Union Bank of California, N.A $ 9,800,000 1.96% $ 4,200,000 0.84%
Total $350,000,000 100% $150,000,000 100%
</TABLE>
APPENDIX A-2
EXECUTION
<PAGE> 151
APPENDIX B
TO CREDIT AND GUARANTY AGREEMENT
NOTICE ADDRESSES
ALLEGIANCE TELECOM, INC.
Allegiance Telecom, Inc.
4 Westbrook Corporate Center, Suite 400
Westchester, Illinois 60154
Attention: Mark B. Tresnowski
Telephone: 708-836-5240
Facsimile: 708-836-5250
For each of the following:
ALLEGIANCE TELECOM COMPANY WORLDWIDE
ALLEGIANCE TELECOM SERVICE CORPORATION
ALLEGIANCE TELECOM INTERNATIONAL, INC.
INTERNET ALLEGIANCE, INC.
ALLEGIANCE TELECOM OF ILLINOIS, INC.
ALLEGIANCE TELECOM OF MICHIGAN, INC.
ALLEGIANCE TELECOM OF MARYLAND, INC.
ALLEGIANCE TELECOM OF THE DISTRICT OF COLUMBIA, INC.
ALLEGIANCE TELECOM OF COLORADO, INC.
ALLEGIANCE TELECOM OF FLORIDA, INC..
ALLEGIANCE TELECOM OF CALIFORNIA, INC..
ALLEGIANCE TELECOM OF NEW YORK, INC.
ALLEGIANCE TELECOM OF TEXAS, INC.
ALLEGIANCE TELECOM OF VIRGINIA, INC.
ALLEGIANCE TELECOM OF MASSACHUSETTS, INC.
ALLEGIANCE TELECOM OF ARIZONA, INC.
ALLEGIANCE TELECOM OF MISSOURI, INC.
ALLEGIANCE TELECOM OF OHIO, INC.
ALLEGIANCE TELECOM OF WASHINGTON, INC.
KIVEX, INC.
CONNECTNET, INC.
c/o Allegiance Telecom, Inc.
4 Westbrook Corporate Center, Suite 400
Westchester, Illinois 60154
Attention: Mark B. Tresnowski
Telephone: 708-836-5240
Facsimile: 708-836-5250
APPENDIX B-1
EXECUTION
<PAGE> 152
In each case, with a copy to:
Kirkland & Ellis
200 East Randolph Drive
Chicago, Illinois 60601
Attention: Andrew M. Kaufman
Telephone: 312-861-2313
Facsimile: 312-861-2200
APPENDIX B-2
EXECUTION
<PAGE> 153
GOLDMAN SACHS CREDIT PARTNERS L.P.,
as Syndication Agent
Goldman Sachs Credit Partners L.P.
c/o Goldman, Sachs & Co.
85 Broad Street
New York, New York 10004
Attention: Stephen King
Telephone: 212-902-8123
Facsimile: 212-902-1021
with a copy of all Notices to:
Goldman Sachs Credit Partners L.P.
c/o Goldman, Sachs & Co.
85 Broad Street
New York, New York 10004
Attention: John Makrinos
Telephone: 212-902-5977
Facsimile: 212-357-4597
APPENDIX B-3
EXECUTION
<PAGE> 154
TORONTO DOMINION (TEXAS), INC.,
as Administrative Agent
Administrative Agent's Principal Office:
Toronto Dominion Bank - Houston Agency
909 Fannin Street, Suite 1700
Houston, TX 77010
Attention: Diane Bailey
Attention: Kimberly Burleson
Telephone: 713-653-8241
Facsimile: 713-951-0033
APPENDIX B-4
EXECUTION
<PAGE> 155
BANK BOSTON, N.A.
as Co-Documentation Agent
Co-Documentation Agent's Principal Office:
100 Federal Street
MA: BOSO-08-08
Boston, MA 02110
Attention: Margie Hery, Loan Administrator
Telephone: 617-434-9725
Facsimile: 617-434-9820
In each case, with a copy to:
100 Federal Street
MA: BOSO-08-08
Boston, MA 02110
Attention: Kay Campbell
Telephone: 617-434-9584
Facsimile: 617-434-3401
APPENDIX B-5
EXECUTION
<PAGE> 156
MORGAN STANLEY SENIOR FUNDING, INC.
as Co-Documentation Agent
Co-Documentation Agent's Principal Office:
1221 Avenue of the Americas
New York, New York 10020
Attention: Morgan Edwards, Principal
Telephone: 212-762-5814
Facsimile: 212-762-9181
In each case, with a copy to:
1221 Avenue of the Americas
New York, New York 10020
Attention: Mark Cross
Telephone: 212-762-6755
Facsimile: 212-762-9181
APPENDIX B-6
EXECUTION
<PAGE> 157
THE BANK OF NEW YORK
as Managing Agent and a Lender
Lender's Principal Office:
The Bank of New York
One Wall Street
New York, NY 10286
Attention: Andrew Moore
Telephone: 212-635-8746
Facsimile: 212-635-8593
APPENDIX B-7
EXECUTION
<PAGE> 158
THE BANK OF NOVA SCOTIA
as Managing Agent and a Lender
Lender's Principal Office:
The Bank of Nova Scotia
One Liberty Plaza
New York, NY 10006
Attention: Robert Cole
Telephone: 212-225-5058
Facsimile: 212-225-5090
In each case, with a copy to:
The Bank of Nova Scotia
One Liberty Plaza
New York, NY 10006
Attention: Steve Levi
Telephone: 212-225-5039
Facsimile: 212-225-5090
APPENDIX B-8
EXECUTION
<PAGE> 159
DRESDNER BANK AG, NEW YORK AND CAYMAN ISLAND BRANCHES
as Managing Agent and a Lender
Lender's Principal Office:
Dresdner Bank AG, New York Branch
75 Wall Street
New York, NY 10005
Attention: Jane Majeski
Telephone: 212-429-2100
Facsimile: 212-429-4181
APPENDIX B-9
EXECUTION
<PAGE> 160
CITICORP USA, INC.
as Managing Agent and a Lender
Lender's Principal Office:
390 Greenwich Street
New York, New York 10013
Attention: James Garvin
Telephone: 212-723-6662
Facsimile: 212-723-8547
APPENDIX B-10
EXECUTION
<PAGE> 161
CREDIT LYONNAIS, NEW YORK BRANCH
as Managing Agent and a Lender
Lender's Principal Office:
1301 Avenue of the Americas
New York, New York 10019
Attention: John Judge
Telephone: 212-261-7841
Facsimile: 212-261-3288
In each case, with a copy to:
1301 Avenue of the Americas
New York, New York 10019
Attention: David Bernstein
Telephone: 212-261-7057
Facsimile: 212-459-3187
APPENDIX B-11
EXECUTION
<PAGE> 162
FIRST UNION NATIONAL BANK
as Managing Agenet and a Lender
Lender's Principal Office:
301 S. College Street
NC0735
Charlotte, NC 28288-0735
Attention: Mark L. Cook, Sr. Vice President
Telephone: 704-374-4636
Facsimile: 704-374-4092
In each case, with a copy to:
301 S. College Street
NC0735
Charlotte, NC 28288-0735
Attention: Mark Harden
Telephone: 704-383-1369
Facsimile: 704-374-4092
APPENDIX B-12
EXECUTION
<PAGE> 163
GENERAL ELECTRIC CAPTIAL CORPORATION
as Managing Agent and a Lender
Lender's Principal Office:
120 Long Ridge Road
Stamford, CT 06927
Attention: Jim Morris
Telephone: 203-961-2193
Facsimile: 203-708-1256
In each case, with a copy to:
120 Long Ridge Road
Stamford, CT 06927
Attention: Brian Jack
Telephone: 203-357-6859
Facsimile: 203-357-3962
APPENDIX B-13
EXECUTION
<PAGE> 164
HELLER FINANCIAL, INC.
as a Lender
Lender's Principal Office:
500 W. Monroe
Chicago, IL 60661
Attention: Craig Gallehugh
Telephone: 312-441-7630
Facsimile: 312-441-7357
APPENDIX B-14
EXECUTION
<PAGE> 165
PNC BANK, NATIONAL ASSOCIATION
as Managing Agent and a Lender
Lender's Principal Office:
PNC Bank, N.A.
1600 Market Street
Philadelphia, PA 19103
Attention: Jeffrey E. Hauser
Telephone: 215-585-6468
Facsimile: 215-585-6680
In each case, with a copy to:
PNC Bank, N.A.
1600 Market Street
Philadelphia, PA 19103
Attention: Karen Kooman
Telephone: 215-585-6470
Facsimile: 215-585-6680
APPENDIX B-15
EXECUTION
<PAGE> 166
UNION BANK OF CALIFORNIA, N.A.
as a Lender
Lender's Principal Office:
445 So. Figueroa Street
Monterey Park, CA 90071-7601
Attention: Keith Wilson
Telephone: 213-236-6514
Facsimile: 323-236-5747
APPENDIX B-16
EXECUTION
<PAGE> 167
ABN AMRO BANK N.V.
as Managing Agent and a Lender
Lender's Principal Office:
500 Park Avenue
New York, NY 10022
Attention: Tom Byrne
Telephone: 212-446-4241
Facsimile: 212-446-4203
In each case, with a copy to:
208 South LaSalle Street
Suite 1500
Chicago, IL 60604-10003
Attention: Loan Administration
Telephone: 312-992-5151
Facsimile: 312-992-5156
APPENDIX B-17
EXECUTION
<PAGE> 168
BANK OF AMERICA, N.A.
as Managing Agent and a Lender
Lender's Principal Office:
901 Main Street
Dallas, TX 75202
Attention: Roselyn Drake
Telephone: 214-209-0988
Facsimile: 214-209-9390
In each case, with a copy to:
901 Main Street
Dallas, TX 75202
Attention: Michael Cannon
Telephone: 214-209-0760
Facsimile: 214-209-9390
APPENDIX B-18
EXECUTION
<PAGE> 169
FRANKLIN FLOATING RATE TRUST
as Managing Agent and a Lender
Lender's Principal Office:
777 Mariners Island Boulevard
San Mateo, CA 94404-1585
Attention: Maryanne Chase
Telephone: 650-525-7424
Facsimile: 650-312-3346
APPENDIX B-19
EXECUTION
<PAGE> 170
MEESPIERSON CAPITAL CORP.
as Managing Agent and a Lender
Lender's Principal Office:
3 Stamford Plaza
(301 Tresser Boulevard)
Stamford, CT 06927
Attention: Scott Webster
Telephone: 203-705-5752
Facsimile: 203-705-5890
APPENDIX B-20
EXECUTION
<PAGE> 171
DLJ, CAPITAL FUNDING INC.
as Managing Agent and a Lender
Lender's Principal Office:
277 Park Avenue
New York, NY 10172
Attention: Tom Newbury
Telephone: 212-892-2409
Facsimile: 212-892-5286
In each case, with a copy to:
277 Park Avenue
New York, NY 10172
Attention: Diane Albany
Telephone: 212-892-2903
Facsimile: 212-892-6031
APPENDIX B-21
EXECUTION
<PAGE> 172
BEAR STEARNS CORPORATE LENDING
as Managing Agent and a Lender
Lender's Principal Office:
245 Park Avenue
New York, New York 10172
Attention: Gloria Dombrowski
Telephone: 212-272-6043
Facsimile: 212-272-4844
In each case, with a copy to:
245 Park Avenue
New York, New York 10172
Attention: Steve Capp
Telephone: 212-272-3669
Facsimile: 212-272-9743
APPENDIX B-22
EXECUTION
<PAGE> 173
UBS AG, STAMFORD BRANCH
as Managing Agent and a Lender
Lender's Principal Office:
677 Washington Bouelvard
Stamford, CT 06912
Attention: Philip Fitzgerald
Telephone: 203-719-5993
Facsimile: 212-719-4176
In each case, with a copy to:
Warburg Dillon Read
299 Park Avenue
New York, NY 10171
Attention: Wit Williams
Telephone: 212-821-4469
Facsimile: 212-821-6136
APPENDIX B-23
EXECUTION
<PAGE> 174
BANK OF MONTREAL
as a Lender
Lender's Principal Office:
430 Park Avenue
New York, New York 10022
Attention: Tom Calder
Telephone: 212-605-1460
Facsimile: 212-605-1621
In each case, with a copy to:
430 Park Avenue
New York, New York 10022
Attention: Mr. Ola Anderson
Telephone: 212-605-1453
Facsimile: 212-605-1621
APPENDIX B-24
EXECUTION
<PAGE> 175
PARIBAS
as a Lender
Lender's Principal Office:
2029 Century Park East
Suite 3900
Los Angeles, CA 90067
Attention: Darlynn Ernst
Telephone: 310-551-7350
Facsimile: 310-556-3762
APPENDIX B-25
EXECUTION
<PAGE> 176
BANK AUSTRIA CREDITANSTALT CORPORATE FINANCE, INC.
as a Lender
Lender's Principal Office:
Two Greenwich Plaza
2nd Floor
Greenwich, CT 06830
Attention: Robert Biringer
Telephone: 203-861-1408
Facsimile: 203-861-1532
In each case, with a copy to:
Two Ravinia Drive
Suite 1680
Atlanta, GA 30346
Attention: Richard Varalla
Telephone: 770-390-1854
Facsimile: 770-390-1851
APPENDIX B-26
EXECUTION
<PAGE> 177
IBM CREDIT CORPORATION
as a Lender
Lender's Principal Office:
North Castle Drive
Armonk, New York 10504
Attention: Ron Bachner
Telephone: 914-765-6068
Facsimile: 914-765-6430
In each case, with a copy to:
North Castle Drive
Armonk, New York 10504
Attention: Ronald Perkrul
Telephone: 914-765-6578
Facsimile: 914-765-6430
APPENDIX B-27
EXECUTION
<PAGE> 178
ING (US) CAPITAL LLC
as a Lender
Lender's Principal Office:
55 East 52nd Street
New York, New York 10055
Attention: David Gray
Telephone: 212-409-7044
Facsimile: 212-409-5852
In each case, with a copy to:
55 East 52nd Street
New York, New York 10055
Attention: Susanne Camus
Telephone: 212-409-5218
Facsimile: 212-409-5852
APPENDIX B-28
EXECUTION
<PAGE> 1
EXHIBIT 11.1
ALLEGIANCE TELECOM, INC.
COMPUTATION OF PER SHARE EARNINGS (LOSS)
Year Ended December 31, 1999
(In thousands, except share and per share amounts)
<TABLE>
<CAPTION>
Number of Shares Percent Outstanding Equivalent Shares
---------------- ------------------- -----------------
<S> <C> <C> <C>
Prior to Initial Public Offering
1997 Common Stock Offering 639 100.00% 639
After Initial Public Offering
1997 Common Stock Offering 639 100.00% 639
1998 Common Stock Offering 15,000,000 100.00% 15,000,000
Preferred Stock Converted to Common Stock 60,511,692 100.00% 60,511,692
Treasury Shares (25,312) 84.93% (21,498)
1999 Employee Stock Discount
Purchase Plan Shares Issued 45,574 74.28% 108,133
1999 Common Stock Offering 21,041,100 70.07% 14,742,865
Warrants Exercised 560,502 58.32% 326,873
Stock Options Exercised - 1997 Plan 157,629 36.94% 58,221
Stock Options Exercised - 1998 Plan 42,541 22.41% 9,536
--------------
90,736,461
WEIGHTED AVERAGE SHARES OUTSTANDING 90,736,461
NET LOSS APPLICABLE TO COMMON STOCK $ (214,868)
NET LOSS PER SHARE, BASIC AND DILUTED $ (2.37)
==============
</TABLE>
<PAGE> 1
EXHIBIT 11.2
ALLEGIANCE TELECOM, INC.
COMPUTATION OF PER SHARE EARNINGS (LOSS)
Year Ended December 31, 1998
(In thousands, except share and per share amounts)
<TABLE>
<CAPTION>
Number of Shares Percent Outstanding Equivalent Shares
---------------- ------------------- -----------------
<S> <C> <C> <C>
Prior to Initial Public Offering
1997 Common Stock Offering 639 52.00% 327
After Initial Public Offering
1997 Common Stock Offering 639 48.77% 312
1998 Common Stock Offering 15,000,000 48.77% 7,315,068
Preferred Stock Converted to Common Stock 60,511,692 48.77% 29,509,812
--------------
36,825,519
WEIGHTED AVERAGE SHARES OUTSTANDING 36,825,519
NET LOSS APPLICABLE TO COMMON STOCK $ (214,460)
NET LOSS PER SHARE, BASIC AND DILUTED $ (7.02)
==============
</TABLE>
<PAGE> 1
EXHIBIT 11.3
ALLEGIANCE TELECOM, INC.
COMPUTATION OF PER SHARE EARNINGS (LOSS)
Period From Inception (April 22, 1997) to December 31, 1997
(In thousands, except share and per share amounts)
<TABLE>
<CAPTION>
Number of Shares Percent Outstanding Equivalent Shares
---------------- ------------------- -----------------
<S> <C> <C> <C>
1997 Common Stock Offering 639 100.00% 639
WEIGHTED AVERAGE SHARES OUTSTANDING 639
NET LOSS APPLICABLE TO COMMON STOCK $ (7,502)
NET LOSS PER SHARE, BASIC AND DILUTED $ (11,740.22)
=============
</TABLE>
<PAGE> 1
EXHIBIT 13.1
ALLEGIANCE TELECOM, INC.
PORTIONS OF ANNUAL REPORT
TO STOCKHOLDERS FOR THE YEAR
ENDED DECEMBER 31, 1999
SELECTED FINANCIAL DATA
(dollars in thousands, except share and per share information)
The selected consolidated financial data presented below as of and for the years
ended December 31, 1999 and 1998, and for the period from inception (April 22,
1997) through December 31, 1997, were derived from the audited consolidated
financial statements of the Company and should be read in conjunction with
"Management's Discussion & Analysis of Financial Condition & Results of
Operations" and the Company's audited financial statements and the notes thereto
contained elsewhere in this annual report.
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
--------------------------
BALANCE SHEET DATA: 1999 1998
-------- --------
<S> <C> <C>
Cash and cash equivalents $502,234 $262,502
Short-term investments 23,783 143,390
Short-term investments, restricted (1) 25,518 25,543
Working capital (2) 484,458 367,492
Property and equipment, net of accumulated
depreciation and amortization 377,413 144,860
Long-term investments, restricted (1) 13,232 36,699
Total assets 1,033,875 637,874
Long-term debt 514,432 471,652
Redeemable warrants -- 8,634
Stockholders' equity 443,616 110,430
</TABLE>
<PAGE> 2
ALLEGIANCE TELECOM 1999 ANNUAL REPORT
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(APRIL 22, 1997)
YEAR ENDED YEAR ENDED THROUGH
DECEMBER 31, DECEMBER 31, DECEMBER 31,
STATEMENT OF OPERATIONS DATA: 1999 1998 1997
------------ ------------ ----------------
<S> <C> <C> <C>
Revenue $ 99,061 $ 9,786 $ --
Network expenses 62,542 9,529 151
Selling, general and administrative expenses 140,745 46,089 3,426
Depreciation and amortization expense 55,822 9,003 13
Management ownership allocation charge 18,789 167,312 --
Noncash deferred compensation expense 7,851 5,307 210
------------ ------------ ------------
Loss from operations (186,688) (227,454) (3,800)
Interest income 31,354 19,918 112
Interest expense (59,404) (38,952) --
------------ ------------ ------------
Net loss (214,738) (246,488) (3,688)
Accretion of redeemable preferred stock and warrant values (130) (11,972) (3,814)
------------ ------------ ------------
Net loss applicable to common stock $ (214,868) $ (258,460) $ (7,502)
============ ============ ============
Net loss per share, basic and diluted (4) $ (2.37) $ (7.02) $ (11,740.22)
============ ============ ============
Weighted average number of shares outstanding, basic and diluted (4) 90,736,461 36,825,519 639
============ ============ ============
OTHER FINANCIAL DATA:
EBITDA (3) $ (104,226) $ (45,832) $ (3,577)
Capital expenditures (273,015) (113,539) (21,926)
</TABLE>
(1) Reflects the purchase of U.S. government securities, which have been placed
in a pledge account, to fund the first three years' interest payments on
the 12 7/8% Senior Notes due 2008, the first semiannual installment of
which was paid in November 1998. The securities are stated at their
accreted value, which approximates fair value, and are classified as
short-term and long-term based upon the maturity dates of each of the
securities at the balance sheet date.
(2) Working capital was calculated as total current assets, less restricted
short-term investments, less total current liabilities.
(3) EBITDA consists of earnings before interest, income taxes, depreciation and
amortization, management ownership allocation charge and non-cash deferred
compensation. While not a measure under generally accepted accounting
principles, EBITDA is a measure commonly used in the telecommunications
industry and is presented to assist in understanding the Company's
operating results. Although EBITDA should not be construed as a substitute
for operating income (loss) determined in accordance with generally
accepted accounting principles, it is included herein to provide additional
information with respect to the ability of the Company to meet future debt
service, capital expenditures and working capital requirements. The
calculation of EBITDA does not include the cash outlays of the Company for
capital expenditures and debt service and should not be deemed to represent
funds available to the Company. See "Management's Discussion & Analysis of
Financial Condition & Results of Operations" for a discussion of the
financial operations and liquidity of the Company as determined in
accordance with generally accepted accounting principles.
(4) All periods presented reflect a three-for-two stock split effected on
February 28, 2000.
<PAGE> 3
EXHIBIT 13.1
MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF
OPERATIONS
OVERVIEW
Allegiance Telecom, Inc. (Allegiance) is a leading competitive provider of
telecommunications services to small- and medium-sized business, government and
other institutional users in major metropolitan areas across the United States.
Allegiance offers an integrated set of telecommunications services including
local exchange, local access, domestic and international long distance, data and
a full suite of Internet services. Our principal competitors are incumbent local
exchange carriers (ILECs), such as the regional Bell operating companies and GTE
Corporation operating units.
We are developing networks throughout the United States using what we refer to
as a "smart build" approach. In contrast to the traditional network build-out
strategy under which carriers install their own telecommunications switch in
each market and then construct their own fiber optic networks to reach
customers, we install our own switch in each market but then lease other
elements of the network from the ILECs. The smart build strategy specifically
involves:
o leasing existing ILEC copper wire connections throughout a local market
area, also called the "local loop," which connect customers to the central
offices or "hubs" of an ILEC network; and
o installing, or physically locating, transmission equipment in these central
offices to route customer traffic through them to our switch.
Locating equipment at ILEC facilities, also known as "collocation," is central
to the success of the smart build strategy. By collocating, we have the ability
to lease, on a monthly or long-term basis, local loop and other network elements
owned by the ILEC. This enables us to reach a wide range of customers without
having to build network connections to each one of them.
Management believes that the smart build approach offers a number of competitive
advantages over the traditional build-out strategy by allowing us to:
o accelerate market entry by nine to 18 months through eliminating or at
least deferring the need for city franchises, rights-of-way and building
access;
o reduce initial capital expenditures in each market, allowing us to focus
our initial capital resources on the critical areas of sales, marketing and
operations support systems, instead of on constructing extensive fiber
optic networks to each customer;
o improve return on capital by generating revenue with a smaller capital
investment;
o defer capital expenditures for network assets to the time when revenue
generated by customer demand is available to finance such expenditures; and
o address attractive service areas selectively throughout target markets and
not just in those areas where we have constructed fiber transmission
facilities.
We believe that the smart build approach allows us to reduce up-front capital
expenditures to approximately 25% of the total capital expenditures required to
develop such a network as compared with up-front capital expenditures of
approximately 50% under traditional build-out models. The level of "up-front"
capital required to be spent to develop a network will vary depending on a
number of factors. These factors include:
o the size and geography of the market;
o the cost of development of our network in each market;
o the degree of penetration of the market;
o the extent of price and service competition for telecommunications
services, regulatory and technological developments; and
o our ability to negotiate favorable prices for purchases of equipment.
<PAGE> 4
We initiated service by buying phone lines at wholesale prices and then
reselling them to customers in Dallas during December 1997. We began providing
service using our own switch and transmission equipment in April 1998 to
customers in New York City. Throughout the remainder of 1998, we initiated
facilities-based services in Atlanta, Boston, Chicago, Dallas, Fort Worth, Los
Angeles, Oakland and San Francisco. During 1999, we commenced operations in:
Philadelphia (February 1999), Washington, D.C. (March 1999), including suburban
Maryland and Virginia, San Jose (March 1999), Houston (April 1999), Northern New
Jersey (May 1999), Orange County (June 1999), San Diego (July 1999), Long Island
(August 1999), Baltimore (October 1999) and Detroit (November 1999).
Although we initiated resale of local services in Dallas in 1997, reselling
local service is not our core focus and comprises a small percentage of our
sales. We now generally resell local services in order to provide a
comprehensive telecommunications solution to a customer that has a need for
local services both within and outside of our markets. In these cases, we resell
services to those locations that are not within markets where we have
facilities. We also resell services in certain cases where customers require
services that we do not currently provide on a facilities basis. We earn
significantly higher margins by providing facilities-based services instead of
resale services and our sales teams have focused their efforts on selling
services that require the use of our facilities.
We may acquire unused fiber capacity to which we add our own electronic
transmission equipment once traffic volume justifies this investment or other
factors make it attractive. This unused fiber is known as "dark fiber" because
no light is transmitted through it while it is unused. We believe that dark
fiber is readily available in most major markets. We are moving to the next
stage of our smart build strategy in most of our existing markets by acquiring
dark fiber capacity to connect many of the central offices at which we are
located. These dark fiber rings will replace the network elements that we are
leasing on a short-term basis from the ILECs and are expected to provide us with
higher operating margins and more reliable network services. We currently have
dark fiber rings in operation in Dallas, Houston and New York City and we have
entered into contracts for dark fiber rings in an additional 16 metropolitan
markets, all of which are expected to be in operation before the end of 2000. We
have also contracted for similar long-term arrangements for long-haul fiber
routes connecting our Boston, New York City and Washington, D.C. networks.
The table below provides selected key operational data:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
---------------------------
1999 1998
------------ ------------
<S> <C> <C>
Markets served 19 9
Number of switches deployed 15 7
Central office collocations 327 101
Addressable market--business lines (in millions) 10.1 3.6
Lines sold 337,500 86,500
Lines installed 241,700 47,700
Sales force employees 707 295
Total employees 1,784 649
</TABLE>
Our business plan covers 36 of the largest metropolitan areas in the United
States. We have successfully raised the projected capital to build our networks
and operate in each of these markets to the point at which operating cash flow
from the market is sufficient to fund such market's operating costs and capital
expenditures.
RESULTS OF OPERATIONS
Year ended December 31, 1999 compared with year ended December 31, 1998
For the years ended December 31, 1999 and 1998, we generated revenues of $99.1
million and $9.8 million, respectively. For the years ended December 31, 1999
and 1998, we sold 251,000 lines and 86,500 lines, and installed 194,000 lines
and 47,700 lines, respectively. From inception through December 31, 1999, we
sold 337,500 lines and installed 241,700 lines. From inception through December
31, 1998, we sold 86,500 lines and installed 47,700 lines. Facilities-based
lines represented 86% of all lines installed at December 31, 1999 as compared to
64% at December 31, 1998.
<PAGE> 5
Local service revenues for the years ended December 31, 1999 and 1998 were
approximately $40.3 million and $6.9 million, respectively. Local service
revenues consisted of:
o the monthly recurring charge for basic service;
o usage-based charges for local calls in certain markets;
o charges for services such as call waiting and call forwarding; and
o to a lesser extent, non-recurring charges, such as charges for additional
lines for an existing customer.
We earn "access charges" revenue by connecting our local service customers to
their selected long distance carriers for outbound calls or by delivering
inbound long distance traffic to our local service customers. We earn
"reciprocal compensation" revenue by terminating on our network local calls that
originate on another carrier's network. Access charge revenue and reciprocal
compensation revenue accounted for $44.8 million of our revenues for the year
ended December 31, 1999 and $2.2 million of our revenues for the year ended
December 31, 1998. Our interstate access charges were filed largely mirroring
those used by the National Exchange Carrier Association (NECA), an association
of independent local exchange carriers and our state access charges were
generally set the same as those of state associations similar to NECA or of
individual ILECs operating in other areas within the same state. These charges
are generally higher than those charged by the larger ILECs operating in the
same areas because these large ILECs have many more customers and therefore have
lower per unit costs. Access charges are intended to compensate the local
exchange carrier for the costs incurred in originating and terminating long
distance calls on its network and we believe our access charges are
appropriately set at levels approximately the same as those of the smaller
ILECs. Access charge levels in general, and those charged by CLECs in
particular, are subject to various disputes and are under review by the FCC.
Reciprocal compensation charges as they relate to traffic generated by Internet
service providers are also subject to various disputes. A discussion of the
uncertainties involved in access charge revenue and reciprocal compensation
revenue related to Internet service provider traffic is set forth in our Annual
Report on Form 10-K for the period ended December 31, 1999 under the caption
"Risk Factors."
Long distance revenues for the years ended December 31, 1999 and 1998 were
approximately $2.9 million and $0.7 million, respectively. Internet access and
other Internet revenues for the year ended December 31, 1999 were approximately
$10.4 million and for the year ended December 31, 1998 were immaterial.
All other sources of revenue accounted for approximately $0.7 million for the
year ended December 31, 1999. Other revenues for the year ended December 31,
1998 were immaterial.
We are using the purchase method of accounting for the acquisitions of the
common stock of Kivex, Inc. and ConnectNet, Inc. and the acquisition of certain
assets of ConnecTen, L.L.C. We have recognized the revenues earned since the
ConnecTen, L.L.C. and ConnectNet, Inc. transactions, both of which closed in
April 1999, and the Kivex, Inc. transaction which closed on June 30, 1999, in
our consolidated statement of operations for the year ended December 31, 1999.
Kivex, Inc. revenues contributed approximately $5.0 million to consolidated
revenues for the year ended December 31, 1999. The other two companies' revenues
were immaterial to revenues for the year ended December 31, 1999. We have had
discussions, and will continue to have discussions in the foreseeable future,
concerning other potential acquisitions of Internet service providers and other
providers of telecommunications services.
The systems that have historically been used to switch customers from their
existing carrier to Allegiance and to begin providing them service generally
required multiple entries of customer information by hand and were exchanged by
fax with the ILEC. In January 1999, we announced that we had successfully
achieved "electronic bonding" between our operations support systems and those
of Bell Atlantic in the New York City market with respect to processing local
service orders. Electronic bonding is a method by which manual processing and
faxing of information is replaced with electronic processing where our computer
systems and those of other carriers communicate directly. The manual approach
which we must use in the absence of electronic bonding is not only labor
intensive, but also creates numerous opportunities for:
o errors in providing new service and billing;
o service interruptions;
o poor customer service; and
o increased customer turnover.
<PAGE> 6
These problems create added expenses and decrease customer satisfaction. Without
electronic bonding, confirmation of receipt and installation of orders has taken
from between two business days to one month. Electronic bonding is expected to
improve productivity by decreasing the period between the time of sale and the
time a customer's line is installed.
In addition to Bell Atlantic in New York City, we are now electronically bonding
with Bell Atlantic in Boston and Long Island and with Southwestern Bell in
Dallas, Fort Worth and Houston. Testing with SBC Communications (SBC) and
Pacific Bell in California was completed during the third quarter 1999 on the
electronic data interface which is now in use there. Local service requests for
all Texas and California markets are now processed electronically with SBC. We
have recently completed electronic bonding testing with Ameritech, and currently
we are processing data for local service requests electronically with Ameritech.
We are currently testing electronic bonding with Bell Atlantic in their southern
region and expect to begin sending production orders sometime after the first
quarter 2000. We plan on testing electronic bonding with BellSouth in the second
quarter and US West in the third quarter 2000. We are also working towards the
electronic bonding of that portion of the billing process in which we gather
customer specific information, including their current service options, and the
process of identifying and resolving customer service problems. These additional
"electronic bonding" initiatives will require additional capital expenditures
and should result in additional efficiencies.
For the years ended December 31, 1999 and 1998, network expenses were $62.5
million and $9.5 million, respectively. This sharp increase is consistent with
the deployment of our networks and initiation and growth of our services during
1999 and 1998. Network expenses included:
o the cost of leasing high-capacity digital lines that interconnect our
network with ILEC networks;
o the cost of leasing high-capacity digital lines that connect our switching
equipment to our transmission equipment located in ILEC central offices;
o the cost of leasing local loop lines which connect our customers to our
network;
o the cost of completing local and long distance calls originated by our
customers;
o the cost of leasing space in ILEC central offices for collocating our
transmission equipment; and
o the cost of leasing our nationwide Internet network.
The costs to lease local loop lines and high-capacity digital lines from the
ILECs vary by ILEC and are regulated by state authorities under the
Telecommunications Act of 1996. We believe that in many instances there are
multiple carriers in addition to the ILEC from which we can lease high-capacity
lines, and that we can generally lease those lines at lower prices than are
charged by the ILEC. We expect that the costs associated with these leases will
increase with customer volume and will be a significant part of our ongoing cost
of services. The cost of leasing switch sites is also a significant part of our
ongoing cost of services.
In constructing switching and transmission equipment for a new market, we
capitalize as a component of property and equipment only the non-recurring
charges associated with our initial network facilities and the monthly recurring
costs of those network facilities until the switching equipment begins to carry
revenue producing traffic. Typically, the charges for just one to two months are
capitalized. We generally expense the monthly recurring costs resulting from the
growth of existing collocation sites, and the costs related to expansion of the
network to additional collocation sites in operational markets as we incur these
charges.
We incur "reciprocal compensation" costs in providing both voice and data
services and expect reciprocal compensation costs to be a major portion of our
cost of services. We must enter into an interconnection agreement with the ILEC
in each market to make widespread calling available to our customers. These
agreements typically set the cost per minute to be charged by each party for the
calls that are exchanged between the two carriers' networks. Generally, a
carrier must compensate another carrier when a local call by the first carrier's
customer terminates on the other carrier's network. These reciprocal
compensation costs will grow as our customers' outbound calling volume grows.
<PAGE> 7
The cost of securing long distance service capacity is a variable cost that
increases in direct relationship to increases in our customer base and their
long distance calling volumes. We believe that these costs, measured as a
percentage of long distance revenues, will be relatively consistent from period
to period. However, we do expect period over period growth in the absolute cost
of such capacity, and that the cost of long distance capacity will be a
significant portion of our cost of long distance services. We have entered into
one resale agreement with a long distance carrier to provide Allegiance with the
ability to provide our customers with long distance service. We expect to enter
into resale agreements for long distance service with other carriers in the
future. Such agreements typically provide for the resale of long distance
services on a per-minute basis and may contain minimum volume commitments. Our
existing resale agreement, however, does not contain a minimum volume
commitment. If we agree to minimum volume commitments and fail to meet them, we
may be obligated to pay underutilization charges. Under most of these types of
agreements, if a company underestimates its need for transmission capacity and
exceeds the maximum amount agreed to under such agreements, it may be required
to obtain capacity through more expensive means.
We have developed a national Internet data network by connecting our markets
with leased high-capacity digital lines. The costs of these lines will increase
as we increase capacity to address customer demand, open new markets and connect
additional markets to our Internet network.
For the year ended December 31, 1999, selling, general and administrative
expenses increased to $140.7 million from $46.1 million for the year ended
December 31, 1998. Selling, general and administrative expenses include salaries
and related personnel costs, facilities costs and legal and consulting fees. The
number of employees increased to 1,784 as of December 31, 1999, from 649 as of
December 31, 1998. As of December 31, 1999, the sales force, including sales
managers and sales administrators, had grown to 707 from 295 as of December 31,
1998. We currently do not have any print or other media advertising campaigns.
Although we currently do not use sales agents, we may use agents in the future.
As we continue to grow in terms of number of customers and call volume, we
expect that ongoing expenses for customer care and billing will increase.
We amortized $18.8 million and $167.3 million of the deferred management
ownership allocation charge, a non-cash charge to income, for the years ended
December 31, 1999 and 1998, respectively. Our original private equity fund
investors and original management team investors owned 95.0% and 5.0%,
respectively, of the ownership interests of Allegiance Telecom, LLC, an entity
that owned substantially all of our outstanding capital stock prior to our
initial public offering of common stock. As a result of that offering, the
assets of Allegiance Telecom, LLC, which consisted almost entirely of such
capital stock, were distributed to the original fund investors and management
investors in accordance with the Allegiance Telecom, LLC limited liability
company agreement. This agreement provided that the equity allocation between
the fund investors and management investors would be 66.7% and 33.3%,
respectively, based upon the valuation implied by the initial public offering.
We recorded the increase in the assets of Allegiance Telecom, LLC allocated to
the management investors as a $193.5 million increase in additional paid-in
capital. This transaction was recorded during the third quarter of 1998. Of this
charge, we recorded $122.5 million as a non-cash, non-recurring charge to
operating expense and $71.0 million as a deferred management ownership
allocation charge. We will further amortize this deferred charge at $6.6 million
and $0.2 million during the years 2000 and 2001, respectively. This period is
the time frame over which we have the right to repurchase a portion of the
securities, at the lower of fair market value or the price paid by the employee,
in the event the management employee's employment with Allegiance is terminated.
During 1999, we repurchased 25,312 shares from terminated management employees,
and reversed the remaining deferred charge of $0.6 million related to these
shares to additional paid-in capital. For the years ended December 31, 1999 and
1998, we recorded $7.8 million and $5.3 million of amortization of deferred
compensation expense, respectively. Such deferred compensation was recorded in
connection with membership units of Allegiance Telecom, LLC sold to certain
management employees and options granted to employees under our 1997 Stock
Option Plan and 1998 Stock Incentive Plan.
For the years ended December 31, 1999 and 1998, we recorded depreciation and
amortization of property and equipment of $49.1 million and $9.0 million,
respectively. Such increase was consistent with the deployment of our networks
and initiation of services in 19 markets by December 31, 1999.
In connection with the ConnecTen, ConnectNet and Kivex acquisitions completed
during the second quarter of 1999, we assigned an aggregate of $5.5 million of
the purchase price to customer lists and $0.2 million to workforces. We also
recorded an aggregate of $34.2 million of goodwill. Each of these intangible
assets is being amortized over their estimated useful lives of three years,
beginning at their respective date of the acquisition. For the year ended
December 31, 1999, we recorded $5.7 million of amortization for goodwill and
$1.0 million of amortization of customer list and workforces.
<PAGE> 8
For the years ended December 31, 1999 and 1998, interest expense was $59.4
million and $39.0 million, respectively. Interest expense recorded during the
period ended December 31, 1999 reflects the accretion of the 113/4% notes and
related amortization of the original issue discount, and the amortization of the
original issue discount on the 12 7/8% notes. The 12 7/8% notes were issued on
July 1, 1998. The amount of interest capitalized for the years ended December
31, 1999 and 1998 was $6.0 million and $2.8 million, respectively. Interest
income for the years ended December 31, 1999 and 1998 was $31.4 million and
$19.9 million, respectively. Interest income results from the investment of cash
and from U.S. government securities which we purchased and placed in a pledge
account to secure the semiannual payments of interest through May 2001 on the
12 7/8% notes. Interest income during 1999 is greater than for 1998 because we
had additional cash to invest. The additional cash was generated primarily from
the sale of common stock during April 1999.
From February 1998 through March 1999, we recorded accretion of our redeemable
warrants to reflect the possibility that they would be redeemed at fair market
value in February 2008. Amounts were accreted using the effective interest
method and management's estimate of the future fair market value of such
warrants at the time redemption is permitted. Amounts accreted increased the
recorded value of such warrants on the balance sheet and resulted in non-cash
charges to increase the net loss applicable to common stock. As the terms and
conditions of the Warrant Agreement do not specify a date certain for redemption
of the warrants and the exchange of warrants for cash is no longer beyond the
control of management, we have ceased accretion of the warrants and reclassified
the accreted value of the redeemable warrants at April 1, 1999 to the
stockholders' equity section. If a repurchase event occurs in the future or
becomes probable, we will adjust the warrants to the estimated redemption value
at that time. For the year ending December 31, 1999, we recorded accretion of
$0.1 million related to the redeemable warrants. For the year ending December
31, 1998, we recorded $0.5 million of such accretion.
Until the consummation of our initial public offering of common stock in July
1998, we also recorded the potential redemption values of redeemable convertible
preferred stock, in the event that those shares would be redeemed at fair market
value in August 2004. At the time of our initial public offering, such preferred
stock was converted into common stock. Accordingly, the amounts accreted for the
redeemable convertible preferred stock were reclassified as an increase to
additional paid-in capital in the stockholders' equity section of the
consolidated balance sheet. Therefore, we will not record any additional
accretion of redeemable convertible preferred stock values. Accretion related to
the redeemable convertible preferred stock was $11.5 million for the year ended
December 31, 1998.
Our net loss for the year ended December 31, 1999, after amortization of the
non-cash management ownership allocation charge and amortization of deferred
compensation, but before accretion of redeemable warrants, was $214.7 million.
Our net loss for the year ended December 31, 1998, after amortization of the
non-cash management ownership allocation charge and amortization of deferred
compensation, but before the accretion of the redeemable convertible preferred
stock and redeemable warrants, was $246.5 million. After deducting accretion of
redeemable warrant values, the net loss applicable to common stock was $214.9
million for the year ended December 31, 1999. After deducting accretion of
redeemable convertible preferred stock and warrant values, the net loss
applicable to common stock was $258.5 million for the year ended December 31,
1998.
Many securities analysts use the measure of earnings before deducting interest,
taxes, depreciation and amortization, also commonly referred to as "EBITDA," as
a way of measuring the performance of a company. We had EBITDA losses of $104.2
million for the year ended December 31, 1999, and EBITDA losses of $45.8 million
for the year ended December 31, 1998. In calculating EBITDA, we also exclude the
non-cash charges to operations for the management ownership allocation charge
and deferred compensation expense totaling $26.6 million for the year ended
December 31, 1999 and $172.6 million for the year ended December 31, 1998.
We expect to continue to experience operating losses and negative EBITDA as a
result of our development and market expansion activities. We typically do not
expect to achieve positive EBITDA in any market until at least its third year of
operation.
Year ended December 31, 1998 compared to the period from inception (April 22,
1997) to December 31, 1997
Allegiance commenced operations in August 1997. During the period from August to
December 1997, we did not sell any services or open any markets. Instead,
substantial effort was devoted to developing business plans, initiating
applications for governmental authorizations, hiring management and other key
personnel, working on the design and development of local exchange telephone
networks and operations support systems, acquiring equipment and facilities, and
negotiating interconnection agreements. We initiated service by buying phone
lines at wholesale prices and then reselling them to nine "beta" customers in
Dallas during December 1997, generating only $400 of revenue for that period.
Given that we have significantly increased our customer base and geographic
markets from the commencement of operations in Dallas during 1997, comparisons
of 1998 results with those of 1997 are not meaningful.
<PAGE> 9
LIQUIDITY AND CAPITAL RESOURCES
Our financing plan is predicated on the pre-funding of each market's expansion
to positive free cash flow. By using this approach, we avoid being in the
position of seeking additional capital to fund a market after we have already
made a significant capital investment in that market. We believe that by raising
all required capital prior to making any commitments in a market, we can raise
capital on more favorable terms and conditions.
On January 3, 2000, we announced a significant expansion of our business plan to
include a total of 36 target markets and which:
o includes an increase in our collocation footprint by approximately 100
central offices in our initial 24 target markets; and
o provides for the acquisition of dark fiber capacity in an additional 16 of
our target markets as well as in the Boston - New York - Washington, D.C.
corridor.
We do not begin to develop a new market until we have raised the capital that we
project to be necessary to build and operate our network in the market to the
point at which operating cash flow from the market is sufficient to fund such
market's ongoing operating costs and capital expenditures. All of our 36 target
markets are now fully funded in this manner.
We may decide to seek additional capital in the future to expand our business.
Sources of additional financing may include vendor financing and/or the private
or public sale of our equity or debt securities. We cannot assure you, however,
that such financing will be available at all or on terms acceptable to us, or
that our estimate of additional funds required is accurate. The actual amount
and timing of future capital requirements may differ materially from our
estimates as a result of, among other things:
o the cost of the development of our networks in each of our markets;
o a change in or inaccuracy of our development plans or projections that
leads to an alteration in the schedule or targets of our roll-out plan;
o the extent of price and service competition for telecommunications services
in our markets;
o the demand for our services;
o regulatory and technological developments, including additional market
developments and new opportunities in our industry;
o an inability to borrow under our new credit facilities; and
o the consummation of acquisitions.
Our cost of rolling out our networks and operating our
business, as well as our revenues, will depend on a variety of factors,
including:
o our ability to meet our roll-out schedules;
o our ability to negotiate favorable prices for purchases of equipment;
o our ability to develop, acquire and integrate the necessary operations
support systems and other back office systems;
o the number of customers and the services for which they subscribe;
o the nature and penetration of new services that we may offer; and
o the impact of changes in technology and telecommunication regulations.
As such, actual costs and revenues may vary from expected amounts, possibly to a
material degree, and such variations are likely to affect our future capital
requirements.
<PAGE> 10
For the years ended December 31, 1999 and 1998, we made capital expenditures of
$273.0 million and $113.5 million, respectively. For the year ended 1997, we
made capital expenditures of $21.9 million. We also used capital during these
periods to fund our operations. Excess cash was used to purchase short-term
investments and money market investments. As of December 31, 1999, we had
transmission equipment collocated in 327 ILEC central offices. Pursuant to our
expanded business plan, we expect to incur approximately $400.0 million of
capital expenditures in 2000.
As of December 31, 1999, we had approximately $526.0 million of cash and
short-term investments. In addition, $37.8 million of restricted U.S. government
securities have been placed in a pledge account to fund interest payments on our
12 7/8% notes through May 2001.
On February 28, 2000, a three-for-two stock split of our common stock was
effected in the form of a 50% dividend to shareholders of record on February 18,
2000. All references to the number of common shares and per share amounts have
been restated to reflect the stock split for the periods presented.
We initially raised approximately $50.1 million from certain members of our
management team and from affiliates of four private equity investment funds with
extensive experience in financing telecommunications companies: Madison Dearborn
Capital Partners, Morgan Stanley Dean Witter Capital Partners, Frontenac Company
and Battery Ventures.
On February 3, 1998, we raised gross proceeds of approximately $250.5 million in
an offering of 445,000 units, each unit consisting of one 11 3/4% note and one
redeemable warrant. Net proceeds of approximately $240.7 million were received
from that offering. The 11 3/4% notes have a principal amount at maturity of
$445.0 million and an effective interest rate of 12.21%. The 11 3/4% notes
mature on February 15, 2008. From and after February 15, 2003, interest on such
notes will be payable semi-annually in cash at the rate of 11 3/4% per annum.
The accretion of original issue discount will cause an increase in indebtedness
from December 31, 1999 to February 15, 2008 of $140.6 million.
We completed the initial public offering of our common stock and the offering of
the 12 7/8% notes early in the third quarter of 1998. We raised net proceeds of
approximately $137.8 million from our initial public offering of common stock
and approximately $124.8 million from the offering of these notes. The 12 7/8%
notes mature on May 15, 2008. Interest on these notes is payable in cash
semi-annually, commencing November 15, 1998. The 12 7/8% notes were sold at less
than par, resulting in an effective rate of 13.24%, and the value of the 12 7/8%
notes is being accreted, using the effective interest method, from the $200.9
million gross proceeds realized at the time of the sale to the aggregate value
at maturity, $205.0 million, over the period ending May 15, 2008. The accretion
of original issue discount will cause an increase in indebtedness from December
31, 1999 to May 15, 2008 of $3.7 million. In connection with the sale of the
12 7/8% notes, we purchased U.S. government securities for approximately $69.0
million and placed them in a pledge account to fund interest payments for the
first three years the 12 7/8% notes are outstanding. The first interest payment
was made in November 1998. Such U.S. government securities are reflected in the
balance sheet as of December 31, 1999, at an accreted value of approximately
$37.8 million, $25.5 million of which we classified as current assets and $12.3
million of which we classified as non-current assets.
On April 20, 1999, we completed the public offering of 17,739,000 new shares of
our common stock at a price of $25.33 per share, raising gross proceeds of
$449.4 million. After underwriters' fees and other expenses, we realized net
proceeds of approximately $430.3 million. On April 28, 1999, the underwriters of
this offering exercised an option to purchase an additional 3,302,100 shares of
common stock at the same price per share. As a result, we raised an additional
$83.6 million of gross proceeds and $80.3 million of net proceeds, at that time.
On February 2, 2000, we completed the public offering of 9,900,000 new shares of
our common stock at a price of $70.00 per share, raising gross proceeds of
$693.0 million. After underwriters' fees and other expenses, we realized net
proceeds of approximately $667.1 million. On February 29, 2000, the underwriters
of this offering exercised an option to purchase an additional 803,109 shares of
common stock at the same price per share. As a result, we raised an additional
$56.2 million of gross proceeds and $54.1 million of net proceeds.
In February 2000, we completed $500.0 million of senior secured credit
facilities, which replaced the Revolving Credit Facility. The new credit
facilities consist of a $350.0 million revolving credit facility and a $150.0
million delayed draw term loan facility. The credit facilities are available,
subject to satisfaction of certain terms and conditions, to provide purchase
money financing for network build-out, including the cost to develop, acquire
and integrate the necessary operations support and back office systems, as well
as for additional dark fiber purchases and central office collocations. Interest
on amounts drawn is variable, based on leverage ratios, and is expected to be
the London Interbank Offered Rate + 3.25%. The initial commitment fee on the
unused portion of the credit facility will be 1.5% and will step down based upon
usage. The credit facility contains certain representations, warranties,
covenants and events of default customary for credit of this nature and
otherwise agreed upon by the parties.
<PAGE> 11
IMPACT OF THE YEAR 2000
The "year 2000" issue generally describes the various problems that may result
from the improper processing of dates and date-sensitive transactions by
computers and other equipment as a result of computer hardware and software
using two digits to identify the year in a date. In 1999, we completed a
company-wide inventory of all computer systems on which we relied, both within
and outside of Allegiance. We have attempted to assess, and we plan to continue
to monitor year 2000 issues. If any year 2000 issues are not adequately resolved
by Allegiance, there could be a material adverse effect on our business,
financial condition or results of operations. To date, however, we have not
experienced any year 2000 issues.
Even though we have not identified or experienced any specific year 2000 issues,
we believe that the design of our networks and support systems could provide
Allegiance with certain operating contingencies in the event material external
systems fail. We have developed contingency plans for all of our operating
support systems. If we should, in the future, experience year 2000 issues with
any of these operating support systems, we will have our personnel resort to the
manual systems which we used prior to implementing the operating support
systems, during the period that remediation efforts would be undertaken.
We have attempted to ensure that our own operating facilities and systems are
fully backed up with auxiliary power generators capable of operating all
equipment and systems for indeterminate periods should power supplies fail,
subject to the availability of fuel to run these generators. We also have the
ability to relocate headquarters and administrative personnel to other
Allegiance facilities should power and other services at our Dallas headquarters
fail. Because of the inability of our contingency plans to eliminate the
negative impact that disruptions in ILEC service or the service of other
carriers would create, there can be no assurance that we will not experience
numerous disruptions that could have a material effect on our operations.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our investment policy is limited by our existing bond indentures. We are
restricted to investing in financial instruments with a maturity of one year or
less. The indentures require investments in high quality instruments, such as
obligations of the U.S. Government or any agency thereof guaranteed by the
United States of America, money market deposits and commercial paper with a
rating of A1/P1.
We are thus exposed to market risk related to changes in short-term U.S.
interest rates. We manage these risks by closely monitoring market rates and the
duration of our investments. We do not enter into financial or commodity
investments for speculation or trading purposes and are not a party to any
financial or commodity derivatives.
Interest income earned on our investment portfolio is affected by changes in
short-term interest rates. We believe that we are not exposed to significant
changes in fair value because of our conservative investment strategy. However,
the estimated interest income for 2000, based on the estimated average 1999
earned rate on investments is $51.9 million. Assuming a 100 basis point drop in
the estimated average rate, we would be exposed to a $10.1 million reduction in
interest income for the year. The following table illustrates this impact on a
quarterly basis:
<TABLE>
<CAPTION>
(dollars in millions) QUARTER ENDING
------------------------------------------------------------------------
MARCH 2000 JUNE 2000 SEPTEMBER 2000 DECEMBER 2000 TOTAL
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Estimated average investments $ 912.3 $ 1,083.3 $ 988.2 $ 905.5 N/A
Estimated average interest earned at the
estimated average rate of 5.1% for
the year ended December 31, 1999 $ 11.6 $ 13.8 $ 12.5 $ 11.5 $ 49.4
Estimated impact of interest rate drop $ 2.3 $ 2.7 $ 2.5 $ 2.3 $ 9.8
</TABLE>
Our outstanding long-term debt consists principally of long-term, fixed rate
notes, not subject to interest rate fluctuations.
<PAGE> 12
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of Allegiance Telecom, Inc.:
We have audited the accompanying consolidated balance sheets of Allegiance
Telecom, Inc. (a Delaware corporation) and subsidiaries (the "Company") as of
December 31, 1999 and 1998, and the related consolidated statements of
operations, stockholders' equity (deficit) and cash flows for the years ended
December 31, 1999 and 1998, and for the period from inception (April 22, 1997),
to December 31, 1997. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with 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 audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Allegiance Telecom, Inc. and
subsidiaries as of December 31, 1999 and 1998, and the results of its operations
and its cash flows for the years ended December 31, 1999 and 1998, and for the
period from inception (April 22, 1997), to December 31, 1997, in conformity with
accounting principles generally accepted in the United States.
ARTHUR ANDERSEN LLP
Dallas, Texas,
January 26, 2000
(except with respect to the matters discussed
in Note 12, as to which the date is March 1, 2000)
<PAGE> 13
ALLEGIANCE TELECOM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
As of December 31, 1999 and 1998 (in thousands, except share and per share data)
<TABLE>
<CAPTION>
ASSETS 1999 1998
----------- -----------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 502,234 $ 262,502
Short-term investments 23,783 143,390
Short-term investments, restricted 25,518 25,543
Accounts receivable (net of allowance for doubtful accounts of $7,800 and $577,
at December 31, 1999 and 1998, respectively) 30,344 6,187
Prepaid expenses and other current assets 1,770 1,242
----------- -----------
Total current assets 583,649 438,864
PROPERTY AND EQUIPMENT:
Property and equipment 435,526 153,875
Accumulated depreciation and amortization (58,113) (9,015)
----------- -----------
Property and equipment, net 377,413 144,860
DEFERRED DEBT ISSUANCE COSTS (net of accumulated amortization of $2,610 and
$734, at December 31, 1999 and 1998, respectively) 21,668 16,078
LONG-TERM INVESTMENTS, RESTRICTED 13,232 36,699
OTHER ASSETS 37,913 1,373
----------- -----------
Total assets $ 1,033,875 $ 637,874
=========== ===========
Liabilities and stockholders' equity
CURRENT LIABILITIES:
Accounts payable $ 44,805 $ 20,982
Accrued liabilities and other current liabilities 28,868 24,847
----------- -----------
Total current liabilities 73,673 45,829
LONG-TERM LIABILITIES 2,154 1,329
LONG-TERM DEBT 514,432 471,652
REDEEMABLE WARRANTS -- 8,634
COMMITMENTS AND CONTINGENCIES (see note 9)
Stockholders' equity:
Preferred stock, $.01 par value, 1,000,000 shares authorized, no shares issued
or outstanding at December 31, 1999 and 1998, respectively -- --
Common stock, $.01 par value, 150,000,000 shares authorized, 97,459,677 and
75,512,331 shares issued and 97,434,365 and 75,512,331 shares outstanding
at December 31, 1999 and 1998, respectively 975 755
Common stock in treasury, at cost, 25,312 and no shares at December 31, 1999
and 1998, respectively (5) --
Common stock warrants 3,719 --
Additional paid-in capital 940,120 416,479
Deferred compensation (13,573) (14,617)
Deferred management ownership allocation charge (6,790) (26,225)
Accumulated deficit (480,830) (265,962)
----------- -----------
Total stockholders' equity 443,616 110,430
----------- -----------
Total liabilities and stockholders' equity $ 1,033,875 $ 637,874
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE> 14
ALLEGIANCE TELECOM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended December 31, 1999 and 1998, and for the period from
inception (April 22, 1997), to December 31, 1997 (in thousands, except share and
per share data)
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
REVENUES $ 99,061 $ 9,786 $ --
OPERATING EXPENSES:
Network 62,542 9,529 151
Selling, general and administrative 140,745 46,089 3,426
Depreciation and amortization 55,822 9,003 13
Management ownership allocation charge 18,789 167,312 --
Noncash deferred compensation 7,851 5,307 210
------------ ------------ ------------
Total operating expenses 285,749 237,240 3,800
------------ ------------ ------------
Loss from operations (186,688) (227,454) (3,800)
OTHER INCOME (EXPENSE):
Interest income 31,354 19,918 112
Interest expense (59,404) (38,952) --
------------ ------------ ------------
Total other income (expense) (28,050) (19,034) 112
------------ ------------ ------------
NET LOSS (214,738) (246,488) (3,688)
ACCRETION OF REDEEMABLE PREFERRED STOCK AND WARRANT VALUES (130) (11,972) (3,814)
------------ ------------ ------------
NET LOSS APPLICABLE TO COMMON STOCK $ (214,868) $ (258,460) $ (7,502)
============ ============ ============
NET LOSS PER SHARE, basic and diluted $ (2.37) $ (7.02) $ (11,740.22)
============ ============ ============
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING, basic and diluted 90,736,461 36,825,519 639
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE> 15
ALLEGIANCE TELECOM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
For the years ended December 31, 1999 and 1998, and for the period from
inception (April 22, 1997), to December 31, 1997 (in thousands, except share and
per share data)
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK
----------------- ------------
NUMBER NUMBER
OF SHARES AMOUNT OF SHARES
--------- ------ ----------
<S> <C> <C> <C>
Balance, April 22, 1997 (date of inception) -- $ -- --
Issuance of common stock at $.15 per share -- -- 639
Accretion of redeemable preferred stock and warrant values -- -- --
Deferred compensation -- -- --
Amortization of deferred compensation -- -- --
Net loss -- -- --
------ ------ ----------
Balance, December 31, 1997 -- -- 639
Accretion of redeemable preferred stock and warrant values -- -- --
Initial public offering -- -- 15,000,000
Conversion of redeemable preferred stock -- -- 60,511,692
Deferred compensation -- -- --
Amortization of deferred compensation -- -- --
Net loss -- -- --
------ ------ ----------
Balance, December 31, 1998 -- -- 75,512,331
Issuance of stock under the Employee Stock Purchase Plan (see Note 11) -- -- 145,574
Acquisition of treasury stock -- -- --
Exercise of employee stock options -- -- 200,170
Accretion of redeemable warrant values -- -- --
Reclassification of common stock warrants (see Note 6) -- -- --
Conversion of common stock warrants -- -- 560,502
Secondary offering of common stock -- -- 21,041,100
Deferred compensation -- -- --
Amortization of deferred compensation -- -- --
Net loss -- -- --
------ ------ ----------
Balance, December 31, 1999 -- $ -- 97,459,677
====== ====== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE> 16
<TABLE>
<CAPTION>
COMMON STOCK TREASURY STOCK
------------ ------------------------
ADDITIONAL COMMON
PAID-IN NUMBER STOCK
AMOUNT CAPITAL OF SHARES AMOUNT WARRANTS
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
BALANCE, April 22, 1997 (date of inception) $ -- $ -- -- $ -- $ --
Issuance of common stock at $.15 per share -- -- -- -- --
Accretion of redeemable preferred stock and warrant values -- -- -- -- --
Deferred compensation -- 3,008 -- -- --
Amortization of deferred compensation -- -- -- -- --
Net loss -- -- -- -- --
---------- ---------- ---------- ---------- ----------
Balance, December 31, 1997 -- 3,008 -- -- --
Accretion of redeemable preferred stock and warrant values -- -- -- -- --
Initial public offering 150 137,607 -- -- --
Conversion of redeemable preferred stock 605 65,201 -- -- --
Deferred compensation -- 210,663 -- -- --
Amortization of deferred compensation -- -- -- -- --
Net loss -- -- -- -- --
---------- ---------- ---------- ---------- ----------
Balance, December 31, 1998 755 416,479 -- -- --
Issuance of stock under the Employee Stock
Purchase Plan (see Note 11) 2 1,466 -- -- --
Acquisition of treasury stock -- -- (25,312) (5) --
Exercise of employee stock options 2 563 -- -- --
Accretion of redeemable warrant values -- -- -- -- --
Reclassification of common stock warrants (see Note 6) -- -- -- -- 8,764
Conversion of common stock warrants 6 5,043 -- -- (5,045)
Secondary offering of common stock 210 510,408 -- -- --
Deferred compensation -- 6,161 -- -- --
Amortization of deferred compensation -- -- -- -- --
Net loss -- -- -- -- --
---------- ---------- ---------- ---------- ----------
Balance, December 31, 1999 $ 975 $ 940,120 (25,312) $ (5) $ 3,719
========== ========== ========== ========== ==========
<CAPTION>
DEFERRED
MANAGEMENT
OWNERSHIP
DEFERRED ALLOCATION ACCUMULATED
COMPENSATION CHARGE DEFICIT TOTAL
------------ ---------- ----------- ----------
<S> <C> <C> <C> <C>
BALANCE, April 22, 1997 (date of inception) $ -- $ -- $ -- $ --
Issuance of common stock at $.15 per share -- -- -- --
Accretion of redeemable preferred stock and warrant values -- -- (3,814) (3,814)
Deferred compensation (3,008) -- -- --
Amortization of deferred compensation 210 -- -- 210
Net loss -- -- (3,688) (3,688)
---------- ---------- ---------- ----------
Balance, December 31, 1997 (2,798) -- (7,502) (7,292)
Accretion of redeemable preferred stock and warrant values -- -- (11,972) (11,972)
Initial public offering -- -- -- 137,757
Conversion of redeemable preferred stock -- -- -- 65,806
Deferred compensation (17,126) (193,537) -- --
Amortization of deferred compensation 5,307 167,312 -- 172,619
Net loss -- -- (246,488) (246,488)
---------- ---------- ---------- ----------
Balance, December 31, 1998 (14,617) (26,225) (265,962) 110,430
Issuance of stock under the Employee Stock
Purchase Plan (see Note 11) -- -- -- 1,468
Acquisition of treasury stock -- -- -- (5)
Exercise of employee stock options -- -- -- 565
Accretion of redeemable warrant values -- -- (130) (130)
Reclassification of common stock warrants (see Note 6) -- -- -- 8,764
Conversion of common stock warrants -- -- -- 4
Secondary offering of common stock -- -- -- 510,618
Deferred compensation (6,807) 646 -- --
Amortization of deferred compensation 7,851 18,789 -- 26,640
Net loss -- -- (214,738) (214,738)
---------- ---------- ---------- ----------
Balance, December 31, 1999 $ (13,573) $ (6,790) $ (480,830) $ 443,616
========== ========== ========== ==========
</TABLE>
<PAGE> 17
ALLEGIANCE TELECOM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, 1999 and 1998, and for the period from
inception (April 22, 1997), to December 31, 1997 (in thousands)
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(214,738) $(246,488) $ (3,688)
Adjustments to reconcile net loss to cash used in operating activities--
Depreciation and amortization 55,822 9,003 13
Provision for uncollectible accounts receivable 7,496 577 --
Accretion of investments (4,145) (3,427) --
Accretion of Series B 11 3/4% notes 34,107 28,333 --
Amortization of deferred debt issuance costs 1,876 734 --
Amortization of management ownership allocation
charge and deferred compensation 26,640 172,619 210
Changes in assets and liabilities--
Increase in accounts receivable (31,224) (6,760) (4)
Increase in prepaid expenses and other current assets (385) (998) (245)
Increase in other assets (3,138) (1,202) (171)
Increase in accounts payable 31,412 4,704 275
(Decrease) increase in accrued liabilities and other current liabilities (6,176) 22,208 1,667
--------- --------- ---------
Net cash used in operating activities (102,453) (20,697) (1,943)
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (273,015) (113,539) (21,926)
Purchases of subsidiaries, net of cash acquired (35,478) -- --
Purchases of investments (62,313) (291,262) --
Proceeds from sale of investments 209,559 89,058 --
--------- --------- ---------
Net cash used in investing activities (161,247) (315,743) (21,926)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt -- 443,212 --
Proceeds from issuance of redeemable warrants -- 8,184 --
Proceeds from issuance of common stock, net 512,655 137,757 --
Deferred debt issuance costs (7,929) (16,812) --
Proceeds from issuance of redeemable preferred stock -- -- 5,000
Proceeds from redeemable capital contributions -- 20,875 24,595
Purchase of treasury stock (5) -- --
Payments on capital lease obligations (1,285) -- --
Other (4) -- --
--------- --------- ---------
Net cash provided by financing activities 503,432 593,216 29,595
--------- --------- ---------
INCREASE IN CASH AND CASH EQUIVALENTS 239,732 256,776 5,726
CASH AND CASH EQUIVALENTS, beginning of period 262,502 5,726 --
--------- --------- ---------
CASH AND CASH EQUIVALENTS, end of period $ 502,234 $ 262,502 $ 5,726
========= ========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest $ 37,233 $ 9,384 $ --
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE> 18
ALLEGIANCE TELECOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999, 1998, and 1997 (dollars in thousands, except share and per
share data)
1. GENERAL:
Allegiance Telecom, Inc., a competitive local exchange carrier (CLEC), was
incorporated on April 22, 1997, as a Delaware corporation, for the purpose of
providing voice, data and Internet services to business, government and other
institutional users in major metropolitan areas across the United States.
Allegiance Telecom, Inc. and its subsidiaries are referred to herein as the
Company.
The Company's business plan is focused on offering services in 36 of the largest
metropolitan areas in the United States. As of December 31, 1999, the Company is
operational in 19 markets: Atlanta, Baltimore, Boston, Chicago, Dallas, Detroit,
Fort Worth, Houston, Long Island, Los Angeles, New York City, Northern New
Jersey, Oakland, Orange County, Philadelphia, San Diego, San Francisco, San Jose
and Washington, D.C.; and is in the process of deploying networks in two other
markets: Denver and St. Louis.
Until December 16, 1997, the Company was in the development stage. Since its
inception on April 22, 1997, through December 31, 1997, the Company's principal
activities included developing its business plans, procuring governmental
authorizations, raising capital, hiring management and other key personnel,
working on the design and development of its local exchange telephone networks
and operations support systems (OSS), acquiring equipment and facilities, and
negotiating interconnection agreements. Also, the Company initiated resale
services to customers in the Dallas market in December 1997. During 1998, the
Company began providing facilities-based services to customers in its markets.
The Company has concentrated its effort during 1999 and 1998 on deploying its
network throughout the markets it is currently operating in, as well as
developing future markets. Accordingly, the Company has incurred substantial
operating losses and substantial capital expenditures.
The Company's success will be affected by the problems, expenses and delays
encountered in connection with the formation of any new business, and the
competitive environment in which the Company intends to operate. The Company's
performance will further be affected by its ability to assess potential markets,
implement expanded interconnection and collocation with the facilities of
incumbent local exchange carriers (ILECs), lease adequate trunking capacity from
and otherwise develop efficient and effective working relationships with ILECs
and other carriers, obtain peering agreements with Internet service providers,
collect interexchange access charges, purchase and install switches in
additional markets, implement efficient OSS and other back office systems,
develop a sufficient customer base and attract, retain and motivate qualified
personnel. The Company's networks and the provisioning of telecommunications
services are subject to significant regulation at the federal, state and local
levels. Delays in receiving required regulatory approvals or the enactment of
new adverse regulation or regulatory requirements may have a material adverse
effect upon the Company. Although management believes that the Company will be
able to successfully mitigate these risks, there is no assurance that the
Company will be able to do so or that the Company will ever operate profitably.
Expenses are expected to exceed revenues in each market in which the Company
offers service until a sufficient customer base is established. It is
anticipated that obtaining a sufficient customer base will take several years,
and positive cash flows from operations are not expected in the near future.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
CONSOLIDATION--The accompanying financial statements include the accounts of
Allegiance Telecom, Inc. and its wholly owned subsidiaries. All significant
intercompany balances and transactions have been eliminated.
CASH AND CASH EQUIVALENTS--The Company includes as cash and cash equivalents,
cash, marketable securities and commercial paper with original maturities of
three months or less at the date of purchase.
<PAGE> 19
SHORT-TERM INVESTMENTS--Short-term investments consist primarily of commercial
paper with original maturities between three and 12 months at the date of
purchase. Such short-term investments are carried at their accreted value, which
approximates fair value.
RESTRICTED INVESTMENTS--Restricted investments consist primarily of U.S.
government securities purchased in connection with the issuance of the Company's
outstanding 12 7/8% Notes (see Note 6) to secure the first six scheduled
payments of interest on the 12 7/8% Notes. Such investments are stated at their
accreted value, which approximates fair value, and are classified as both
current and other noncurrent assets based upon the maturity dates of each of the
securities at the balance sheet date.
Restricted investments also include $900 and $787, at December 31, 1999 and
1998, respectively, in certificates of deposit held as collateral for letters of
credit issued on behalf of the Company.
PREPAID EXPENSES AND OTHER CURRENT ASSETS--Prepaid expenses and other current
assets consist of prepaid rent, prepaid insurance and refundable deposits.
Prepayments are expensed on a straight-line basis over the corresponding life of
the underlying agreements.
PROPERTY AND EQUIPMENT--Property and equipment includes network equipment,
leasehold improvements, software, office equipment, furniture and fixtures, and
construction-in-progress. These assets are stated at cost, which includes direct
costs and capitalized interest and are depreciated over their respective useful
lives using the straight-line method. During the years ended December 31, 1999
and 1998, $6,019 and $2,798, respectively, of interest expense was capitalized
related to construction-in-progress. No interest expense was capitalized during
the period ended December 31, 1997. Repair and maintenance costs are expensed as
incurred.
Property and equipment at December 31, 1999 and 1998, consist of the following:
<TABLE>
<CAPTION>
USEFUL LIVES
1999 1998 (IN YEARS)
--------- --------- ------------
<S> <C> <C> <C>
Network equipment $ 266,727 $ 67,304 5-7
Leasehold improvements 52,980 24,483 5-10
Software 26,169 7,840 3
Office equipment and other 11,073 4,384 2
Furniture and fixtures 6,061 2,420 5
--------- ---------
Property and equipment, in service 363,010 106,431
Less: Accumulated depreciation (58,113) (9,015)
--------- ---------
Property and equipment, in service, net 304,897 97,416
Construction-in-progress 72,516 47,444
--------- ---------
Property and equipment, net $ 377,413 $ 144,860
========= =========
</TABLE>
REVENUE RECOGNITION--Revenues for voice, data and other services to end users
are recognized in the month in which the service is provided. Revenues for
carrier interconnection and access are recognized in the month in which the
service is provided, except for reciprocal compensation generated by calls
placed to Internet service providers connected to the Company's network. The
ability of CLECs (such as the Company) to earn local reciprocal compensation
generated by calls placed to Internet service providers is the subject of
numerous regulatory and legal challenges. Until this issue is ultimately
resolved, the Company has adopted a policy of recognizing this revenue only when
realization is certain, which in most cases will be upon receipt of cash.
COMPREHENSIVE INCOME--In June 1997, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting Standards (SFAS) No. 130,
"Reporting Comprehensive Income" (SFAS 130). SFAS 130 established reporting and
disclosure requirements for comprehensive income and its components within the
financial statements. The Company's comprehensive income components were not
material as of December 31, 1999 and 1998, and the Company had no comprehensive
income components as of December 31, 1997. Therefore, comprehensive income/loss
is the same as net income/loss for all periods presented.
<PAGE> 20
STOCK SPLITS--In connection with its initial public offering of common stock
(IPO) on July 7, 1998, (see Note 7) the Company effected a 426.2953905-for-one
stock split and subsequent to December 31, 1999, the Company effected a
three-for-two stock split (see Note 12). All references to the number of common
shares and per share amounts have been restated to reflect both stock splits for
all periods presented. Treasury shares were not affected by the stock splits.
LOSS PER SHARE--The Company calculates net loss per share under the provisions
of SFAS No. 128, "Earnings per Share." The net loss applicable to common stock
includes the accretion of redeemable cumulative convertible preferred stock and
warrant values of $130 and $11,972 for the years ended December 31, 1999 and
1998, respectively, and $3,814 for the period from inception (April 22, 1997),
to December 31, 1997.
The securities listed below were not included in the computation of diluted loss
per share, as the effect from the conversion would be antidilutive.
<TABLE>
<CAPTION>
December 31,
------------------------------------
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Redeemable Cumulative Convertible Preferred Stock -- -- 40,498,062
Common stock warrants 413,318 973,872 --
1997 Nonqualified Stock Option Plan 1,086,341 1,340,309 282,663
1998 Stock Incentive Plan 6,394,661 593,653 --
Employee Stock Discount Purchase Plan 31,935 66,936 --
</TABLE>
RECOGNITION OF THE COST OF START-UP ACTIVITIES--On April 3, 1998, the American
Institute of Certified Public Accountants issued Statement of Position No. 98-5,
"Reporting on the Costs of Start-up Activities" (SOP 98-5). SOP 98-5 requires
start-up activities and organization costs to be expensed as incurred and that
start-up costs capitalized prior to the adoption of SOP 98-5 be reported as a
cumulative effect of a change in accounting principle. The Company adopted SOP
98-5 during the second quarter of 1998. Adoption of SOP 98-5 did not have an
effect on the Company, inasmuch as the Company had previously expensed all such
costs.
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES--In June 1998, the
FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities" (SFAS 133). SFAS 133 requires that all derivatives be recognized at
fair value as either assets or liabilities. SFAS 133 also requires an entity
that elects to apply hedge accounting to establish the method to be used in
assessing the effectiveness of the hedging derivatives and the measurement
approach for determining the ineffectiveness of the hedge at the inception of
the hedge. The methods chosen must be consistent with the entity's approach to
managing risk. The Company adopted SFAS 133 at the beginning of the fourth
quarter of 1998. Adoption of SFAS 133 did not have an effect on the Company, as
the Company has historically not invested in derivatives or participated in
hedging activities.
SEGMENT REPORTING--In June 1997, the FASB issued SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information" (SFAS 131). SFAS 131
establishes how public enterprise businesses determine operating segments and
the financial and descriptive information required to be disclosed relating to a
company's operating segments. The adoption of SFAS 131 has no material impact on
the Company's current disclosures of its one operating segment, providing
telecommunications services.
USE OF ESTIMATES IN FINANCIAL STATEMENTS--The preparation of financial
statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of expenses during
the reporting period. Actual results could differ from those estimates.
RECLASSIFICATIONS--Certain amounts in the prior period's consolidated financial
statements have been reclassified to conform with the current period
presentation.
<PAGE> 21
3. ACQUISITIONS:
During 1999, the Company acquired 100% of the outstanding stock of the Internet
service providers ConnectNet, Inc. and Kivex, Inc. and certain assets of
ConnecTen, L.L.C. for cash. Summary information regarding the acquisitions is as
follows:
<TABLE>
<CAPTION>
Business Name Acquisition Date Purchase Price
- ------------- ---------------- --------------
<S> <C> <C>
ConnecTen, L.L.C. April 1, 1999 $ 750
ConnectNet, Inc. April 28, 1999 2,500
Kivex, Inc. June 30, 1999 34,545
</TABLE>
Each of the acquisitions was accounted for using the purchase method of
accounting and, accordingly, the net assets and results of operations of the
acquired companies have been included in the Company's consolidated financial
statements since the acquisition dates. The purchase price of the acquisitions
was allocated to assets acquired, including intangible assets and liabilities
assumed, based on their respective fair values at the acquisition dates. The
Company's purchase price allocation of these acquisitions is preliminary and may
be adjusted as additional information is obtained.
The following presents the unaudited pro forma results of operations of the
Company for the periods ended December 31, 1999, 1998, and 1997, as if the
acquisition of Kivex, Inc. had been consummated at the beginning of each of the
periods presented. The pro forma results of operations are prepared for
comparative purposes only and do not necessarily reflect the results that would
have occurred had the acquisition occurred at the beginning of the periods
presented or the results which may occur in the future. The pro forma results of
operations for ConnecTen, L.L.C. and ConnectNet, Inc. are not included in this
table as the results would not have been material to the Company's results of
operations.
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- -----------
<S> <C> <C> <C>
Revenue $ 102,999 $ 13,300 $ 1,467
Net loss applicable to common stock (225,594) (277,580) (17,464)
Net loss per share, basic and diluted (2.49) (7.54) (27,330.20)
</TABLE>
4. OTHER ASSETS:
Other assets consisted of the following:
<TABLE>
<CAPTION>
December 31,
--------------------
1999 1998
-------- --------
<S> <C> <C>
Goodwill $ 34,211 $ --
Other acquired intangibles 5,705 --
Long-term deposits 2,143 1,373
Other 2,616 --
-------- --------
Total other assets 44,675 1,373
Less: Accumulated amortization (6,762) --
-------- --------
Other assets, net $ 37,913 $ 1,373
======== ========
</TABLE>
Goodwill and other acquired intangibles were obtained in connection with the
acquisitions made in 1999 (see Note 3). These assets are being amortized over
their estimated useful lives of three years using the straight-line method.
<PAGE> 22
5. ACCRUED LIABILITIES AND OTHER CURRENT LIABILITIES:
Accrued liabilities and other current liabilities consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1999 1998
---------- ----------
<S> <C> <C>
Accrued employee expenses $ 4,709 $ 1,387
Accrued access charges 7,896 988
Accrued taxes 3,823 1,935
Accrued interest 3,449 3,470
Other 8,991 17,067
---------- ----------
Accrued liabilities and other current liabilities $ 28,868 $ 24,847
========== ==========
</TABLE>
6. LONG-TERM DEBT:
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1999 1998
---------- ----------
<S> <C> <C>
Series B 113/4% Notes, face amount $445,000 due February 15, 2008;
effective interest rate of 12.21%; at accreted value $ 304,393 $ 270,526
12 7/8% Senior Notes, face amount $205,000 due May 15, 2008;
effective interest rate of 13.24%; at accreted value 201,259 201,019
Capital lease obligations 8,780 107
---------- ----------
Long-term debt $ 514,432 $ 471,652
========== ==========
</TABLE>
SERIES B 11 3/4% NOTES DUE 2008--On February 3, 1998, the Company raised gross
proceeds of approximately $250,477 in an offering of 445,000 Units (Unit
Offering), each of which consists of one 11 3/4% Senior Discount Note due 2008
of the Company (11 3/4% Notes) and one warrant to purchase 2.18847599262 shares
of Common Stock (Redeemable Warrants) at an exercise price of $.01 per share,
subject to certain antidilution provisions. Of the gross proceeds, $242,294 was
allocated to the 11 3/4% Notes and $8,184 was allocated to the Redeemable
Warrants. The Redeemable Warrants became exercisable in connection with the IPO
(see Note 7) in July 1998.
A registration statement on Form S-4 (File No. 333-49013) registering the
11 3/4% Notes, and offering to exchange (Exchange Offer) any and all of the
outstanding 11 3/4% Notes for Series B 11 3/4% Notes due 2008 (Series B Notes),
was declared effective by the Securities and Exchange Commission on May 22,
1998. The Exchange Offer terminated on June 23, 1998, after substantially all of
the outstanding 11 3/4% Notes were exchanged. The terms and conditions of the
Series B Notes are identical to those of the 11 3/4% Notes in all material
respects.
The Series B Notes have a principal amount at maturity of $445,000 and an
effective interest rate of 12.21%. The Series B Notes mature on February 15,
2008. From and after February 15, 2003, interest on the Series B Notes will be
payable semi-annually in cash at the rate of 11 3/4% per annum.
The Company is required to make an offer to purchase the Redeemable Warrants for
cash at the relevant value upon the occurrence of a repurchase event. A
repurchase event is defined to occur when (i) the Company consolidates with or
merges into another person if the common stock thereafter issuable upon exercise
of the Redeemable Warrants is not registered under the Securities Exchange Act
of 1934, as amended (Exchange Act) or (ii) the Company sells all or
substantially all of its assets to another person, if the common stock
thereafter issuable upon the exercise of the Redeemable Warrants is not
registered under the Exchange Act, unless the consideration for such a
transaction is cash. The relevant value is defined to be the fair market value
of the common stock as determined by the trading value of the securities if
publicly traded or at an estimated fair market value without giving effect to
any discount for lack of liquidity, lack of registered securities or the fact
that the securities represent a minority of the total shares outstanding.
<PAGE> 23
Through March 31, 1999, the Company was recognizing the potential future
redemption value of the Redeemable Warrants by recording accretion of the
Redeemable Warrants to their estimated fair market value at February 3, 2008,
using the effective interest method. Accretion recorded in the three months
ended March 31, 1999, and year ended December 31, 1998, was $130 and $451,
respectively.
Effective April 1, 1999, the Company determined that accreting the Redeemable
Warrants to a future potential redemption value was no longer applicable, as the
redemption of the Redeemable Warrants for cash is no longer beyond the control
of the Company, and the redemption date and amount are not reasonably
determinable. Accordingly, the accreted value of the Redeemable Warrants at
April 1, 1999, was reclassified to stockholders' equity as common stock warrants
(Warrants), and no further accretion will be recorded.
If a repurchase event occurs in the future or becomes probable, the Company will
adjust the Warrants to the estimated redemption value at that time. The Series B
Notes are redeemable by the Company, in whole or in part, anytime on or after
February 15, 2003, at 105.875% of their principal amount at maturity, plus
accrued and unpaid interest, declining to 100% of their principal amount at
maturity, plus accrued and unpaid interest on and after February 15, 2006. In
addition, at any time prior to February 15, 2001, the Company may, at its
option, redeem up to 35% of the principal amount at maturity of the Series B
Notes in connection with one or more public equity offerings at 111.750% of the
accreted value on the redemption date, provided that at least $289,250 aggregate
principal amount at maturity of the Series B Notes remains outstanding after
such redemption.
12 7/8% SENIOR NOTES DUE 2008--On July 7, 1998, the Company raised approximately
$200,919 of gross proceeds from the sale of its 12 7/8% Senior Notes due 2008
(12 7/8% Notes) of which approximately $69,033 was used to purchase U.S.
government securities, which were placed in a pledged account to secure and fund
the first six scheduled payments of interest on the notes (see Note 2).
The 12 7/8% Notes have a principal amount at maturity of $205,000 and an
effective interest rate of 13.24%. The 12 7/8% Notes mature on May 15, 2008.
Interest on the 12 7/8% Notes is payable semi-annually in cash at the rate of
12 7/8% on May 15 and November 15 of each year. As of December 31, 1999 and
1998, the Company has recorded accrued interest associated with the 12 7/8%
Notes of $3,299 and $3,470, respectively, which is included in other current
liabilities.
The 12 7/8% Notes are redeemable by the Company, in whole or in part, at any
time on or after May 15, 2003, at 106.438% of their principal amount, declining
to 100% of their principal amount, plus accrued interest, on or after May 15,
2006. In addition, prior to May 15, 2001, the Company may redeem up to 35% of
the aggregate principal amount of the 12 7/8% Notes with the proceeds of one or
more public offerings (as defined in the indenture relating to the 12 7/8%
Notes) at 112.875% of their principal amount, plus accrued interest, provided,
however, that after any such redemption at least 65% of the aggregate principal
amount of the 12 7/8% Notes originally issued remain outstanding.
Upon a change of control, the Company is required to make an offer to purchase
the 12 7/8% Notes at a purchase price of 101% of the principal amount thereof,
together with accrued interest, if any.
$225 MILLION REVOLVING CREDIT FACILITY--On April 1, 1999, the Company completed
a $225 million senior secured revolving credit facility maturing December 31,
2005 (Revolving Credit Facility). Availability under the Revolving Credit
Facility is subject to satisfaction of certain terms and conditions. The
Revolving Credit Facility is intended to provide purchase money financing for
the acquisition, construction and improvement of telecommunications assets.
Initial borrowings under the Revolving Credit Facility will not be available
until certain financial and operating objectives are met. Further borrowings
will only be available to the extent certain further objectives are met and
certain other financial ratios and covenants are maintained.
The Revolving Credit Facility is secured by substantially all of the Company's
assets. Interest rates under the Revolving Credit Facility are determined based
upon the level of long-term debt compared to consolidated EBITDA (earnings
before interest, income taxes, depreciation and amortization, management
ownership allocation charge and deferred compensation) and are initially
expected to be the London Interbank Offered Rate (LIBOR), plus 3.75%. The
quarterly commitment fee is a maximum 1.50% of the total average daily unused
portion of the Revolving Credit Facility the preceding quarter, with step-downs
based on utilization.
<PAGE> 24
A net deferred debt issuance cost of $7,170 related to the Revolving Credit
Facility is included in the consolidated balance sheet at December 31, 1999.
This cost will be expensed upon termination of the Revolving Credit Facility
(see below).
The Company has made no borrowings under the Credit Facility as of December 31,
1999.
$500 MILLION CREDIT FACILITY--In February 2000, the Company completed $500
million of senior secured credit facilities (Credit Facilities), which replace
the Revolving Credit Facility. The Credit Facilities consist of a $350 million
seven-year revolving credit facility and a $150 million two-year delayed draw
term loan facility. The Credit Facilities will be available, subject to
satisfaction of certain terms and conditions, to provide purchase money
financing for network build-out, including the cost to develop, acquire and
integrate the necessary operations support and back office systems, as well as
for additional dark fiber purchases and central office collocations. Interest on
amounts drawn is variable based on the Company's leverage ratio and is initially
expected to be LIBOR plus 3.25%. The initial commitment fee on the unused
portion of the Credit Facilities will be 1.5% and will step down based upon
usage.
The Revolving Credit Facility, the Series B Notes and the 12 7/8% Notes carry
certain restrictive covenants that, among other things, limit the ability of the
Company to incur indebtedness, create liens, engage in sale-leaseback
transactions, pay dividends or make distributions in respect of their capital
stock, redeem capital stock, make investments or certain other restricted
payments, sell assets, issue or sell stock of certain subsidiaries, engage in
transactions with stockholders or affiliates, effect a consolidation or merger
and require the Company to maintain certain operating and financial performance
measures. However, these limitations are subject to a number of qualifications
and exemptions (as defined in the indentures relating to each series of notes
and the credit agreement relating to the Revolving Credit Facility). The Company
was in compliance with all such restrictive covenants at December 31, 1999.
CAPITAL LEASE OBLIGATIONS--On May 29, 1998, the Company entered into a capital
lease agreement for optical fiber rings, with an initial term of ten years at a
total cost of $3,485. During 1998, the Company paid $871 under the agreement.
The remainder of the obligation will be paid in 2000 and is not reflected in the
financial statements, since the remaining payment is contingent upon the timing
of completion of network segments.
On December 4, 1998, the Company entered into a capital lease agreement for 12
optical fibers configured in two separate rings, with an initial term of 15
years. Total costs associated with the capital lease were dependent upon the
timing of completion of connectivity of the optical fibers with the Company's
network, which was completed in two phases. The Company incurred recurring
monthly charges of $29 after the completion of phase one. After completion of
phase two, the Company paid a one-time fee of $77 and the recurring monthly
charge increased to $77. A capital lease obligation of $7,421 is recorded in the
financial statements at December 31, 1999. This capital lease was not reflected
in the financial statements as of December 31, 1998, since the total cost and
timing of payments were contingent upon the timing of completion of the phases.
On June 8, 1999, the Company signed a capital lease agreement for 12 dedicated
optical fibers, with an initial term of 15 years. Total costs associated with
the capital lease are dependent upon the timing of completion of connectivity of
the optical fibers with the Company's network, which is to be completed in two
phases. The Company will incur recurring monthly charges of $5 per fiber until
acceptance of all fibers. Upon acceptance of all fibers, the Company will pay a
recurring monthly charge of $55. A capital lease obligation of $600 is included
in the financial statements at December 31, 1999. This obligation represents the
present value of future minimum lease payments related only to the fibers
accepted to date. The remaining fibers are not reflected in the financial
statements as of December 31, 1999, since the total cost and timing of payments
is contingent upon the timing of completion of connectivity of the fibers.
On December 30, 1999, the Company signed a capital lease agreement for optical
fiber capacity in 12 of the U.S. markets served by the Company, with an initial
term of 20 years. Total cost associated with the capital lease is dependent upon
the timing of completion of connectivity of the optical fibers with the
Company's network, which is to be completed as 11 product orders. The Company
will incur variable monthly charges contingent on the number of fibers accepted.
Upon acceptance of all fibers, the Company will pay a recurring monthly charge
of $538. A separate capital lease obligation will be recognized for each product
order upon its respective commencement date. The first order is scheduled to
commence in April 2000.
On December 30, 1999, the Company signed a capital lease agreement for use of a
fiber optic communications system in various metropolitan areas, for an initial
term of 20 years. An initial payment to pre-fund design, planning and
engineering of $4,949 will be made in January 2000. Upon acceptance of each
segment, the Company will pay a scheduled fee and will not incur any monthly
recurring charges thereafter. Total remaining fees under this lease are
approximately $15 million.
<PAGE> 25
At December 31, 1999, future obligations related to capital leases reflected in
these consolidated financial statements, and included in long-term debt, are as
follows:
<TABLE>
<S> <C>
2000 $ 2,960
2001 2,114
2002 1,007
2003 973
2004 and thereafter 10,252
------------
Total minimum lease payments 17,306
Amounts representing interest (6,495)
------------
Present value of minimum lease payments 10,811
Current Portion (2,031)
------------
Long-term capital lease obligations $ 8,780
============
</TABLE>
The current portion of capital lease obligations of $2,031 is included in
accrued liabilities at December 31, 1999.
7. CAPITALIZATION:
STOCK PURCHASE AGREEMENT AND SECURITYHOLDERS AGREEMENT--On August 13, 1997, the
Company entered into a stock purchase agreement with Allegiance Telecom, L.L.C.
(Allegiance LLC) (see Note 8). Allegiance LLC purchased 40,498,062 shares of 12%
redeemable cumulative convertible preferred stock (Redeemable Preferred Stock),
par value $.01 per share, for aggregate consideration of $5,000. Allegiance LLC
agreed to make additional contributions as necessary to fund expansion into new
markets (Subsequent Closings). In order to obtain funds through Subsequent
Closings, the Company submitted a proposal to Allegiance LLC detailing the funds
necessary to build out the Company's business in a new market. Allegiance LLC
was not required to make any contributions until it approved the proposal. The
maximum commitment of Allegiance LLC was $100,000. No capital contributions were
required to be made after the Company consummated an initial public offering of
its stock (which occurred on July 7, 1998).
Allegiance LLC contributed a total of $50,133 prior to the Company's IPO. Each
security holder in Allegiance LLC had the right to require Allegiance LLC to
repurchase all of the outstanding securities held by such security holder at the
greater of the original cost (including interest at 12% per annum) for such
security or the fair market value, as defined in the securityholders agreement,
at any time and from time to time after August 13, 2004, but not after the
consummation of a public offering or sale of the Company. If repurchase
provisions had been exercised, the Company had agreed, at the request and
direction of Allegiance LLC, to take any and all actions necessary, including
declaring and paying dividends and repurchasing preferred or common stock, to
enable Allegiance LLC to satisfy its repurchase obligations.
Because of the redemption provisions, the Company recognized the accretion of
the value of the Redeemable Preferred Stock to reflect management's estimate of
the potential future fair market value of the Redeemable Preferred Stock payable
in the event the repurchase provisions were exercised. Amounts were accreted
using the effective interest method assuming the Redeemable Preferred Stock was
redeemed at a redemption price based on the estimated potential future fair
market value of the equity of the Company in August 2004. The accretion was
recorded each period prior to the IPO as an increase in the balance of
Redeemable Preferred Stock outstanding and a noncash increase in the net loss
applicable to common stock.
REDEEMABLE CUMULATIVE CONVERTIBLE PREFERRED STOCK--In connection with the IPO,
the Redeemable Preferred Stock was converted into the Company's common stock
(Common Stock), on a one-for-one basis, subject to certain antidilution
provisions, and the amounts accreted were reclassified as a component of
additional paid-in capital. In addition, the redemption provisions and the
obligation of Allegiance LLC to make additional contributions to the Company
(and the obligation of the members of Allegiance LLC to make capital
contributions) have terminated. No dividends were declared in 1998 or 1997.
In 1998, prior to the conversion of the Redeemable Preferred Stock, the Company
recorded accretion of $11,521. Accretion recorded in the period ended December
31, 1997, was $3,814.
<PAGE> 26
Capital contributed in the Subsequent Closings occurring in October 1997 and
January 1998 and other capital contributions totaled approximately $45,133.
In February and March 1998, the Company issued 273,362 shares of Redeemable
Preferred Stock for aggregate consideration of $337.
In connection with the consummation of the IPO, the outstanding shares of the
Redeemable Preferred Stock were converted into 60,511,692 shares of Common
Stock. Upon the conversion of the Redeemable Preferred Stock, the obligation of
the Company to redeem the Redeemable Preferred Stock also terminated and,
therefore, the accretion of the Redeemable Preferred Stock value recorded to the
date of the IPO, $15,335 was reclassified to additional paid-in capital along
with $50,470 proceeds from the issuance of the Redeemable Preferred Stock and
redeemable capital contributions.
PREFERRED STOCK--In connection with the IPO, the Company authorized 1,000,000
shares of preferred stock (Preferred Stock) with a $.01 par value. At December
31, 1999 and 1998, no shares of Preferred Stock were issued and outstanding.
COMMON STOCK--On July 7, 1998, the Company raised $150,000 of gross proceeds in
the Company's IPO. The Company sold 15,000,000 shares of its Common Stock at a
price of $10 per share. In connection with the IPO, the outstanding shares of
Redeemable Preferred Stock were converted into 60,511,692 shares of Common Stock
and the Company increased the number of authorized Common Stock to 150,000,000.
In April 1999, the Company received $533,041 of gross proceeds from the sale of
the Company's Common Stock (Secondary Equity Offering). The Company sold
21,041,100 shares at a price of $25.33 per share. Net proceeds from the
Secondary Equity Offering were $510,618.
At December 31, 1999 and 1998, 97,459,677 and 75,512,331 shares were issued and
97,421,709 and 75,512,331 were outstanding, respectively. Of the authorized but
unissued Common Stock, 19,902,712 and 10,498,455 shares were reserved for
issuance upon exercise of options issued under the Company's stock option, stock
incentive and stock purchase plans (see Note 11) and 413,370 and 973,872 shares
were reserved for issuance, sale and delivery upon the exercise of warrants (see
Note 6) at December 31, 1999 and 1998, respectively.
WARRANTS--During 1999, 256,139 Warrants, formerly referred to as Redeemable
Warrants (see Note 6), were exercised to purchase 560,502 shares of Common
Stock. Fractional shares are not issued, cash payments are made in lieu thereof,
according to the terms of the Warrant Agreement. At December 31, 1999 and 1998,
188,861 and 445,000 Warrants, respectively, were outstanding. The Warrants will
expire on February 3, 2008.
DEFERRED COMPENSATION--During 1998 and 1997, certain management investors
(Management Investors) acquired membership units of Allegiance LLC at amounts
less than the estimated fair market value of the membership units, consequently,
the Company recognized deferred compensation of $10,090 and $978 at December 31,
1998 and 1997, respectively, of which $2,767, $2,726, and $41 has been amortized
to expense at December 31, 1999, 1998, and 1997, respectively. In connection
with the IPO, the Redeemable Preferred Stock was converted into Common Stock and
Allegiance LLC was dissolved. The deferred compensation charge is amortized
based upon the period over which the Company has the right to repurchase certain
of the securities (at the lower of fair market value or the price paid by the
employee) in the event the Management Investor's employment with the Company is
terminated. Deferred compensation also includes stock options granted at an
exercise price less than market value (see Note 11).
DEFERRED MANAGEMENT OWNERSHIP ALLOCATION CHARGE--On July 7, 1998, in connection
with the IPO, certain venture capital investors (Fund Investors) and certain
Management Investors owned 95.0% and 5.0%, respectively, of the ownership
interests of Allegiance LLC, which owned substantially all of the Company's
outstanding capital stock. As a result of the successful IPO, Allegiance LLC was
dissolved and its assets (which consisted almost entirely of such capital stock)
were distributed to the Fund Investors and Management Investors in accordance
with the Allegiance LLC's Limited Liability Company Agreement (LLC Agreement).
The LLC Agreement provided that the equity allocation between the Fund Investors
and the Management Investors be 66.7% and 33.3%, respectively, based upon the
valuation implied by the IPO. The Company recorded the increase in the value of
the assets of Allegiance LLC allocated to the Management Investors as a $193,537
increase in additional paid-in capital, of which $122,476 was recorded as a
noncash, nonrecurring charge to operating expenses and $71,061 was recorded as a
deferred management ownership allocation charge. The deferred charge was
amortized at $18,789 and $44,836 as of December 31, 1999 and 1998, and will be
further amortized at $6,615, and $175 during the years 2000 and 2001,
respectively, which is the period over which the Company has the right to
repurchase certain of the securities (at the lower of fair market value or the
price paid by the employee) in the event the Management Investor's employment
with the Company is terminated. During 1999, the Company repurchased 25,312
shares from terminated Management Investors. A remaining deferred charge of $646
related to these shares was reversed to additional paid-in-capital upon the
repurchase of the shares.
<PAGE> 27
8. RELATED PARTIES:
From inception (April 22, 1997), through July 7, 1998, the Company was a wholly
owned subsidiary of Allegiance LLC. On July 7, 1998, the Fund Investors in
Allegiance LLC and the Management Investors in Allegiance LLC owned 95.0% and
5.0%, respectively, of the ownership interest of Allegiance LLC, which owned
substantially all of the Company's outstanding capital stock. As a result of the
successful IPO (see Note 7), Allegiance LLC was dissolved and its assets (which
consisted almost entirely of such capital stock) were distributed to the Fund
Investors and the Management Investors in accordance with the LLC Agreement.
As of July 7, 1998, Allegiance LLC had made aggregate capital contributions to
the Company of approximately $50,133.
During 1998, in connection with the Unit Offering (see Note 6), the IPO (see
Note 7) and the 12 7/8% Notes (see Note 6), the Company incurred approximately
$11,332 in fees to an affiliate of an investor in the Company.
During 1999, in connection with the Revolving Credit Facility (see Note 6) and
the Secondary Equity Offering (see Note 7), the Company incurred approximately
$1,032 and $3,898, respectively in fees to an affiliate of an investor in the
Company.
9. COMMITMENTS AND CONTINGENCIES:
The Company has entered into various operating lease agreements, with
expirations through 2009, for network facilities, office space and equipment.
Future minimum lease obligations related to the Company's operating leases as of
December 31, 1999, are as follows:
<TABLE>
<S> <C>
2000 $ 22,393
2001 20,495
2002 16,370
2003 14,218
2004 9,082
Thereafter 31,649
</TABLE>
Total rent expense for the years ended December 31, 1999 and 1998, was $10,948
and $2,992 and for the period from inception (April 22, 1997), to December 31,
1997, was $212.
In October 1997, the Company entered into an agreement with Lucent Technologies,
Inc., including a three-year exclusivity commitment for the purchase of Class 3,
4, 5 central office switching equipment and related software. The agreement
contains no minimum purchase requirements.
10. FEDERAL INCOME TAXES:
The Company accounts for income tax under the provisions of SFAS No. 109,
"Accounting for Income Taxes" (SFAS 109). SFAS 109 requires an asset and
liability approach which requires the recognition of deferred tax assets and
liabilities for the expected future tax consequences of events which have been
recognized in the Company's financial statements. The Company had approximately
$222,753 and $53,573 of net operating loss carryforwards for federal income tax
purposes at December 31, 1999 and 1998, respectively. The net operating loss
carryforwards will begin to expire in the years 2012 and 2019 if not previously
utilized. The Company has recorded a valuation allowance equal to the net
deferred tax assets at December 31, 1999 and 1998, due to the uncertainty of
future operating results. The valuation allowance will be reduced at such time
as management is able to determine that the realization of the deferred tax
assets is more likely than not to occur. Any reductions in the valuation
allowance will reduce future provisions for income tax expense.
<PAGE> 28
The Company's deferred tax assets and liabilities and the changes in those
assets are:
<TABLE>
<CAPTION>
1998 CHANGE 1999
-------- -------- --------
<S> <C> <C> <C>
Start-up costs capitalized for tax purposes $ 812 $ (298) $ 514
Net operating loss carryforward 18,215 57,521 75,736
Amortization of original issue discount 9,664 8,170 17,834
Depreciation (2,393) (7,860) (10,253)
Allowance for doubtful accounts -- 2,652 2,652
Accrued liabilities -- 1,767 1,767
Valuation allowance (26,298) (61,952) (88,250)
-------- -------- --------
$ -- $ -- $ --
======== ======== ========
</TABLE>
Amortization of the original issue discount on the Series B Notes and 12 7/8%
Notes as interest expense is not deductible in the income tax return until paid.
Amortization of goodwill is not deductible in the income tax return; therefore,
the effective income tax rate differs from the statutory rate.
Under existing income tax law, all operating expenses incurred prior to a
company commencing its principal operations are capitalized and amortized over a
five-year period for tax purposes.
11. STOCK OPTION/STOCK INCENTIVE/STOCK PURCHASE PLANS:
At December 31, 1999, the Company had three stock-based compensation plans, the
1997 Nonqualified Stock Option Plan (1997 Option Plan), the 1998 Stock Incentive
Plan and the Employee Stock Discount Purchase Plan (Stock Purchase Plan). The
Company applies the provisions of Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" and the related interpretations in
accounting for the Company's plans. Had compensation cost for the Company's
plans been determined based on the fair value of the options as of the grant
dates for awards under the plans consistent with the method prescribed in SFAS
No. 123, "Accounting for Stock-Based Compensation," the Company's net loss
applicable to common stock and net loss per share would have increased to the
pro forma amounts indicated below. The Company utilized the following
assumptions in calculating the estimated fair value of each option on the date
of grant using the Black-Scholes option-pricing model with the following
weighted-average assumptions for grants:
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Dividend yield --% --% --%
Expected volatility 83.4% 89.1% 89.1%
Expected life 3.5 6.0 6.0
Risk-free interest rate:
1997 Option Plan 5.70% 5.63% 6.06%
1998 Stock Incentive Plan 5.70% 4.70% --%
</TABLE>
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Net loss applicable to common stock--as reported $ (214,868) $ (258,460) $ (7,502)
Net loss applicable to common stock--pro forma (228,839) (259,797) (7,512)
Net loss per share, basic and diluted--as reported (2.37) (7.02) (11,740.22)
Net loss per share, basic and diluted--pro forma (2.52) (7.05) (11,755.87)
</TABLE>
As the 1998 Stock Incentive Plan and the Stock Purchase Plan were adopted in
1998, the December 31, 1997 pro forma balances do not include expenses for these
plans.
<PAGE> 29
1997 OPTION PLAN AND 1998 STOCK INCENTIVE PLAN--Under the 1997 Option Plan, the
Company granted options to key employees, a director and a consultant of the
Company for an aggregate of 1,580,285 shares of Common Stock. The Company will
not grant options for any additional shares under the 1997 Option Plan.
Under the 1998 Stock Incentive Plan, the Company may grant options to certain
employees, directors, advisors and consultants of the Company. The 1998 Stock
Incentive Plan provides for issuance of the following types of incentive awards:
stock options, stock appreciation rights, restricted stock, performance grants
and other types of awards that the Compensation Committee of the Board of
Directors (Compensation Committee) deems consistent with the purposes of the
1998 Stock Incentive Plan. The Company has 15,191,126 shares of Common Stock
reserved for issuance under the 1998 Stock Incentive Plan at December 31, 1999.
Options granted under both plans have a term of six years and vest over a
three-year period and the Compensation Committee administers both option plans.
A summary of the status of the 1997 Option Plan as of December 31, 1999, 1998,
and 1997 is presented in the table below:
<TABLE>
<CAPTION>
DECEMBER 31, 1999 DECEMBER 31, 1998 DECEMBER 31, 1997
-------------------------- -------------------------- -------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE SHARES EXERCISE PRICE
------------ -------------- ------------ -------------- ---------- --------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of period 1,340,309 $ 1.82 282,663 $ 1.65 -- $ --
Granted -- -- 1,297,622 1.84 282,663 1.65
Exercised (157,629) 1.84 -- -- -- --
Forfeited (96,339) 2.15 (239,976) 1.73 -- --
------------ ------------ ----------
Outstanding, end of period 1,086,341 1.80 1,340,309 1.82 282,663 1.65
------------ ------------ ----------
Options exercisable at period-end 521,343 66,722 --
============ ============ ==========
Weighted average fair value of options granted -- $ 1.88 $ 0.45
============ ============ ==========
</TABLE>
The following table sets forth the range of exercise prices and weighted average
remaining contractual life at December 31, 1999 under the 1997 Option Plan:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------------------------------------------------- ---------------------------
WEIGHTED WEIGHTED WEIGHTED
NUMBER AVERAGE AVERAGE NUMBER AVERAGE
EXERCISE PRICE OF SHARES CONTRACTUAL LIFE EXERCISE PRICE OF SHARES EXERCISE PRICE
-------------- --------- ---------------- -------------- --------- --------------
<S> <C> <C> <C> <C> <C>
$ 1.65 850,049 4.1 $ 1.65 417,847 $ 1.65
2.31 236,292 4.3 2.31 103,496 2.31
--------- -------
1,086,341 521,343
========= =======
</TABLE>
<PAGE> 30
A summary of the status of the 1998 Stock Incentive Plan as of December 31, 1999
and 1998 is presented in the table below:
<TABLE>
<CAPTION>
DECEMBER 31, 1999 DECEMBER 31, 1998
-------------------------- --------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE
---------- -------------- ---------- --------------
<S> <C> <C> <C> <C>
Outstanding, beginning of period 593,653 $ 6.79 -- $ --
Granted 6,655,785 28.18 649,971 6.81
Exercised (42,541) 6.47 -- --
Forfeited (812,236) 24.68 (56,318) 6.98
---------- ----------
Outstanding, end of period 6,394,661 26.78 593,653 6.79
---------- ----------
Options exercisable at period-end 133,330 --
========== ==========
Weighted average fair value of options granted $ 20.71 $ 6.81
========== ==========
</TABLE>
The following table sets forth the exercise prices and weighted average
remaining contractual life at December 31, 1999 under the 1998 Stock Incentive
Plan:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- ------------------------------------------------------------- -----------------------------
WEIGHTED WEIGHTED WEIGHTED
EXERCISE NUMBER AVERAGE AVERAGE NUMBER AVERAGE
PRICE OF SHARES CONTRACTUAL LIFE EXERCISE PRICE OF SHARES EXERCISE PRICE
- ------------- ------------- ---------------- -------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
$ 0.67 495,000 5.1 $ 0.67 -- $ --
5.58 309,948 5.8 5.58 73,816 5.58
8.08 337,250 5.0 8.08 -- --
9.17 150,805 4.5 9.17 59,514 9.17
16.67 886,490 5.3 16.67 -- --
35.08 3,274,696 5.8 35.08 -- --
36.58 865,472 5.5 36.58 -- --
50.00 75,000 5.9 50.00 -- --
============= =============
6,394,661 133,330
============= =============
</TABLE>
As the estimated fair market value of the Company's Common Stock (as implied by
the IPO price) exceeded the exercise price of the options granted, the Company
recognized deferred compensation of $7,635 and $2,031 at December 31, 1998 and
1997, respectively, of which $3,004, $2,581, and $169 has been amortized to
expense at December 31, 1999, 1998, and 1997, respectively, over the vesting
period of the options. In 1998, the Company reversed $599 of unamortized
deferred compensation related to options forfeited.
In February 1999, the Company granted employee stock options under the 1998
Stock Incentive Plan with an exercise price below market value at the date of
grant. A deferred compensation charge of $6,807 was recognized, and $2,080 has
been amortized to expense at December 31, 1999.
<PAGE> 31
STOCK PURCHASE PLAN--The Company's Stock Purchase Plan is intended to give
employees a convenient means of purchasing shares of Common Stock through
payroll deductions. Each participating employee's contributions will be used to
purchase shares for the employee's share account as promptly as practicable
after each calendar quarter. The cost per share will be 85% of the lower of the
closing price of the Company's Common Stock on the Nasdaq National Market on the
first or the last day of the calendar quarter. The Company has 3,313,004 shares
of Common Stock reserved for issuance under the Stock Purchase Plan at December
31, 1999. As of December 31, 1998, no shares had been issued under the Stock
Purchase Plan. During 1999, 145,574 shares were issued under the Stock Purchase
Plan for proceeds of $1,468. As of December 31, 1999, participants have
contributed $1,053, which will be used to purchase 31,935 shares in January
2000. The Compensation Committee administers the Stock Purchase Plan.
12. SUBSEQUENT EVENTS:
EQUITY OFFERING--On February 2, 2000, the Company raised $693,000 of gross
proceeds from the sale of the Company's Common Stock. The Company sold 9,900,000
shares at a price of $70 per share. Net proceeds from this offering were
$667,062. On February 29, 2000, the underwriters of this offering exercised an
option to purchase an additional 803,109 shares of Common Stock, providing an
additional $56,218 gross proceeds and $54,113 net proceeds to the Company.
STOCK SPLIT--On February 28, 2000, a three-for-two stock split of the Company's
Common Stock was effected in the form of a 50% stock dividend to shareholders of
record on February 18, 2000. Par value will remain unchanged at $.01 per share.
All references to the number of common shares and per share amounts have been
restated to reflect the stock split for all periods presented.
$500 MILLION CREDIT FACILITY--In February 2000, the Company completed the Credit
Facilities consisting of a $350 million seven-year revolving credit facility and
a $150 million two-year delayed draw term loan facility (see Note 6). The Credit
Facilities replace the Revolving Credit Facility available at December 31, 1999.
<PAGE> 1
EXHIBIT 21.1
<TABLE>
<CAPTION>
SUBSIDIARIES STATE OF INCORPORATION
------------ ----------------------
<S> <C>
Allegiance Telecom Company Worldwide Delaware
Allegiance Telecom International, Inc. Delaware
Allegiance Telecom Service Corporation Delaware
Internet Allegiance, Inc. Delaware
Allegiance Telecom of Arizona, Inc. Delaware
Allegiance Telecom of California, Inc. Delaware
Allegiance Telecom of Colorado, Inc. Delaware
Allegiance Telecom of the District of Columbia, Inc. Delaware
Allegiance Telecom of Florida, Inc. Delaware
Allegiance Telecom of Georgia, Inc. Delaware
Allegiance Telecom of Illinois, Inc. Delaware
Allegiance Telecom of Indiana, Inc. Delaware
Allegiance Telecom of Maryland, Inc. Delaware
Allegiance Telecom of Massachusetts, Inc. Delaware
Allegiance Telecom of Michigan, Inc. Delaware
Allegiance Telecom of Minnesota, Inc. Delaware
Allegiance Telecom of Missouri, Inc. Delaware
Allegiance Telecom of New Jersey, Inc. Delaware
Allegiance Telecom of New York, Inc. Delaware
Allegiance Telecom of North Carolina, Inc. Delaware
Allegiance Telecom of Ohio, Inc. Delaware
Allegiance Telecom of Pennsylvania, Inc. Delaware
Allegiance Telecom of Texas, Inc. Delaware
Allegiance Telecom of Virginia, Inc. Virginia
Allegiance Telecom of Washington, Inc. Delaware
Kivex, Inc. Delaware
ConnectNet, Inc. Texas
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this Form 10-K of our report dated January 26, 2000, except with
respect to the matters discussed in Note 12, as to which the date is March 1,
2000, into the Company's previously filed Registration Statements on Form S-8
File Nos. 333-70769 and 333-73453 and Form S-3 File Nos. 333-94021, 333-74771,
and 333-69543. It should be noted that we have not audited any financial
statements of the Company subsequent to December 31, 1999 or performed any
audit procedures subsequent to the date of our report, except with respect to
the matters discussed in Note 12.
ARTHUR ANDERSEN LLP
Dallas, Texas
March 29, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET AT DECEMBER 31, 1999 AND FROM THE
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED
DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
CONSOLIDATED FINANCIAL STATEMENT.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 502,234
<SECURITIES> 23,783
<RECEIVABLES> 38,144
<ALLOWANCES> 7,800
<INVENTORY> 0
<CURRENT-ASSETS> 583,649
<PP&E> 435,526
<DEPRECIATION> 58,113
<TOTAL-ASSETS> 1,033,875
<CURRENT-LIABILITIES> 73,673
<BONDS> 505,652
0
0
<COMMON> 975
<OTHER-SE> 442,641
<TOTAL-LIABILITY-AND-EQUITY> 1,033,875
<SALES> 0
<TOTAL-REVENUES> 99,061
<CGS> 0
<TOTAL-COSTS> 62,542
<OTHER-EXPENSES> 82,462
<LOSS-PROVISION> 7,397
<INTEREST-EXPENSE> 59,404
<INCOME-PRETAX> (214,868)
<INCOME-TAX> 0
<INCOME-CONTINUING> (214,868)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (214,868)
<EPS-BASIC> (2.37)
<EPS-DILUTED> (2.37)
</TABLE>
